HK’s Jockey Club debuts direct strategy with Millennium and Och Ziff

April 03, 2014  

The Hong Kong Jockey Club, which is Hong Kong’s only authorised operator of horse racing and regulated football betting, is the latest institutional investor to enter the direct hedge fund investing arena. The Jockey Club, whose entire investment portfolio totalled $9 billion as at February 2014, recently added the multi-strategy funds of $21.8 billion Millennium Management and $42.7 billion Och-Ziff Capital Management. Sources said that there is room in the portfolio to add more direct managers in the future. 
The rationale for multi-strategy managers for the Club’s first foray into direct investing was the fact that there is no extra layer of fees and the managers are more nimble and able to deploy capital as opportunities present themselves. Offsetting was also considered an advantage that is not available under the FoHF approach. 

The Jockey Club is the single largest tax payer in Hong Kong and it uses the improved performance from its investment portfolio to support various community projects such as health, education, sports and other social projects. On average, the Hong Kong Jockey Club pledges $250 million a year to these endeavours.
The move signifies a shift in paradigm for the Club, which was founded in 1884, as it moves away from funds of funds to investing directly with managers 12 years after the inception of its hedge fund programme in 2002. Millennium and Och-Ziff were awarded the mandates after the Club conducted extensive due diligence on a six strong short list of candidates towards the end of 2013. While the Hong Kong Jockey Club subscribes to the Albourne Partners’ database, it carried out the due diligence itself. 
The original decision to move into hedge funds took two years of intense study, resulting in the Club’s first two FoHF managers, BlackRock Alternative Advisors and Mesirow Advanced Strategies. The two firms, hired from a long list of 10, invested with a broad spectrum of managers except global macro with an initial allocation of $50 million. Today, based on the Club's latest published financial statement, it has close to $1 billion investments in alternatives, the bulk of which is believed to be in hedge funds.

Whilst the two funds of funds that started in 2002 are still managing money for the Hong Kong Jockey Club, their mandates have been customised after the global financial crisis to take advantage of the premium offered by some of the less liquid credit strategies. 

Later on, Blackstone Alternative Asset Management and Goldman Sachs Asset Management were understood to have been added also on a customised mandate basis similar to BlackRock and Mesirow and it understood that global macro has been included as part of some of their mandates.

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