Behind a tiny blue door with glass panels in Blackrock village in South Co Dublin hides one of Ireland’s fast-growing and most successful wealth managers. 

Blacksheep Fund Management is squeezed between a jewellery shop and a clothing boutique. Neither pedestrians waiting at a bus stop outside or smokers loitering on the street outside the Wicked Wolf bar nearby take a second glance at it. 

Its door is marked by a black sheep logo that looks like it might suit a graphic design firm. Yet, in fact, it represents a highly sophisticated business. It does not have a public website and its phone number is not listed. 

But appearances can be deceptive.

Blacksheep is already managing hundreds of millions of euro and includes a former chief executive of one of Ireland’s biggest banks as one of its directors. It is a remarkable, and rather mysterious, business. But it did not rise completely without trace. So just who is behind the door and what is Blacksheep’s plan for the future?

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Origins in Avoca

Long before Blacksheep, there was Avoca, a great Irish success story which created many millionaires despite being little known outside the world of complex financial transactions. 

In the first half of 2002, about six former AIB capital markets staff left to create what was Avoca Capital in July 2002. 

Two ex-directors of AIB’s Special Finance Unit called Alan Burke and Donal Daly quit well paid safe positions in the bank, then led by Michael Buckley, to do their own thing. 

Burke specialised in acquisition finance, while Daly ran the bank’s Tara Hill (€350 million) and Clare Island (€425 million) loan funds.

Burke was only 31 when he co-founded Avoca, but he already had an edge. He was intelligent, focused and highly numerate. He and Daly convinced Deborah Carter (later Mintern), Stephen Tang, and Eddie O’Neill to join them, as well as a few others. 

Avoca’s original strategy was to become a player in the field of collateralised debt obligations (CDOs), which were popular at the time. AIB, Bank of Ireland and Harbourmaster Capital were all rivals in this area. 

A CDO is a complex structured finance product backed by a pool of loans and other assets in order to be sold to institutional type investors. By May 2003, Avoca had the wherewithal to appoint Deutsche Bank to arrange a raise of between €350 million and €450 million to go into their new fund. By December 2003, Avoca had closed its first offering, a €300 million repackaging of leveraged loans. Kieran Mulcahy, another AIB veteran, had by then joined Avoca. 

As other financial services businesses went bust, Avoca thrived.

By November 2004, Avoca launched it’s second offering a €360 million fund that pooled senior and mezzanine loans for investors. “We’re just over 60 per cent ramped up at this stage, mostly with senior loans,” Daly told Euroweek. 

It wasn’t always easy, but Avoca continued to expand. Euroweek reported in July 2005: “On Thursday morning, against the backdrop of a chaotic market, with almost no trading in any asset class, Deutsche Bank managed to price a collateralised loan obligation for Avoca Capital at startlingly aggressive levels.”

In May 2006, Avoca priced its fifth collateralized loan obligation (CLO) via Deutsche Bank worth €560 million. Global Capital described the raise as having an “astoundingly tight spread.” By March 2007, Avoca was ready for a more prestigious address. 

It took the third floor at 75 St Stephen’s Green, a modern stylish location developed by the businessman Garrett Kelleher. Avoca kitted its floor out with granite, leather, artwork and high-end lamps as befitted its peers in New York and London. 

Burke and Daly were, however, very low key. Daly, an engineering graduate from UCD, who later did an MBA, liked to cycle into work on an old bicycle. 

He parked it alongside the more fancy vehicles driven by lawyers in Maples & Calder and stockbrokers in Dolmen Securities, who shared the building, as well as some of his colleagues. 

Avoca was in the penthouse in an office that held about 30 people, but had the space to house many more. It was paying one of the highest rents in Dublin at the time at €62 per square foot and located across the Green from Anglo Irish Bank, then the darling of Irish finance.

Avoca was continuing to build out its team. Paddy McElligott, now investment director of Activate Capital, joined the firm in these early years after qualifying as a chartered accountant with KPMG. 

By the time of its move to St Stephen’s Green, Avoca was reported to have €3 billion under management, and it was growing fast. 

By June 2007, Credit Suisse announced Avoca had closed Avoca VIII, a €508 million fund, made up of 85 per cent senior loans mainly originating in France, Britain and Germany. 

Its exposures were diverse, with an 11 per cent allocation to healthcare, and 10 per cent weightings to publishing and glass products.  

Thriving in the financial crash

As Avoca moved into 2008, the financial world was about to go into meltdown. Nonetheless, Avoca placed €300 million with debt investors in May 2008. Credit Suisse Group raised the funds called Avoca CLO IX. As the markets started to crash, Avoca was reported by Reuters to be looking for opportunities around Europe including deals in Spain. 

Avoca was not immune to the crisis. In October 2008, a month after Lehman Brothers collapsed, The Irish Times reported that Avoca had sold a division called Avoca Credit Opportunities PLC for €20 million.  

Daly told the Irish Times the fund was of the order of €150 million in value and 10 to 15 per cent was sold off in order to prevent declining values forcing an asset sale. He said the fund in question was very “lowly leveraged” and the sale allowed more deleveraging.

Avoca Credit backed leveraged buyouts of major companies, including Eircom and Smurfit. 

Daly said the value of the fund’s assets, which are marked to market value, was suffering from “contagion effects” arising from global market conditions.

“But our mark to market fund represents only 3 per cent of our total assets under management. All our other funds are not affected,” he said. 

Avoca had by then over €4 billion under management. But it was getting tough as the world’s credit market dried up. 

Avoca started to snap up distressed rivals. In December 2009, it replaced KBC as the manager of a €350 million CLO called Lombard Street. Avoca said it had €5.5 billion of assets under management at the time of this deal. 

Burke and Fortune agreed to set up together. Fortune would be the Chief Investment Officer. Burke, with his KKR credentials and Avoca connections, would be the chairman.

“The transfer of Lombard Street to Avoca is consistent with our objective to grow both organically and through acquisition,” Burke said. 

“We have increased our assets under management by 30% in 2009 and will continue to take advantage of growth opportunities.” 

“We expect to see our industry continue to consolidate in 2010 as new and existing mandates move increasingly to scale players with strong track records through the current cycle.”

Avoca was more than weathering the crash. In February 2010, it opened a London office and appointed Clayton Perry as chief operating officer from Broadchalk Advisors. Perry was previously a former head of collateralised loan obligations (CLOs), at Credit Suisse Group.

Burke told Dow Jones in March 2010  that as banks begin to suspend their leveraged lending arrangements to reduce balance sheet assets, it will leave a huge refinancing gap. “Avoca is well-placed to assist in the changes which this represents,” he said.

Avoca took over another CLO from Lehman Brothers, before in April 2010 taking over the management of a €400 million collateralized loan obligation, or CLO, from Nomura Corporate Research & Asset Management Europe.

Avoca was now ready to ride the crash. “More cash is coming into the loan market as a result of corporates using the high-yield market to refinance their loan facilities,” Perry told Euromoney in June 2010. 

Perry said its research showed $150 billion of leveraged loans in the US market need to be refinanced up to 2013 while Europe needed €25 billion to €30 billion.

By February 2011, Avoca Capital had €6 billion under management. It hired Robert Burns from Citigroup as director for sales and marketing.

Avoca bought the credit business of Liontrust for £3.2m adding to its team as well as bringing in two high yield hedge funds that managed about €100 million. “We have been looking for more than a year to recast our business model in order to take a credit hedge fund strategy on board to complement our loan business,” Perry said.

As other financial services businesses went bust, Avoca thrived. It was involved in restructuring Eircom along with other big international funds. It was also doing opportunistic deals with a specialist fund led by Simon Thorpe. 

Sale to KKR

In January 2012, Blackstone bought Harbourmaster Capital. Harbourmaster had €7.6 billion under management, and the deal was seen not just as a vote of confidence in Avoca but also a signal it could be an acquisition target by the biggest names in global finance.

Avoca was now making serious money. In May 2012, Gerald Ronson’s Heron International secured its highest ever rent at the Heron Tower when it signed up Avoca as a 25th floor tenant at £70 per sq ft. 

That same month Avoca was so big it needed to appoint James Hatchley as co-Chief Executive Officer alongside Burke.

“Since we established the firm in 2002, we have grown Avoca both organically and through acquisition,” Burke said. 

“Throughout that period we have focused on ensuring that our business infrastructure and management resources have matched the development of the firm.”

In July 2013, Lord James Blyth, the former chairman of Diageo, joined Avoca as a non-executive director. Blyth previously was chief executive of Boots. 

Over the next few years they completed their earn-out periods with KKR. Some stayed with the US business but others like Burke decided to leave. It was time for a fresh challenge.

In November 2013, the news broke that KKR was eyeing up acquiring Avoca. By the time the deal closed in February 2014, Avoca had $8.4 billion under management. “We look forward to working with our new colleagues in providing flexible debt capital to our corporate client base across Europe in the coming years,” Burke said. There was some cash in the deal but it was mainly shares.

The Irish Independent reported in February 2015 that, based on US filings, Daly had received shares in KKR worth €36.5 million, co-founder Burke had shares worth €24.2 million, while executive Deborah Mintern had shares worth over €13.3 million at the price at that time. 

How much the core team in Avoca actually made is impossible to tell from publicly available information. Avoca Capital made a profit of over €20 million in its last year trading before the KKR takeover. It is fair to assume the Avoca team were now wealthy by most measures. 

Over the next few years, they completed their earn-out periods with KKR. Some stayed with the US business but others like Burke decided to leave. It was time for a fresh challenge.

Bringing the herd together

Lar Endersen is the one who introduced Alan Burke to Alexis Fortune. 

Enderson has his own fund, Capstrive, which he manages from Dún Laoghaire in South Co Dublin. Endersen was a founding director of QED Equity, a business backed by Dermot Desmond. QED is a very low profile business, although it did $45 billion worth of deals during the crash. It has now been wound up but QED was one of the most successful companies in the world during the global financial crisis. 

After a year in Royal Bank of Scotland (RBS) working on recoveries, Endersen got to know Burke when he became a portfolio manager with Avoca in April 2012. He stayed with the business after it was acquired by KKR until December 2015. 

Burke and Fortune agreed to set up together. Fortune would be the chief investment officer (CIO), with responsibility for investment decisions. Burke, with his KKR credentials and Avoca connections, would be the chairman.

Fortune was coming from a successful career as a fund manager with Ennismore Fund Management, which operates in London but is domiciled in Ireland. 

Ennismore specialises in small and mid-cap sized companies as well as global equities. Ennismore is run by Geoff Oldfield, Gerhard Schöningh and Rob Gurner. Oldfield and Schöningh used to run Baring Asset Management’s Europe Select and UK Smaller Companies unit trusts between 1995 and 1998 when they left to start Ennismore. 

Gurner, who worked with them at Barings as an analyst, joined them later. Fortune was a highly regarded fund manager with low-profile at Ennismore. At a 2017 conference for market data analytics experts Fortune was described in the brochure colourfully. “Alexis likes to turn over rocks all around the world in his search for great businesses, and when he finds one and invests, he tends to stick around for many years,” the brochure said. 

Before Ennismore, Fortune worked for Bain Capital where he worked on distressed debt investing as well as looking at the public equity markets. Fortune has a degree in Economics and Finance from UCD and did a masters in Oxford University. 

David Henry was bought in through his relationship with Endersen and Burke. He’s another KKR grad. An investment analyst, he graduated from UCC in 2014. Krupesh Patel joined as chief operating officer and risk officer. Before Blacksheep, Patel worked in operations for JP Morgan among others, where he rose to managing director level. 

Katie Davies joined the business as a director in July 2018 from Coller Capital. Coller Capital was founded in 1990 by Jeremey Coller who is known as the “Godfather of Secondaries” as he specialises in buying “second-hand” stakes in private equity funds. He has raised seven funds with total capital commitments of over $21 billion and was named by PE News as one of Europe’s 50 most influential people in private equity. 

Davies worked for him for four years monitoring direct investments and in investor relations. Eugene McVerry joined the firm in October 2018. He studied criminal law originally before doing a corporate finance placement with KPMG. McVerry then joined BMS a venture debt fund backed by among others the Ireland Strategic Investment Fund. 

Krupesh Patel joined Blacksheep in July 2018 as chief operations officer and chief risk officer. An economics graduate from Northumbria University, Patel was a former managing director with JP Morgan. He then joined Port Meadow an Asia focused hedge fund before moving to Blacksheep. Patel on his LinkedIn page describes his job as “Wingman to a talented CIO!” 

Michael Buckley became a non-executive director of Blacksheep in December 2018. Buckley was chief executive of AIB from 2001 until 2005. Burke would have worked with him at the start of his career. Buckley is a hugely experienced banker with good connections both in Ireland and Britain to both potential investors and deals. 

Blacksheep’s team now combined both youth and experience. It was time to grow. 

Through a keyhole

Blacksheep is said to employ a long/short equity strategy. This simply means it bets on stock prices. When a stock looks cheap Blacksheep buys it, when it looks too expensive they bet it will fall. 

According to its 13F for the fourth quarter of last year, Blacksheep was long five US stock market investments: Amazon, Google, KKR, Tucows and CarGurus. 

A look at Blacksheep’s 13F form, filed with America’s Securities and Exchange Commission (SEC), gives an insight into its strategy. The 13F form shows the US stock market investments of funds with at least $100 million under management. It doesn’t, however, show funds’ short positions. And the fund is not required to disclose any non-US stocks it owns on the form. It’s like looking at a room through a keyhole. 

According to its 13F for the fourth quarter of last year, Blacksheep was long on five US stock market investments: Amazon, Google, KKR, Tucows and CarGurus. 

Those stocks don’t superficially have a lot in common. There’s $16.4 million worth of Amazon and $38 million worth of Alphabet, two of the world’s biggest companies. Then there’s $19.5 million worth of Tucows, which has a market cap of $534 million. By US standards, Tucows would be a small cap. CarGurus, of which it owns $31.5 million, would be considered a small cap too, with a market cap of $3 billion. 

The $28 million worth of KKR shares should probably be looked at separately from the rest of the portfolio. KKR bought Avoca in 2014. It paid €103 million for it, all in KKR shares. So the KKR shares in Blacksheep’s portfolio are likely a holdover from the Avoca deal.

KKR is an investment manager. Alphabet and Amazon, you already know. Tucows is an internet services company, and CarGurus is an online used car dealer. Each is in a different industry.

The connection between the four non-KKR companies is that they’re all growth stocks. Each is growing quickly, and is expensive relative to their earnings. This seems to run counter to Alexis Fortune’s description in the Ennismore days as someone who “turns over rocks all around the world”. 

Since the days of Ben Graham in the 1950s, buying expensive fast-growing stocks has not been considered a smart way to invest. Graham spread the gospel of value stocks. These are basically the opposite of growth stocks. They are stocks which are cheap in the here-and-now, as opposed to promising future riches.

Starting in 2007, however, the excess returns enjoyed by value investors started to fade away. Growth stocks — the kind Blacksheep is invested in — started to outperform. For the last 13 years, investors in fast-growing companies like Amazon, Google, Tucows and others have done phenomenally well. 

Old-school value investors still have their doubts about growth stocks. They remember the last spell that growth stocks outperformed – right before the Dotcom crash. But for every year sceptical value investors have stayed away from growth stocks, they’ve lost more money. 

There’s lots of competition to manage the money of Ireland’s wealthy. Davy is the biggest wealth manager in Ireland, with €14 billion of assets under management. Goodbody has €7 billion. And there’s been lots of M&A among wealth managers lately. In three deals last year, wealth managers were willing to pay €12-21 million for each billion of assets under management they acquired. 

While it is secretive it is also clearly growing rapidly. Like Avoca before it, another quiet Irish success story is coming together.

While the likes of Davy is broadening its client base with radio ads, Blacksheep is working with a different category of high net worth investor. It has no website, no obvious phone number — not even a straightforward sign on the front door. Blacksheep is certainly discreet. There’s much we do not know about it. We do know it raised about €101m in the last 18 months from 14 investors; an average of €7 million per investor. It is not likely to advertise on the radio any time soon. 

Under the radar

The Currency rang Blacksheep on Wednesday asking to speak to Burke. “He is travelling at the moment,” a man replied. “Can you give me your contact details and he may call you back?” By Thursday evening nobody from Blacksheep had responded. Approaches via other avenues were also not responded to. Blacksheep has little need or interest in publicity. It has no need or obligation to tell its story publicly. Blacksheep has quietly built an impressive business. While it is secretive it is also clearly growing rapidly. Like Avoca before it, another quiet Irish success story is coming together.