By Katie Farrell
NEWBURYPORT — As Cognition Capital Management LLC continues to seek investors to join in the hedge fund it launched in September, owner Mitchell Hardy says it will cap the fund when it reaches $100 million.
The Pleasant Street company started the fund last fall with $10 million — a new step for the small firm.
As with any hedge fund — a private, unregulated pooled investment fund — the finances do not need to be made public. That's one distinction from other pooled accounts that are regulated, like mutual funds.
Another is the amount of money that's involved — hedge funds are for the wealthy.
The minimum investment Cognition Capital Management wants from its hedge fund investors is half a million, Hardy said. The net worth of hedge fund investors is $1.5 million.
By capping the fund at $100 million, the company can meet its promised excellent returns using their successful strategy, Hardy said. The company's performance ranks among the top 10 percent of the 358 large cap value managers including in Zephyr's database.
"We don't want to get too big," Hardy said.
An ideal investor for Cognition Capital's hedge fund is interested in growing their money and will invest for a three-year minimum, Hardy said, while understanding the complex strategy the firm uses that involves a lot of buying and selling of stocks.
"They can afford to ride out short-term ups and downs," Hardy said.
Hardy said he excepts to reach the cap for the hedge fund relatively soon as the market continues to come back.
"One hundred million is not a lot in the hedge fund world," he said.
Cognition Capital Management began accepting individual client accounts in 2005 and has grown to include about three dozen clients.
It was last May that one of those clients contacted Hardy, who is the co-author of the book "Data Driven Investing."
Steve Hardy — who is no relation to Mitchell — had just sold his firm, Zephyr Associates, and wanted the Newburyport company to manage more of his money.
Steve Hardy questioned whether Cognition Capital would consider starting a hedge fund. And from there, the lengthy process of doing so began. Steve Hardy is now part-owner of Cognition Capital.
There are two factors that drive the stock market, Mitch Hardy said, presidential elections and the Federal Reserve interest rate policy. He expects this year's market to be good for stocks, he said.
"We think this is going to be a good year for the market," Mitch Hardy said. "The market always looks ahead."
During a presidential election, politicians will unveil plans like the economic stimulus package, which will help boost an economy, but psychology also weighs in as people are excited and want to see their party either stay in power or get the power, he said.
"Psychology drives the market," Mitch Hardy said.
