Launched in April 2010, Galileo Managed Sports Fund is apparently the world’s first sports betting hedge fund. The company is aiming to acquire €50 million in invested funds, with a minimum buy in of €100,000. The fund aims to deliver 15-25% returns per annum after fees.
The hedge fund’s strategy is to bet on sporting markets where they feel they have a comparative advantage. This advantage is attained using proprietary computer models. The fund looks for sports markets where emotions impact the odds. They also target markets where they can undertake more research on the teams than the bookmakers. Most of the trading takes place during live games. The fund always designates odds at which it will pull out prior to placing any bets.
Galileo’s managing director estimates he’s making $400 per hour as a sports trader. The fund employs five traders and four analysts, all of whom have some finance background.
All I can say is, good luck to them! Time will tell whether they can deliver consistent returns that adequately compensate their investors for the fund’s risk. Much of the risk for investors stems from the uncertainty over how risky the fund actually is! With equity and property you can view historical returns, and use measures like value at risk, standard deviation, etc., to measure risk. With a fund like this, however, investors have no fund performance history with which to do this.
Another issue for me is liquidity. Due to limited market depth on many sports markets on exchanges such as Betfair, the more funds that are under management, the more limited the sports betting options. This may lead to a drop in the percentage of funds that can be wagered at any given time. As a fund manager in a sports betting market, it’s much easier to deliver a target return with $100,000 of funds under management than a million.
The major upside of a fund like this, however, is its performance will have no correlation with the stock market, commodity prices, property prices, or any other alternative investment. This will certainly appeal to investors who are looking to diversity their portfolio.
I wonder when Australia will have its first sports betting hedge fund? Any prospective entrant will be hoping that Galileo can prove successful to help them woo local investors. So, watch this space!
Source:
– Business Week – A League of Their Own