It's hard to imagine a more challenging time to be raising money for a hedge fund, particularly one that focuses on hard-hit bank stocks.
But that's just what Charles H. Lott is trying to do.
"Sometimes the hardest time to raise money is the best time," said Mr. Lott, who in his more than 40 years on Wall Street has seen plenty of booms and busts. "Banking is a lot healthier industry than the last three months suggest."
Lately, Mr. Lott has been repeating those words like a mantra as he crosses the country to raise capital for KBW Asset Management, a hedge fund that is being opened to institutions and wealthy investors.
Mr. Lott, 68, who as vice chairman heads the fund, is co-founder and former chairman and chief executive of the fund's parent, Keefe, Bruyette & Woods Inc., an investment bank that specializes in the financial services business.
The hedge fund got started three years ago when an outside party that Mr. Lott declined to identify invested $90 million for Keefe Bruyette to manage.
That investment is now worth about $200 million, Mr. Lott said.
And despite recent setbacks, hedge funds will almost certainly remain big factors on Wall Street. Essentially unregulated mutual funds for the affluent, hedge funds can take much larger risks in pursuit of much greater gains than their plainer cousins.
Keefe Bruyette's fund management experience stems from its executives' management of their retirement money. Using recommendations from their own research analysts, the firm's in-house retirement fund has posted average returns of 20% since 1972, Mr. Lott said.
Keefe Bruyette executives now are betting that their expertise in the banking business and track record of managing investments will attract additional capital. This could increase the firm's reach in the lucrative field of fund management, even if "hedge fund" is currently something of a taboo term and banks are among the market's hardest-hit stocks this year.
Running a hedge fund focused on bank stocks is becoming a tradition for senior Keefe executives. Co-founder Harry V. Keefe Jr. left the investment bank and started one in 1989.
KBW Asset Management has $220 million of assets under management. Increasing the fund's size would generate bigger commissions and performance fees, which would help the parent firm at a time when its partners want to take it public.
The firm filed an initial public offering prospectus in August, but late last month the partners decided to postpone the offering because of unfavorable market conditions.
In addition to Mr. Lott, the fund's managers are Michael O'Brien, a 13- year employee at Keefe Bruyette, and E. Wayne Nordberg, who joined the group Oct. 13 from Lord Abbett & Co., where he was a partner and senior portfolio manager.
Though bank stocks and hedge funds might have lost some luster among investors in recent months, Mr. O'Brien said, CIBC Oppenheimer has enlisted Keefe Bruyette to run a separate fund with the same investment strategy as KBW Asset Management.
The managers emphasized that KBW's hedge fund will avoid the heavy borrowing that has bedeviled other funds in recent weeks.
"We don't anticipate using leverage to any meaningful degree," Mr. Lott said. "We're not swinging for the fences all the time. Singles, doubles, triples, and an occasional grand slam will do."
But like other such funds, it would be free to pursue sophisticated investment strategies.