Craig Hart is trying not to lose his patience with a stock market that just won’t pause to let fundamentals catch up with prices.
The president of Hart Capital Management Inc. manages a hedge fund thick with cash that he wants to put to work. But none of the dozens of stocks he follows are flashing the financial signals that will make him a buyer.
He’s been a frustrated bystander as a market seemingly overripe for a correction has advanced another 10 percent since Jan. 1.
“It kills you,” Hart said in his roomy office in the Washington Mutual Financial Center.
Hart Capital Management is the successor to Hart & Associates, a traditional stock brokerage founded by Don Hart in 1988.
Craig Hart, 37, was an analyst at the time with Ragen MacKenzie in Seattle. But when his father beckoned in 1990, he came.
“I thought there was a lot of great opportunity here,” he said.
For the next few years, the Harts and the small firm’s other employees operated much like other stockbrokers, buying and selling securities on commission.
Craig Hart said the transformation to Hart Capital Management began in 1994, when the state of Washington approved securities investment partnerships, commonly known as hedge funds.
U.S. Securities and Exchange Commission guidelines permit hedge fund managers more freedom when investing their resources than that enjoyed by the managers of typical mutual funds.
But in return for that flexibility, hedge funds are limited to no more than 100 investors who must be accredited - they each have $1 million in assets and incomes in excess of $200,000.
Nor can hedge funds advertise, Hart said. “That’s why it’s such an obscure entity.”
Despite those limitations, hedge funds have $100 billion in assets.
Hart said he opened one of the state’s first hedge funds, West View Partners, L.P., in 1995. He invested some of his own money, and attracted other funds from among Hart & Associates clients, as well as through other contacts.
All of his compensation is tied to the fund’s performance, as either an investor or manager, who typically receives about 20 percent of whatever profits a hedge fund earns.
Hart said he has been conservative, and now holds up to 50 percent of the fund’s assets in cash. Also, taking advantage of another device denied mutual funds, Hart uses Standard & Poor’s futures to protect against market declines.
But the hedge fund is only half of what Hart Capital Management does. The company also manages individual and institutional accounts in return for a percentage of the assets.
That transition from broker-deal to investment management started in December, Hart said, and is just about complete. His father remains a consultant to the company, but Craig is in charge of day-to-day operations.
Almost all the firm’s clients stuck with the company through the change of command once they understood the advantages of asset management, he said.
For example, Hart Capital Investments does not act as account custodian; Charles Schwab does. That gives customers access to their money at Schwab offices all over the country, Hart said.
Commissions are a thing of the past.
“I’ve never favored getting paid on a transactional basis,” he said. That system enriches brokers but discourages the buy-and-hold investing that has worked so well for the likes of Warren Buffett, the country’s second-richest man.
Also, Hart said, the company now has access to research by some of the most respected firms on Wall Street, including Bear Sterns, Goldman Sachs, and Alex Brown.
“This little firm in Spokane is now on a par with firms in San Francisco and New York in many ways,” he said.
Perhaps most importantly, Hart figures the change will lower the cost of investment management for his clients to about what they would pay for a no-load mutual fund.
Hart said he next wants to find analysts who can identify opportunities that will enrich Hart Investment clients.
“We want to build a team of knowledgeable, ambitious people,” he said. “There’s nothing like knowing the story.”
Marketing help is another priority, he said.
But, noting the success of ICM Asset Management Inc., his neighbor in the Washington Mutual building, Hart said results speak for themselves.
“If the performance is there, the money is out there,” he said.
, DataTimes ILLUSTRATION: Photo