A former principal in Sandler O'Neill & Partners has launched a hedge fund to invest in middle market bank stocks. He hopes to raise between $50 million and $100 million for the effort.
Stephen H. Gordon, who left Sandler O'Neill in July, has invested more than $1 million of his own money in Genesis Financial Partners - a name chosen to signify the beginning of a new phase of his life and career. He will be based in Newport Beach, Calif., a continent away from Sandler O'Neill's headquarters atop the World Trade Center.
Mr. Gordon said now is a good time to invest in bank stocks, even though they already have increased roughly 30% in value this year.
"Even if the group as a whole were to level out, and I don't think it will, there are clearly institutions which have not begun to realize their potential," he said.
"There are many inefficiently run financial institutions," he added. "It is a tremendously overbanked industry. There will continue to be consolidation and there will continue to be undervalued institutions where strong returns can be generated."
Mr. Gordon, who was an investment banker at Sandler O'Neill for seven years, is just now beginning to attract investors. He will take up to 100 investors, who must invest a minimum of $1 million.
While not revealing which banks and thrifts he would invest in, Mr. Gordon said he is setting his sights on inefficient institutions.
"If Genesis were to acquire a significant stake in an institution, then we would hope that management would respond in a friendly basis to our ideas about value creation," he said. "If management is not receptive to our suggestions, then Genesis will push harder."
Genesis plans to target banks and thrifts with asset sizes ranging from $500 million to $5 billion, Mr. Gordon said.
The fund will avoid larger institutions, the fund's private placement memorandum said, because they are well researched and well followed by investors, and thus fully priced.
But many smaller banks and thrifts, particularly recently converted mutual savings banks, are not as widely followed and have fairly illiquid stocks.
These companies are overcapitalized, so future returns can improve. And many are inefficiently priced by the market, the document added.
"Many middle market institutions are overlooked by much of Wall Street and the investment community," Mr. Gordon said.