Priomha: Wagering on a new asset class

May 19, 2017 11:27 AM

Investors looking for alternative alpha have found a unique source for the road ahead. It’s called Priomha Group, an Australian gambling hedge fund that has shown remarkable results during the last seven years. 

The fund has returned more than 220% since its inception. The Priomha Group was established in 2010 in Melbourne under the direction of manager Brendan Poots, a former professional cricket player and bookmaker. The fund “trades long/short sports and events strategies having a directional component and relative value strategy on sports betting exchanges, with registered bookmakers or regulated ‘parimutuel’ licensees,” according to Investment Europe. 

Poots’s shop wagers on golf, soccer, cricket, tennis and horse racing.

Having studied chemical engineering, Poots had a deep mathematical and quantitative background before spending four years as a professional cricket player. In an interview with Asian Gaming, he said that he studied at Columbia University in New York but noted that he became bored by securities and commodites trading. Rather than taking a job on Wall Street after graduating around the time of the Global Financial Crisis, he turned to gaming as a full-time gig. The company’s platform was originally designed for horse racing and included at least 20 variables to help make a wager. 

With its headquarters in Australia, the firm opened a second office in Gibraltar — which is a British overseas territory occupying a narrow peninsula of Spain’s southern Mediterranean coast — for tax advantages. Its Gibralter-based firm Cloney Global Investments allowed the company to expand into Europe where sports gambling is more popular.

Priomha isn’t unique, however. London investment firm Centaur Galileo launched the very first sports hedge fund in 2010. Its founders claimed that the hedge fund would return 15% to 25% on investment. However, the fund lost $2.5 million and collapsed in 2012. In a letter to shareholders, the fund’s managers blamed its demise on “sheer bad luck.” All the money was gone. 

Where Centaur failed, and where Boots’ shop has shown success, has been in risk management. The firm has a disciplined bank management strategy. 

A Recession-Proof Investment Strategy

Hedge funds continue to hire poker pros and more funds are looking to Nevada as a potential place to bring funds like Priomha Capital to the forefront (see the Modern Trader September 2015 issue).

Nearly two years ago, the state of Nevada approved rules for “entity betting” for sports. This allows groups like Priomha Capital to accept out-of-state money from investors and then use them at a local sportsbook. It is estimated that just 10 companies are engaged in entity betting, but it hasn’t really generated the expected level of interest.  

However, in November 2016, the Securities and Exchange Commission hit three Nevada firms that were engaged in sports gaming. The agency gave Nevada Entity Wagering Funds only two weeks to provide complete information on eight different categories, including all company documentation sent to investors, identities and personal information of investors, and all regulatory correspondence. 

Other challenges exist that are making entity betting a bit unattractive. Funds do not accept investments below $1,000; CG Technology is the only sports book operator willing to accept bets from betting funds, lockup periods allow investors to withdraw capital only two times a year and it is very difficult to verify past performance. 

Still, it’s hard to argue against the fact that sports wagering remains an intriguing source of alpha and income year-round. 

“Sport is essentially recession-proof and as such it is a good business to be in,” Poots told Investment Europe last year. During the first six years of its operations, his fund has not had a down year.

About the Author

Garrett Baldwin is the Managing Editor of the Alpha Pages and the Features Editor of Modern Trader. An author and Baltimore native, he earned a BS in journalism from the Medill School at Northwestern University, an MA in Economic Policy (Security Studies) from The Johns Hopkins University, an MS in Agricultural Economics from Purdue University.