Abu Dhabi, home to the UAE government, has branded itself ‘The Capital of Capital’, and for good reason. The tiny emirate is reckoned to have surpassed Norway as the holder of the largest reserve of sovereign wealth anywhere in the world. It has $1.7 trillion, split between entities including Mubadala, the Abu Dhabi Investment Authority (ADIA) and L’imad.
Abu Dhabi has also attracted major hedge funds such as Brevan Howard and Marshall Wace, which have registered and opened offices in its financial centre, ADGM.
So far, it appears all the hedge funds that have started running clients’ money out of ADGM are already established international businesses. However, this is set to change in this month, when a new firm – which the founders believe is ‘the first home-grown hedge fund in Abu Dhabi’ – begins putting clients’ money to work for the first time.
The firm in question, Dovehouse Capital, was founded by Danish entrepreneur Claus Gotthard and countryman Martin Rasmussen, his long-standing friend and a former member of the UBS steering committee for the Nordics. They previously worked together on a venture capital fund for the Danish ministry of trade, investing in several businesses. But the pair had become tired of ‘kissing frogs’, said Gotthard, 58.
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The duo resolved to create a hedge fund that would deploy successful strategies honed by Rasmussen over his investing career, with Gotthard managing ‘the business side’. Luxembourg was considered as a location, as was London, albeit briefly. ‘I mean, the regulatory environment in London is almost hostile,’ said Gotthard. ‘The tax is definitely hostile.’
Both Gotthard and Rasmussen had pre-existing links with the Middle East. Rasmussen holds equity in a Danish company of which Hussain Sajwani, the founder of Dubai-headquartered property developer Damac, is also a shareholder. But it was a meeting with a contact of Gotthard’s that tipped the balance.
‘I met one of my friends there who is running a private equity fund [in Abu Dhabi], and after spending the Saturday with him it was very clear that it should be Abu Dhabi over Dubai, for sure.’ Dovehouse is registered as an incorporated cell company (ICC) at ADGM.
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Gotthard added: ‘ADGM has played it extremely well: wanting to be an international financial powerhouse, choosing English common law, setting up its own courts in its own jurisdiction. [It’s] just totally international, reliable and understandable.’
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The Dovehouse investment strategy has ‘three legs’, with 60 per cent of assets allocated to a small number (currently 24) of high-conviction, long-only equity bets. Selections are influenced by the so-called Piotroski F-score, named after Stanford accounting professor Joseph Piotroski.
‘Basically it is high, increasing, repeatable earnings; free cash flow; and diminishing liabilities,’ said Gotthard. ‘These are the Netflix and Ferraris of the world that just keep generating free cash flow and diminishing their liabilities.’ He added that without any leverage, the strategy had earned a 74 per cent return in the last year when deployed with Gotthard and Rasmussen’s own capital.
A fifth of the Dovehouse fund will be allocated to ‘harvesting’ the movement of the S&P 500 through futures trading, which will be supported by machine learning, Gotthard said. The remaining fifth is ‘tactical allocations’ to emerging opportunities, such as commodities or over-valued equities. ‘We will go in and do a short with Carson Block [of short-seller Muddy Waters] if there is a dog that needs a beating,’ said Gotthard.
The firm says it has commitments of $80-150 million from prospective clients, which are primarily Emirati family offices and wealth management firms. Gotthard and Rasmussen are joined by fellow co-founders Mark Benn, former CFO of Waha Capital, and Hind Akel, former marketing director at First Abu Dhabi Bank.
With current instability in the Gulf, Dovehouse is preparing to deploy client funds against a challenging backdrop. But Gotthard insists that ‘nothing in the current environment suggests this is not the right place and the right time’, adding: ‘The fact that the UAE has restrained itself will only play to its strength when this is over, allowing it to build on that foundation and reach new heights.’
Indeed, he remains bullish about Dovehouse’s prospects. ‘We will be a multi-billion [fund] in three years,’ he said. ‘Mark my words.’
This article first appeared in Spear’s Magazine Issue 99. Click here to subscribe
