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Streetwise Calpers seeds new Toronto hedge fund with $100-million

Retirement plan brochures are seen on display at the Calpers regional office in Sacramento, Calif.

MAX WHITTAKER/Max Whittaker/Reuters

It's usually a struggle for a new hedge fund to get big investors, but Toronto's Breton Hill Capital solved that problem in style by attracting a seed investment from one of the biggest of them all.

The fund convinced the huge California Public Employees' Retirement System, the largest pension money manager in the U.S., to invest $100-million (U.S.) in the Breton Hill Eureka Fund. It's a coup for the firm, and for Toronto's reputation as a centre of smart alternative asset management, because it's the first such seed investment by Calpers, according to the pension fund.

Breton Hill, like all new funds, had to surmount obstacles that usually make it tough for startups to convince large investors to write big cheques.

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Given the events of recent years, the bar for startups is steadily rising, with more stringent demands for such things as a strong and active board of directors.

Startup funds have to prove they have a track record, and that they have the systems in place to handle large amounts of money. Such question are hard to answer if you aren't already running a significant amount of money. It becomes a chicken and egg problem.

Breton Hill's chief investment officer, Ray Carroll, and the firm's team have the track record to answer both those questions. And Calpers, although it has never seeded a hedge fund before, had the sophistication to ensure it got the answers it needed.

Mr. Carroll ran a multi-strategy hedge fund business inside Toronto-based fund of funds company Diversified Global Asset Management, which oversees assets of about $5.5-billion. He also helped run the firm's alternative strategies business, and sat on the firm's management committee.

The Breton Hill team left DGAM in 2010, and had a year to get the firm up and running with the systems that investors demand before handing over cash.

At Breton Hill, according to Calpers (Mr. Carroll is laying low), the strategy is a macro one. The firm seeks momentum in a range of assets such as equities, commodity and financial futures, and currencies.

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