Alan Miller, former Chief Investment Officer at New Star, has teamed up with Alexander Spencer-Churchill to start a new ETF-based fund management company, called Spencer-Churchill Miller Private.

Miller, 45, was a founding shareholder of New Star, working at the firm between 2001 and 2006, and previously headed the UK specialist investment team at London fund manager Jupiter. After a sabbatical, Miller joined fund of hedge funds manager Silver Street Capital last November as a partner, but has now moved on to start SCM Private.  

Silver Street's ambition to start an "incubator" of new hedge funds was hit by the Madoff fallout and the numerous redemption restrictions imposed by hedge funds on their investors, Miller commented in a telephone interview with Index Universe. Miller described the way many hedge fund managers had locked up investors' money as an "absolute disgrace", and said that his new company's venture aims to offer its clients transparency and liquidity by the use of ETFs.

For 25-year-old Alexander Spencer-Churchill, SCM represents a first venture into financial services. Spencer-Churchill was previously part-owner of the Drones dining club in Mayfair, which ran from 2004-2007, and a non-executive director of AIM-listed specialist food provider Conival plc, which went into liquidation in February this year.

SCM is targeting the private client investment market, with a minimum portfolio size of £1 million. According to the firm's analysis, there are around 140,000 people in the UK with free investible assets of £1 million or more, and over 37,000 individuals with £5 million or more.

The firm will invest client's assets in segregated accounts, under the custody of Pershing Securities Ltd., a wholly-owned subsidiary of Bank of New York Mellon.

SCM will offer two types of strategy to its investors, one with a benchmark of 70% equities, 22.5% bonds and 7.5% cash. The second will be an absolute return strategy, which will be managed on a more aggressive basis and will have a target of beating cash by 5% each year.

The fund manager will levy a 0.75% annual fee, and a 5% performance fee, to be applied to any absolute annual gain. There will be no hurdle rate or high-water mark. According to Miller, assuming a 15% annual fund return, SCM's fee would be equivalent to that of a typical UK unit trust and about a third of a typical hedge fund's fee for the same outcome.

The company expects to have minimal third-party dealing costs, but any occurring will be passed on to clients with no mark-up.

Miller explained that SCM's absolute return fund may use inverse ETFs to achieve short market exposure, but would be unlikely to do so at current market valuations.

He added that the firm will avoid exchange-traded commodities and notes to focus on portfolios consisting entirely of exchange-traded funds. SCM will offer three currency classes of its two strategies, and so may buy ETFs from different European listings and with different trading currencies.