Since Financial Risk Management was launched 15 years ago as an investment consultancy specialising in hedge funds, it has grown to become one of the world's premier fund of hedge funds groups, with more than $12bn (€9.5bn) in assets under management and 45 investment specialists globally.

Over the past 12 months it has strengthened its management structure, with the arrival of Paul Dunning from HSBC Republic as chief executive of its UK business, and JP Morgan's former global co-head of credit derivatives Andy Brindle to take the same role at FRM Americas. Like many of its rivals, the firm has been assessing how best to embrace the new wave of hedge fund strategies, such as trading in catastrophe bonds, commodities, weather derivatives and carbon emission credits. John Capaldi, managing director of FRM, said: "The challenge is to try and differentiate which one will have real longevity."
One of the difficulties with some of the newer strategies is their limited liquidity. But Capaldi said: "There is a small but growing number of investors prepared to take longer liquidity because they understand these new schemes require a longer lead time." Investors are also showing interest in the London-listed closed-end fund market, where capital tends to be tied up for several years, Capaldi said. FRM is adviser to one such fund, Dexion Trading, and aims to launch one or two more closed-end funds next year. Financial News' panel of judges took particular note of FRM's efforts in managing business risk. In 2000 FRM set up a team of lawyers and accountants to scrutinise firms' back-office operations before taking an investment. This includes checking how a fund's net asset value is calculated and examining prime brokerage and auditing.This is more than a formality: the team has the power to veto a decision to invest if it has grounds for concern. A separate team concentrates on the front-office investment activity, looking at the process by which a fund makes investment decisions. To ensure the probity of its potential business partners, FRM drafts in a surveillance agency. About 60% of FRM's assets under management come from institutional pension funds, with 10% from insurance companies. In the UK, its has influential clients include retailer J Sainsbury, which has entrusted 3% of its £3.1bn (€4.6bn) pension scheme to funds of funds run by FRM and another firm. FRM may not be a high street name like Sainsbury but in the secretive world of hedge funds its merchandise of carefully selected and vetted funds probably makes it the closest equivalent. As such, FRM has attracted suitors. Japanese bank Nomura, and fund manager Schroders were interested in taking stakes or even taking it over. But FRM preferred Sumitomo Trust and Banking, allowing it to take a 2.5% stake last year with the option to increase this to 10%. It left open the window for a second strategic partner.