Ex-AIG Manager to Launch Hedge Fund

The fund, AlphaOne Partners Fund Inc., is expected to begin operations Dec. 3. Minimum investment will be 150,000 Canadian dollars ($154,000), and the managers plan to cap the fund at 100 million Canadian dollars ($102 million). So far, the managers have lined up about 20 million Canadian dollars ($20.5 million), Palmer told Dow Jones.

The fund will be "long-biased," but will have the ability to take short positions. An investor who shorts a stock makes money when the stock declines. The fund will invest in about 30-40 small-cap companies, the bulk of which will be Canadian. The maximum weighting of any one holding can't exceed 15 percent of the fund's total assets and no more than 50 percent of the fund can be invested in illiquid securities.

AlphaOne will use the 2 percent and 20 percent fee structure common to many hedge funds. That means a 2 percent management fee with 20 percent of all profits accruing to the managers. Unlike many hedge funds, the performance fee will be paid in fund units, Jones said, adding that he and Javier are investing a "substantial" amount of their own money in the fund.

The AlphaOne fund is uniquely structured so that investors pay no tax on their investments until they redeem their shares.

Palmer and Javier spent the past nine years at AIG. Javier was a trader and assistant portfolio manager and Palmer was vice-president of Canadian equities and managed AIG's Canadian Small Cap Companies Fund. The fund was "ranked number one in performance by Morningstar Canada in their small cap pooled fund category," according to AlphaOne's offering memorandum.

Through July 31, the fund's five-year compound annual total return was 57.6 percent, compared with 20.5 percent for the BMO Weighted Small-Cap Index and 18.4 percent for the S&P/TSX Total Return Index, according to the memorandum. When extended to its inception nine years ago, the fund also trounced its peers, according to the memorandum.

While he declined to comment on his investment plans for AlphaOne, Palmer said he isn't spooked by the volatility roiling stock markets in recent months.

"You can make money in any kind of market," he said.