Category: Hedge

Investing in Macro Trading - Investing for the Future
FundsHedge

Investing in Macro Trading – Investing for the Future

As a company we focus on a few core areas: economics, research and multi-asset. We are veterans of all recruitment styles, networking to generate references, advertising to create interest, directly contacting candidates and cold-calling businesses to uncover talent.

Our research staff focus on blue-skies analysis and researching teams at places such as the IMF or ECB in the public sector. This broad background work means we are fully prepared before major searches begin at which point the research can be tailored to each project.

Our senior consultants focus on the ‘selection’ stage, luring out top talent and ensuring the quality of shortlists to make certain candidates are fully briefed and motivated by opportunities.

In regards to our clients we are largely referred on by existing customers so the word of mouth is clearly a vital factor behind the success of our business. Run by a former economist and trader we can offer unique insight into candidates, and are unique in parting the sector by ‘macro’ skills rather than by firm type. We can attract established names who can raise capital and further provide alpha driven performance in a variety of environments.

Macro is supposed to be low correlation and offer superior returns, but there are many funds managing money that have failed to prove that. However the top tier continues to do well and inspire investors and the inevitable imitators.

Macro investors are increasingly reliant on quant signals and models, but it has been no real replacement for traditional fundamental analysis and use of expert judgement.

If we take a closer look at the industry currently underperforming firms are threatening the top end fee structure. But there is also increasing impetus on risk adjusted performance metrics which shouldn’t necessarily apply to alternative managers, in some ways these deter the narrowly focused trading strategies which enabled past out performance.

Looking ahead to the future finding consistent performing portfolio managers will be a key challenge as only the top 3rd of the sector have produced credible results.

Company: Arbitrage Search
Name: Chris Apostolou
Email: [email protected]
Web Address: www.arbitrage-search.com
Address: 48 Charlotte Street, London, W1T 2NS
Telephone: 0203 823 4540

Keeping Your Options Open
FundsHedge

Keeping Your Options Open

Third Friday Management, LLP is the investment manager of The Third Friday Total Return Fund, L.P. (the ‘Fund’). The Fund was founded in May 2007 and follows a proprietary rules-based market neutral options strategy designed to generate strong risk-adjusted returns in all market environments. The Fund does not employ leverage and does not take a view on market direction. Excess collateral is invested in a diverse portfolio of income-generating securities.

The Fund sells at-the-money straddles on the S&P 500 Index on a 3-month rolling basis and hedges those positions with out-of-the-money puts and calls. Each straddle is hedged independently and the hedges are adjusted throughout the cycle to maximise profitability or minimise losses. At all times the Fund focuses on protecting capital and insuring
that the first two months of the sequence are fully hedged. The strategy was initially developed in the 1990s and managed in separate accounts. The Fund was started as a family partnership and offered to outside investors for the first time in 2012 when Michael Lewitt joined the General Partner. Since 2012, the Fund has grown significantly while continually working to improve its investment strategy. 

The Fund is available for US investors through a Delaware LP and non- US investors through a Cayman Islands entity. The Fund has never had a money-losing year and was slightly positive in 2008. In addition to strong and consistent nominal returns, the Fund’s risk-adjusted returns are particularly strong with low correlation to the S&P 500, a high Sharpe Ratio, Sortino Ratio and other impressive risk metrics.

A unique aspect of the Fund’s strategy is that the 3-month structure of the options means that rare losing months coincide with widening options premiums. When a losing straddle rolls off, the Fund is in a position to sell a new straddle 3 months out at a wider premium. This sets up the Fund for higher profits and rapid recovery of losses in the following months. As a result, it is very difficult for the Fund to suffer large sustained drawdowns or losses – a unique feature of the strategy that sustains strong risk-adjusted returns over long periods of time.

Michael Lewitt serves as the Chief Investment Officer of the firm and General Partner and Portfolio Manager of the Fund. Mr. Lewitt is also the editor of The Credit Strategist, a financial newsletter that is widely read around the world, and is recognized as one of the few investors to correctly predict the 2001-2 credit crisis and 2008 financial crisis. He is the author of two well-regarded investment books, The Death of Capital (2010) and The Committee to Destroy the World (2016). Mr. Lewitt is a long-time critic of the mainstream financial media and consensus policymaking thinking and uses his writing as an integral part of his investment process to formulate independent views that have produced top tier performance for his clients over the last 25 years.

Company: Third Friday Fund Management
Name: Michael E. Lewitt
Email: [email protected]
Web Address: www.thirdfriday.com
Address: 515 N Flagler Drive, Suite 300, West Palm Beach, FL 33401

Ones to Watch in Hedge Funds 2016 - Overcoming the Obstacles
FundsHedge

Ones to Watch in Hedge Funds 2016 – Overcoming the Obstacles

AppleTree Capital faced the ultimate crisis in 2011, suffering a -34.17% annual return. While most investment managers would have cut their losses and shut down the fund, the team at AppleTree spent two years earning back money for their investors. This is a testament to the commitment they show to their clients. We spoke to Michael Nicoletos, Managing Director at AppleTree Capital, to find out more.

In general, most hedge fund managers tend to shy away from speaking about their negative results. However, AppleTree Capital believes that this negative experience at the beginning of their journey made them learn their lessons swiftly and at an early stage, helping them produce consistently positive returns ever since.

“2011 was a disaster,” says Nicoletos. “Of course, like most hedge fund managers, the first thing that came to our minds was to give up and do something else. But we simply could not do that to our investors. We decided to liquidate the fund, take one month off to clear our minds, and then come back to see what we were doing wrong. When we returned, we reassessed everything: our processes, the way we looked at markets, even the way we positioned our trades. This reassessment, together with hard work, soon bore fruit, as we managed to recoup our losses in just two years. I think this shows the level of commitment we have towards our investors. It is this high level of dedication that lies at the heart of everything we do.”

“Our investors know that we will not sink, no matter how rough the sea is,” Nicoletos adds. “We care about them, and it’s not just about making money and getting returns. Of course, this is the nature of the business that we are in, but it is also much more than that: it is about trust, dedication, and perseverance.”

“Across the industry, there has been a lot of talk lately about hedge fund managers underperforming and not deserving the fees they earn. At face value, this is because many passive funds have outperformed active managers. However, I believe that we need to look beyond that: if fund managers are good at what they do, and illustrate a high level of commitment and vigour, then there is certainly a value to their role.

I think we – at AppleTree – have exemplified this to our investors: not only have we outperformed our benchmarks (this is including the losses during the first 2 years), but we have also demonstrated that we will always be thoroughly transparent in whatever we do, and fully reliable whenever they need us.”

Apace with their efforts to make their investors’ money back, AppleTree decided to fundamentally change the fund’s investment philosophy, in order to ensure that a crisis like the one that hit them in the beginning would never occur again. “When we lost this much money, we completely changed our mentality” says Nicoletos. “First, we decided to focus on the macro-level aspects of the global economy, in order to get a bigger and more complete picture of the financial landscape. Questioning our ideas on a daily basis and identifying any prevalent behavioural fallacies in finance (both personal, and across the industry) became the key ingredient of our investment approach. As a result, we started positioning our investments a lot better, while also improving the efficacy of our hedging methodology. Our consistent positive results since then speak for themselves.”

“When it comes to emerging markets, we always have our eyes set on the bigger picture. For our long/short equity fund, which trades primarily in Eastern and South-Eastern Europe, we first take a top down approach in terms of the global macro situation: we look at areas such as China, Europe, and the US, we look at commodities, but we also look at central banks, the flow of funds, political changes, and any other broad systemic factors. After having solidified our global macro-level understanding, we then look at each country we invest in separately. Once we identify the drivers that will benefit (or hamper) specific countries, we dive deeper and use a bottom up approach to look at key fundamentals.

We then simply pick the firms that we like, and take long positions, and the firms that we don’t like, and take short positions. Of course, there is much more to our methods, but this is the key outline of how we operate. Hence, although we focus on a specific region in the emerging markets world, we do look at the global state of affairs prior to executing our strategy.”

Just one year after their crisis, they achieved an annual return of 27.93%. In 2015, a year that provided intense headwinds for many hedge funds, AppleTree achieved a return of 18.85%.

Nicoletos’ openness about their previous pitfalls is a further testament to the level of transparency at AppleTree, which is another cornerstone of their philosophy. “Transparency is extremely important to us,” explains Nicoletos. “Apart from our monthly newsletter, which is used to keep our investors updated with how the fund is doing, we also think it is very important that our clients have access to us at any time, feeling confident at the answers they will receive, no matter how tough things are. On top of this, we also hire independent third parties that allow our investors to crosscheck our operations, providing them with an extra layer of confidence in our work. In that sense, our investors gain full knowledge of what we are doing and how we intend to move forward. This has allowed us to build strong and lasting relationships with them.” Prior to AppleTree, Michael

Nicoletos worked as Head of International Equities at EFG Eurobank Securities, a Greek owned banking group, obtaining extensive experience in this niche area of emerging markets. During this time, he advised both retail and institutional clients and was an active member of both Eurobank EFG Securities’ and Eurobank EFG Private Banking’s market strategy committee. Furthermore, he was among the first international traders to trade in Romania, Bulgaria and Serbia and took part in the first large IPOs across the region. It was during his time at Eurobank that Nicoletos met Dimitris Apistoulas, his partner at AppleTree Capital.

Since its inception in 2010, the firm has kept a small, tightly-knit team, allowing the company to grow and develop organically, while making sure that all of its members follow the same core principles and vision. “We are a small team, but I believe that this is something that has worked in our favour,” says Nicoletos. “We communicate very well, and there is a high level of consistency in everything that we do.”

Looking towards the future, Nicoletos is confident that AppleTree Capital will continue to grow on its recent success. Moreover, AppleTree is very excited to announce that the company is in the process of opening a new office in London and getting an FCA licence, where they hope to add another fund to their portfolio. “Dimitris and I have always found the hedge fund industry an interesting and challenging place to work in, and we are very optimistic about opening a new office in London. With this transition, we will shift our primary operations in London (we intend to keep our office in Athens as support to the London office). It certainly is an exciting time for our business, and we are very much looking forward to the rest of 2016 and beyond.”

Name: Michael Nicoletos
Company: AppleTree Capital
Web: www.appletree-capital.com

Fund Manager Elite 2016
FundsHedge

Fund Manager Elite 2016

Wise Investment, founded in 1992, is an independent investment company based in Chipping Norton, Oxfordshire. We got in touch with John Newton at Wise to find out more about the company and to hear his thoughts on winning this award.

Wise Investment has two complementary businesses. One advises private clients on investment and wealth management. The other manages investment funds through an OEIC. The funds business is run by two teams. The Evenlode team manages Evenlode Income, and is working on a new Evenlode global fund which is due to be launched next year. The Wise Funds, TB Wise Investment & TB Wise Income, are managed by Tony Yarrow, who heads up the Wise funds team. The Wise OEIC has funds under management of around £900m.

The Wise funds are marketed by John Newton, working in the Wise Funds team.

The fund that has won the award is TB Wise Income.

TB Wise Income has three aims:
– to provide investors with an attractive starting dividend yield, currently 5.6% net,
– to increase the income by the rate of inflation or better,
– and to grow the capital value of the fund at the rate of inflation
  or better.

Over a long period of time, we believe that the best way to provide a growing income for investors is by holding a carefully-selected portfolio of shares in medium-sized and smaller companies, and to complement this portfolio with a diverse range of higher-yielding, lower-volatility assets, including fixed interest, commercial property, cash and alternatives.

We alter the proportions we hold in the different asset classes according to where we see the best value, and the most robust income streams. Our process is focused around the production of reliable income, and we are proud of the fact that investors who joined the fund at launch, a little over ten years ago, have received over half their starting capital in income payments over that period, as well as making capital gains.

TB Wise Income invests ethically, and we are exploring the possibility of having it accredited as an ethical fund.

Investment markets have been challenging during TB Wise Income’s first decade, and we have risen to the challenges we have been presented with. Our aim as we go forward is to continue offering our investors an attractive, reliable and growing income in all market conditions, using the wide range of asset types that are available through our mandate.

Challenges Facing Hedge Fund Start-ups
FundsHedge

Challenges Facing Hedge Fund Start-ups

For a hedge fund, attracting investors early on and as the fund seeks to grow is crucial to success. Without a strong and growing base of assets, a hedge fund may have challenges fully and successfully executing its investment strategies. Institutional investors and their consultants continue to show interest in hedge funds and thus represent a huge opportunity for new hedge funds to grow their AUM. But what are the best ways to attract these investors and consultants?

One way is by ensuring industry databases like eVestment are updated with as much data as possible from a hedge fund’s inception and going forward because increasingly big institutional investors are using databases to search for managers to whom they will consider awarding investment mandates.

eVestment’s clients are institutional investment consultants and institutional investors – like pension funds, insurance companies, foundations, endowments and sovereign wealth funds — and the asset and hedge fund managers that invest money on their behalf. On the traditional, long-only side, asset managers have long shared a wide variety of data with eVestment to ensure their products are visible to consultants and investors when they look to award new investment mandates. As institutional investors and their consultants have become more interested in hedge funds, they are seeking similar levels of transparency and data as they search for hedge funds to consider investing with. So for a new fund looking to attract investors – and institutional investors have billions to invest – being in a database like eVestment is crucial to asset raising success.

Investors are increasingly looking for more than just returns when they search for hedge funds, which can be a plus for the hedge funds that are starting out and may not have a very strong returns story right out of the gate. Of course returns are and will always be an important part of the story. But investors, when they are searching for managers and vehicles with which to invest, are looking for other things as well.

Because institutional investors seek to have balanced portfolios, they are frequently looking for new investments opportunities that compliment or balance their existing investments. So they may be looking for a fund with a specific investment focus, style or geographic focus that is missing from their portfolio. Additionally, many institutional investors have diversity mandates in their investments, so an investor may be looking for a fund that is fully or partially owned by a woman or a member of a minority group. Perhaps there are schools that are known for turning out successful hedge fund managers. Investors may be looking for hedge funds with key professionals who attended those schools. So, as an example, a pension fund may be looking for a hedge fund with X% returns, partially owned by a woman, based in London, with an activist strategy and key professionals that attended a short list of top universities.

If a new hedge fund happens to fit these criteria but isn’t in an industry database – or is in the database but their profile is missing one or more of the criteria the investor is searching for – they simply won’t be found. So for the hedge fund starting out, it’s crucial to create and keep updated profiles in databases like eVestment and to make sure those profiles are updated as completely as possible. eVestment continues to work with hedge funds so they understand the importance of transparency and populating databases as they seek to build their funds and attract new assets.

We continue to add new data fields at the request of our investor and consultant clients who tell us what kind of data they would like to see while they screen and search for fund managers. We have found that over time hedge fund managers have become more interested in transparency as they understand that such transparency is the first step to attracting large mandates from these institutional investors.

By being in an industry database like eVestment, new hedge funds have the ability to be searched for and found by investors. If new funds are not in these databases, these funds are essentially invisible and don’t exist to big investors who increasingly are using databases as their first and sometimes only source for finding new managers and new investment vehicles.

Company: eVestment
Name: Christophe Frèrebeau,
Director, Head of Europe, Middle East and Asia
Web Address: www.evestment.com
Address: 2nd Floor, 60 Fenchurch Street, London EC3M 4AD,
United Kingdom
Telephone: +44 (0) 20 7651 0800

Hedge Fund Manager of the Month - Vanuatu
FundsHedge

Hedge Fund Manager of the Month – Vanuatu

Up until the GFC I thought investing was relatively easy: simply pick the next up and coming emerging market fund from Russia, China or India, throw in some main stream market equites, some bonds, some futures and maybe even an arbitrage fund, take a long term buy and hold approach and based on past performance, you were set.

Unfortunately, the value of a good fund manager isn’t really evident until everything turns to custard. Up until late 2007, virtually every fund manager was a genius as they kept making money for their clients ……..until they didn’t. That’s when I learnt the hard truth that you could only find which fund manager was actually worth their salt in a downturn and no, the fact that you lost less than everyone else did not necessary make you a good fund manager. In truth, most failed the task miserably.

So I lay awake at night in a cold sweat, wondering what I could have done differently, with that same thought churning over and over in my mind “Forget the Market”! Seriously, I wanted nothing more than to get rid of that lump in my throat. To get out from under that elephant sitting on my chest as I went into the office.

Could it really be that simple? Was there really another way to invest? What if you could generate returns similar to the long-term market averages but without investing in the market? Was it even possible to contemplate such a crazy idea?

So I set out to examine every type of investment strategy I could find, to see what worked and also dug into what didn’t work and why. My mission was simple: to create an investment strategy that could match the market long term averages but not be at the mercy of them. One in which my friends, family and clients (that were still speaking to me), could invest in without sleepless nights and avoid these horrific market drops. It seemed really simple. All I had to do was not lose money so that any profits generated weren’t wasted on trying to claw back past losses. Oh, and I wanted it be capital secured too.

Honestly, there was no point doing what everyone else was doing because then we would just end up in crowded trades and eventually, if history was any guide, we would wind up going through another massive downturn. After all, Wall Street had already lost over 45% of the typical investor’s money TWICE over the past 17 years. And if you lose 45% you need a gain of 81.8% just to break even. To me the saner alternative was never to take the loss in the first place.

Then I stumbled upon an investment strategy that had been used since 1996 and never ever had a negative year. That meant it survived the Russian Default and LTCM Bailout of 1998, the Tech Wreck of 1999, recession of 2000 and the GFC of 2007-2009 and it never missed a beat.

The Birth of FTM

From the time of its inception we knew FTM was something really different. Even our logo is out there, it’s a light bulb with legs signifying a great idea with room to run. Our mission statement is “A new breed of financial thinking”. So, in March 2010 FTM Class A was opened to the public and since that time it has notched up 75 positive months in a row for a total return, net of fees, of 68.91% and an annualized return of 8.78%. All done without any leverage at all while adhering to every single criterion outlined above.

There is something seriously liberating not being tied to the whims of central bankers and policy makers and being able to go to sleep without worrying what the new trading day will bring.

How does FTM work? 

The predominant investment strategy used by FTM was born out of an opportunity to exploit the inefficiencies of the US medical system when it comes to the delays incurred by doctors, hospitals and medical practitioners in the payment for treatment of personal injury cases. Today, more than ever, cash flow is the key to meeting operating costs and, in an effort to speed up the payment process, doctors, hospitals and medical practitioners are willing to accept less now instead of waiting years for payment. It is this that enables FTM to fund the purchase of discounted medical receivables and, by assuming the risk, generate a substantial return.

The majority of the research and direct purchase of the receivables is done via a Medical Accounts Receivables company which is, for want of a better word, a “go between” between an insurance company and a medical patient.
Imagine the following example. There is a car accident, with the result that the injured party (who is not at fault) will require back surgery.

Now, as long as we can prove that they are not at fault, that this is not a pre-existing condition and that the policy limit is sufficient to warrant it, then the receivables company will fund the operation now and collect from the insurance company upon settlement. In the meantime the receivables company places a lien against the insurance proceeds.

The medical procedures covered would have taken place eventually with or without the intervention of the receivables company but, by providing the funding, the operation can happen sooner and the injured party can resume a normal life much faster. The hospitals also provide the surgery at a discount, because they get paid sooner instead of having to wait years for the settlement of the claim.

This is similar, in principle, to accounts receivables factoring, but with a critical difference. In traditional factoring a company buys a large pool of debt and simply hopes that enough will be paid to ensure a profit.

In our case, the Medical Accounts Receivables Company pick and choose the cases they wish to fund and, on average, four out of every five cases reviewed are rejected. Additionally, the receivables company aims for an average purchase price of 33 cents on the dollar as investor safety is paramount. It should also be remembered that the payer is an insurance company, not a patient or hospital.

The FTM portfolio is split between 3 different investments which are FX (forex), which is negligible and so small to be almost non-existent. Then there is the cash component which fluctuates from five to 10% of the entire Class A portfolio and is used to meet redemptions and operating expenses. Then there are the discounted medical accounts receivables that tends to make up anywhere from 90-95% of the overall portfolio.

This means that 90-95% of the portfolio is secured with $3 of receivables for every $1 invested where, if you include the cash component, exposure to market movements is less than 1%.

To be honest, we have become somewhat a victim of our own success in that each passing positive month puts more pressure on us personally to ensure another positive month and, for that reason, we have all but phased out the FX component. In fact, in June of 2012, as a result of the forex trading we came very close to a negative return with 0.08% for that month so, from then on, we scaled back the FX portion dramatically because we didn’t want to be the reason for any of our clients having sleepless nights.

The truth is, you work hard for your money and the only reason to invest is to make it grow over time so you can improve your living standard or have a less stressful retirement. Either way we created FTM to help not to hinder. Personally, I believe a lot of fund managers would do better if they approached investing this way and maybe the hedge fund industry in general wouldn’t be getting as much negative press.

The FTM Difference

You may have heard of the $1,000,000 bet between Warren Buffett (one of the world’s greatest investors) and Ted Seides (a famous Hedge Fund manager) with the proceeds being donated to charity.

The bet is for 10 years with Warren Buffett betting that a low cost index fund (Vanguard 500 Index Fund Admiral Shares) will outperform the collective performance of the group of five hedge funds selected by Seides.

Well here we are a little over eight years into the bet and the index fund is up almost 66% while the hedge funds are up around 22% for the same time.

So, I wondered how FTM Class A would compare over the same time frame as we are up 68.22% in a little over six years. Assuming FTM Class A continued with its annualised return of 8.78%, the return for the 8 years would be 80.23% and that’s with less than 1% exposed to the market.

Then I thought I would compare FTM Class A performance against the major market indices from January 1st 2016 to May 31st 2016 as the markets have had a pretty tough run so far this year. In fact, the reality is that most markets have gone nowhere for the past two years.

The investment landscape has changed. 

15 years ago you would simply ask your client how much they wanted to live off in their retirement. If they said $50,000 a year, then you knew they needed to grow their investments to $1,000,000 and then they could simply put that $1,000,000 in the bank and get $50,000 a year to live off without eating away at the principal.

Now there are five countries with negative interest rates and many more at zero. Exactly how much money do you need to accumulate so that you can earn interest of $50,000 a year in a zero interest world?

According to Bloomberg by February, more than $7 trillion of government bonds worldwide offered yields below zero.


So, if you are interested in finding out more about an investment strategy that is:
• Unaffected by falls in the market
• Non correlated to equites
• Recession Proof
• Consistent

Contact me directly on [email protected] or visit our website www.ftmmutual.com for a free investment report.

Company: FTM Limited
Name: Endre Dobozy,
Managing Director FTM Limited Licensed Securities dealer
Email: [email protected]
Web Address: www.ftmmutual.com
Phone +678 238 39

Hedge Fund Manager of the Month
FundsHedge

Hedge Fund Manager of the Month

The crucial factors that differentiate us from our peers are experience, performance and methods. In terms of experience, Finlabo was one of the first firms in Europe to launch a long/short equity strategy in a UCIT format in 2006 and therefore the track-record of our fund is longer than most of our competitors. Moreover, our investment team, composed of myself, Anselmo Pallotta and Maurizio Scataglini, has more than 50 years of cumulative experience on investments management.

From a performance point of view, our results have been outstanding. Our flagship fund, the Finlabo Dynamic Equity, has systematically outperformed equity markets and hedge fund indexes with an approximate return of 7% per year and moderate volatility levels of about 8%. The fund invests in a selected portfolio of European equities while hedging dynamically market risks by selling short benchmark index futures.

Our investment strategy relies on the quantitative models and software we have developed in-house through advance research competences. Our stock-picking model evaluates about 2.000 stocks daily based on fundamental and technical variables such as valuation multiples, earning momentum, price momentum, etc. At the same time, our trend following model assists the dynamic hedge decisions within a strong risk-management framework.  

In the last years, high volatility in equity markets and unstable macroeconomic conditions have represented an important challenge for our industry.  However, our non-discretional quantitative approach has proofed to be able to generate interesting returns in despite of market conditions. In this sense, we have been responsive to market circumstances and we have kept our alpha generation targets.  

Having this in mind, we keep an optimistic vision of our business future. An increasing part of our current assets under management now corresponds to international investors and consequently, we are planning to continue to expand our international presence through distribution partners in the most important European financial centres. Our recognition in the industry has increased significantly thanks to our performance, so we want to continue to walk through this path by keeping our alpha-generation commitment.

Company: Finlabo Sicav
Contact Name: Paolo Lo Grillo (Finlabo SICAV), Alessandro Guzzini (Finlabo SIM)
Email: [email protected]
Web Address: www.finlabosicav.com, www.finlabo.com
Address Finlabo Sicav: 42, Rue de la Vallée, L-2661 Luxembourg R.C.S. Luxembourg: B 110 332
Telephone: +352 27 726 100
Addess Finlabo SIM: Corso Persiani, 45. 62019. Recanati. (MC). Italy.
Telephone: +39 071 7575053

Hedge Fund Manager of the Month
FundsHedge

Hedge Fund Manager of the Month

Originally established in Switzerland as Blumfeldt & Sons, the company’s history dates back to 1908. Blumfeldt & Sons built a network of investment experts and served the financial interests of clients in Europe. Later, German Lilleväli and Werner Blumfeldt developed a successful partnership, and in 2013 German combined the assets within GL Asset Management.

GL Asset Management values precise human minds. The owner of the firm is a keen chess enthusiast and the team prides itself in attracting some of the top mathematicians and economists. The ethos of GL Asset Management is the understanding that precision counts.

We believe that delivering enhanced returns and capital preservation over the long term requires a rigorous and precise application of incisive intellect, skilled management and significant investment resources. At

GL Asset Management, we offer multiple investment strategies to help our clients meet their investment objectives.
We manage absolute return strategies focused on generating consistent positive returns, regardless of the movements in the underlying market. One of our key investment propositions is Statistical Arbitrage (Stat Arb), a market neural investment strategy that seeks to profit from pricing inefficiencies between two stocks (pairs) identified using mathematical models and algorithms. Similar strategies are successfully used by world’s leading hedge funds to generate stable returns while reducing volatility in the portfolio. Trading exclusively on US exchanges in liquid stocks with market capitalisation of over $3bn, we exploit price imbalances by using proprietary mathematical models and rigorous risk management processes. On average, the strategy seeks to generate 12% annual returns with 2% volatility, thus enabling stable appreciation of investment, while minimizing market risk.

For clients seeking absolute returns via exposure to Long/Short equity strategies, we have a team of experienced portfolio managers that apply a systemic investment approach to managing Global and European investment strategies. We also offer tailored solutions to clients preferring directional investment strategies that seek to generate long-term capital growth by taking long market positions. We help these clients gain exposure to individual sectors and markets where alpha can be generated, across Global and European markets.

Our investment philosophy is deeply rooted in contrarian thinking. We believe that superior returns come from a consistent challenge of conventional thinking at every point. Valuations reflect consensus views – taking advantage of valuation inefficiencies requires taking a contrarian view to understand what other investors are misinterpreting, and thereby what they are mispricing.

Our experience in asset management dates back to the turn of the 19th century. Our outlook is unashamedly modern, embracing, combining and capitalising on the latest breakthroughs in mathematics, engineering and IT. We develop ideas and analysis that drive new perspectives, new products and new paths to growth.

Name: GL Asset Management
Email: [email protected]
Web Address: www.glassetmanagement.ch
Address: Stockerstrasse 57, 8002 Zürich, Switzerland
Telephone: 41 (0) 44 222 11 50

FundAdministration - Challenges Facing Hedge Fund Start-ups
FundsHedge

FundAdministration – Challenges Facing Hedge Fund Start-ups

Typically we work with hedge fund managers that require more personalised attention from their administrator. We act more as a partner than a provider, offering them accounting, administration and consulting for their businesses.

In terms of the people we serve, we have a variety of clients in the financial services industry and customise our suite of products to meet the individual needs of each client.

With Hedge Fund Start-ups arguably the most common mistake is launching without enough capital, having not even prepared a breakeven analysis or creating a business plan. Understanding the costs involved is a very important factor to consider in a start-up, for example complex structures cannot be implemented if you have a limited budget.
Trying to launch a business within a few weeks is totally unrealistic.

Believing you can duplicate the strategy you might have ran at a larger firm should be avoided and keep in mind that your track record may not be portable. Never leave a large organisation thinking clients will follow.

Among others, you must be clear on who your target investor is and understand the tax consequences to the investor.
To make the investment flourish you need to avoid these mistakes, due diligence and choosing the right service partners are key factors which can help you do that. However you will reach a stage where youhave to be willing to take some level of risk to help you realise the returns.

At present I am seeing growth in the industry, however at the same time it is being stunted by banks not wanting to do business with hedge funds. As a result, we are constantly finding new ways to assist our clients to overcome these challenges.

Just like any firm the staff play a key role behind the success of the firm, in fact without the team at Fundadministration our clients would be lost.

Looking ahead to the remainder of 2016 and beyond we are looking at some strategic partnerships that will hopefully accelerate our growth as well as assist our clients in expanding their funds. The key challenges will without doubt be banking, cyber security, increased regulations and reporting.

Founded in 1990, we are a leading global hedge fund administrator with offices located in New York and clients around the world.

Our highly professional and experienced associates provide our clients with world-class service, transparency and oversight along with independent data verification. Our cutting-edge technology is fully automated, flexible and provides a cost-effective level of reliability that meets the specific needs of our client’s sophisticated investors.

Company: Fundadministration, Inc.
Name: Denise DePaola, CPA, CEO
Email: [email protected]
Web Address: www.fundadministration.com
Address: 4175 Veterans Memorial Hwy, Suite 204,
Ronkonkoma, NY USA, 11779
Telephone: 631-737-4500

Hedge Fund Manager of the Month - USA
FundsHedge

Hedge Fund Manager of the Month – USA

What is the Tradex Relative Value Fund?

The Tradex Relative Value Fund is a structured-rates hedge fund strategy. The Fund uses a market-neutral, multi-strategy approach to achieve superior risk-adjusted returns. Please describe the market-neutral nature of strategy.

We attempt to hedge out risk factors that we do not want to take and focus on those we seek. Thus, in accordance with our expertise, we strive to hedge interest rate risk while collecting carry and capturing price performance from securitized Agency bonds.

Please describe your multi-strategy approach.

We believe that our multi-strategy fixed-income approach is well equipped to provide superior risk-adjusted returns over a full range of market environments by implementing a duration-neutral combination of prepayment arbitrage, relative value trading and opportunistic investing.

In Prepayment Arbitrage, we attempt to identify opportunities where collateralized Agency bonds are cheap relative to their intrinsic value. We accomplish this by developing a more accurate view on prepayments and the resultant cash flows than what is priced by the market. Given the varying degrees of sophistication across fixed-income investors with differing objectives and constraints, those with superior models and market experience are often presented with lasting opportunities to capture returns.

Relative Value Trading in Agency pass-through securities is a source of alpha in very liquid fixed-income securities. These assets, which are second in liquidity only to US Treasuries, can be arbitraged via econometric mean-reversion strategies to produce high-conviction, short-term trades that last from days to weeks.

Opportunistic Investments may be the result of broad dislocations as seen during the Great Recession and the Great Recovery. Many fund structures limit investment strategies and leave money on the table when outsized opportunities occur. Given this reality, we designed the strategy to take advantage of such dislocations. Due to the uncertainty seen in markets today, this sleeve should augment return for our investors.

Please provide us with some background on the Portfolio Manager.

In 2014, Jeff Kong founded Tradex Global Advisory Services, for which he directs all investment activity. Prior to Tradex, Jeff was a Portfolio Manager at San Francisco-based Passport Capital. Jeff started his hedge fund career at Structured Portfolio Management, where, from 2000 to 2010, he managed the $1B flagship SPM fund, Structured Servicing Holdings (SSH) that annualized 23.56% net during his tenure as Portfolio Manager. Bloomberg Markets ranked SSH the #1 Large Hedge Fund in the world and SSH placed #8 in Barron’s Top 100 Hedge Fund List. Jeff is a member of the Association of Asian American Investment Managers.

Whatever the current market conditions are, why do prospective clients need to be confident that their manager is able to best serve their unique needs, provide goal-oriented investment management solutions and deliver strategies in order to preserve and prudently grow their wealth through all economic and market cycles?

Our experienced team works closely with each client. We tailor our investment management practices to the specific risk tolerance and investment objectives of both our institutional and individual investors.

We also accommodate our clients by establishing investment vehicles that fit their unique requirements in terms of SMAs. Investor relations is a central part of our business, and our team has decades of experience meeting the special needs of our clients who represent a variety of investor profiles.

How can your company assist in achieving meaningful investment results through the disciplined application of time-tested methods of analysis?

Our Portfolio Manager, Jeff Kong, has weathered many business cycles over his 25-year career in structured-rates that began at Greenwich Capital in the 1980’s. Jeff is regarded as a pioneer of the prepayment arbitrage strategy. Over his career, he developed and refined the multi-strategy approach to fixed-income investing that is utilized in the Tradex Relative Value Fund. This evergreen investment approach is unique in that it is interest rate neutral and it has the potential to profit from rate uncertainty. Jeff’s investment management skill has been tried and proven in the most extreme market conditions, and he has consistently delivered stable returns to investors.

What do you believe contributes towards successful investment outcomes?

A disciplined approach to risk management is the key to successful investing. Our investment team has built a robust and rigorous system to maintain our intended exposures precisely, at both the portfolio and asset levels. As part of our market-neutral approach, we attempt to hedge out the risks we wish to avoid while managing those risks that we seek. We strictly limit our exposure to our areas of expertise, taking prudent positions based on structured rate fundamentals and spread risk. We believe this focus is an important driver of long-term performance.

Company: The Tradex Group
Name: Jeff Kong
Email: [email protected],
[email protected]
Web Address: http://www.thetradexgroup.com/
Blog Address: http://thetradexgroup.blogspot.com/
Address: 35 Mason St, Greenwich, CT 06830
Telephone: (203) 863-1500

Ones to Watch in Hedge Funds 2016
FundsHedge

Ones to Watch in Hedge Funds 2016

The Bank of Valletta group was first mover on the island to set up a fund administration activity; to this date, VFS still boasts of being the leading firm in fund administration in Malta, representing over 30% of the market in terms of Net Asset Values of funds domiciled and licensed on this island. Malta’s legal and regulatory infrastructure, as well as its permeating can-do mindset has ensured that the funds industry continues to grow from strength to strength, attracting towards it both the setting up of investment funds in Malta (retail and alternative funds), as well as service providers to same. Within this context of a highly competitive fund administration environment, with over 27 companies offering fund administration, VFS has retained its market leadership.

VFS’s philosophy is to deliver services in a professional, timely and accurate manner whilst addressing the demands of our customers. This belief builds upon the creation of long lasting relationships with clients, reinforced by reciprocal trust, commitment and engagement.

VFS Services

Such commitment is further evidenced by the diverse hedge fund strategies serviced by the company, the provision of ad hoc services required by this segment, as well as through our support in assisting fund promoters in choosing the best suited hedge fund framework. Malta’s regulatory framework caters for the diverse risk profiles of investors, whilst addressing the needs arising from the investment managers’ strategies. VFS’s active participation in providing its support in the pre-structuring phase, as well as the on-going management of the licensing processes, is testimony to the company’s commitment to the hedge fund industry’s continued growth and development.

VFS strives to be proactive in terms of the dynamic nature of the market, the growing sophistication of investors, the evolving regulatory framework, as well as the challenges and demands faced by the fund managers. We aim to ensure ease of setting up and running a fund in Malta by offering a one -stop solution approach for structuring of funds, redomicilaitions, cross border mergers and passporting.

The company’s commitment to further support new start-ups and the existing client base is also manifested through the provision of ancillary services, ranging from regulatory reporting for AIFMD, Common Reporting Standards and FATCA, production of fact sheets, monthly management accounts and on-going regulatory reporting. In view that VFS forms part of the largest banking group in Malta, support to this sector takes a deeper dimension, thanks to the provision of custody services, brokerage, opening of bank accounts, as well as hedging arrangements.

Through our holistic approach, our clients are assured of all forms of administrative and related support, allowing fund managers to focus on their own internal core competences: the investment management function.

VFS Achievements

In order to be able to achieve these milestones, VFS invests heavily and continuously in its IT infrastructure and the development of employees, aiming to improve their skills, knowledge and competences. This ensures the provision of a qualitative service and meeting clients’ expectations.

Over the years, VFS’s commitment and reputation have been widely recognised and evidenced through the numerous awards presented to VFS by various specialist entities. These achievements have undoubtedly been validated by our client base, who have also contributed to the growth of the company through their endorsement and recommendations.

Company: Valletta Fund Services Limited
Name: Joseph Camilleri
Email: [email protected]
Web Address: www.vfs.com.mt
Address: TG Complex, Suite 2, Level 3, Triq il-Birrerija,
l-Imriehel, Birkirkara BKR 3000 MALTA
Telephone: (356) 2122 7148

Ones to Watch in Hedge Funds 2016
FundsHedge

Ones to Watch in Hedge Funds 2016

At Venus Capital, their firm focuses on well collateralized direct lending to small and medium enterprises (SMEs) in India with low loan to values and other safeguards to help protect the return of capital. Among their diverse range of clients include corporate pension funds, family offices and sovereign funds in US and Europe. Throughout their time, the company has advised private funds invested in a variety of asset classes focused on India including its current offering of a direct lending fund. Today, Venus Capital remains at the forefront of sourcing, developing and executing different approaches for investors.

“The firm runs the Venus India Structured Finance Fund, which has invested through a tax efficient structure through Mauritius, into an operating company in India that makes loans to SMEs,” says Mehrotra. “We manage investment risks by making all decisions through a four member investment committee, which has to approve loans on a unanimous basis.”

When asked about how their company has risen from the ranks to become leaders in their industry, Mehrotra believes that this is primarily due to the long-standing relationships they have built. “Since our inception over 20 years ago, we have developed a relationship-based ecosystem that includes brokers, analysts, fund managers and independent investors – all of whom are invaluable in assisting us in identifying, sourcing, and analysing investment opportunities,” says Mehrotra. “A combination of unique insight and application of sound ideas helps Venus Capital in capitalizing upon the dynamic growth in India and related emerging markets.”

It is this desire to build and maintain relationships that is at the heart of everything Venus Capital do, and has been a key contributor to their investment strategy. As Mehrotra outlines: “Our biggest asset is our deep network of on-the-ground contacts who constantly work with us in assessing and evaluating both risk and opportunities. Local execution is the key. Though we have a global presence, it is the local intelligence to judge the creditworthiness and intention of a borrower that matters the most. We have developed a network of relationships that gets us the qualitative information on a borrower to make the right decision.”

As for their team, Venus Capital has a very selective process when it comes to choosing their staff. The CEO of Venus India Asset Finance,who they hired in July 2015, comes from the largest private bank in India and handled a credit portfolio of $2B during that time. The company’s board selects key people like the analysts, compliance and legal, while many operational hires are left to the CEO to decide. Similarly, a high level of research and analysis is undertaken when deciding whether to work with a client. “For us, lending is always about the behaviour of the client, especially during trying circumstances and the intentions at the time of borrowing. Moreover, no balance sheet can provide the whole story about a particular client. Hence, we have developed the network of people in the financial and banking community, who are able to obtain the necessary information to verify the credibility of the borrower.”

In terms of the ethos of Venus Capital, corporate social responsibility is of paramount importance to the company, where they are heavily involved with a number of organisations dedicated to developing communities and improving the lives of vulnerable people. “We firmly believe in giving back to the community in which we live and work, and take great pride in helping a highly diverse range of charitable organizations,” says Mehrotra. “For example, we support IIMPACT, which provides educational opportunities to girls aged 6 to 14 years from socially and economically disadvantaged communities in India who traditionally have had no access to schooling. Their aim is to break the cycle of illiteracy that girls from such communities are mired in. This is done through local community based learning centers where they are provided meaningful and stimulating education to guide their entry into formal schooling. These are just one of the many organisations that Venus Capital takes tremendous pride in sponsoring.”

As a company immersed in the Indian market, there are number of challenges and opportunities that are specific to their region. “From our experience, it is always important to keep the costs low for a borrower,” says Mehrotra. “With the Indian government’s risk-free rate for a ten-year treasury currently running at around 8%, a small and medium enterprise borrower ends up borrowing at 16.5% approximately. As a result, it is important to have low cost funds and still make a good spread over it. “As mentioned earlier, our collaborative approach helps keep Venus up to date with the latest local information,” added Mehrotra.

“Our management and analysts stay ahead of emerging trends in the industry by operating customised technology to monitor interest and principal payments. Furthermore, we subscribe to industry and economic databases and services, such as Bloomberg, for collecting quantitative data. The most important thing is to collect qualitative data to know the intention of the borrower, in order to stay ahead of the market. The key is to create innovative customized solutions in an efficient, fast and nimble manner.”

In looking closer at their investment strategy, Mehrotra believes that there are a number of aspects which help them differentiate themselves from their peers, particularly in the level of care and consideration that goes into their strategy. “We feel our approach to investing in India through direct lending is a prudent one, particularly when you consider that our typical loan has a loan to value ratio of 33-40%. If an investor has the potential to achieve returns approximating those of a private equity investment with risks more reflective of a senior secured lender, why would the investor accept the increased risk of private equity investment?”

In spite of their success, Venus has had to overcome a number of obstacles to reach the heights that they have achieved today. When asked about their biggest challenge at present, Mehrotra believes that this is the appreciation of the USD against emerging market currencies. “Although the Indian Rupee has fared better against GBP and the Euro, it has declined slightly against the USD in last 12 months,” Mehrotra explains. “The Indian Rupee has done relatively well compared with other emerging market currencies. In the short term, it is a function of money flows into India but commodity deflation is helping Indian currency as import bill has gone down. Venus occasionally hedges against the decline in Indian Rupee, if macro fundamentals are looking bad and its models predict a slowdown of investment flows into the country.

“However despite these challenges there are a number of opportunities inherent in working in this market,” added Mehrotra. “The opportunity to be a shadow lender in India emerges from the fact that there is a tremendous need for growth capital and commercial banks are restricted in many ways to fulfil that need. Banks are not nimble and flexible enough to understand the needs of the small and medium enterprise borrower. After the credit crises of 2008, they have mostly focused on the larger borrowers, leaving opportunities to work with smaller borrowers. This asset class offers a better risk adjusted return in India. Eventually, the plan is to take the operating company public in India, giving equity investors an exit, assuming favourable operating results, market conditions, and other contingencies, of course.”

Looking further ahead into 2016 and beyond, Mehrotra believes that their company will continue to ride the waves of success. “There are a number of areas into which Venus can grow, and will provide us with a fresh set of opportunities. We are currently evaluating on whether we should enter the housing finance and purchase of non-performing assets business in India. Furthermore, banks are being told by central banker to clean up their balance sheets and both of these areas have good opportunities which will keep Venus busy for the foreseeable future.” 

Company: Venus Capital Management, Inc.
Name: Vik Mehrotra
Email: [email protected]
Web Address: www.venuscapital.com
Address: 99 Summer Street, Suite M100, Boston, MA 02110
Telephone: +1-617-423-1901

Ones to Watch in Hedge Funds 2016
FundsHedge

Ones to Watch in Hedge Funds 2016

We handle redomiciliations of investment schemes from offshore domiciles to Malta, passporting of UCITS funds to various EU markets, as well as cross border mergers for UCITS funds merging into Malta based funds.

Malta’s fund industry was largely created on the strength of the hedge funds already established locally; with this alternative domicile being recognised to host an ideal regulatory infrastructure that can cater for the requirements of the sector.

Being the local market leader in fund administration, in terms of market share has been key in providing its services to this market segment. VFS’ commitment has in fact been by way of its ongoing business promotion initiatives in the company’s core markets, targeting the hedge fund and alternative space.

Our commitment is further evidenced by the diverse hedge fund strategies serviced by the company, the provision of additional services required as well as assisting fund promoters choose the best suited hedge fund framework.

In effect, Malta’s regulatory framework for hedge funds is not a onesize- fits-all model, but is multi-layered catering for the diverse risk profiles of investors, as well as addressing the needs arising from the investment managers’ diverse strategies.

Apart from the provision of mainstream fund adminitration services, VFS as Malta’s largest fund administrator strives to be ahead of the curve in terms of the dynamic nature of the market, growing sophistication of investors, evolving regulatory frameworks, challenges faced by fund managers and their ensuing demand.

The company’s one-stop solution approach for structuring funds, redomiciliations, cross-border mergers and passporting, alongside the full suite of traditional fund administration services ensures the ease of setting up and running a fund in Malta.

VFS’ commitment to further support new start-ups and the existing client base is also manifested through the provision of ancillary services, including regulatory reporting for AIFMD, CRS and FATCA, support to fund managers by way of fact sheets, monthly management accounts and on-going regulatory reporting, as well as support from the parent company, Bank of Valletta, in terms of custodyship, brokerage and banking services including opening of bank accounts, as well as hedging arrangements.

Adopting such a holistic approach ensures that our client base is assured of all forms of administrative and related support, thereby facilitating fund managers to focus their attention on their own internal core competences.

The company’s mantra is to deliver a comprehensive suite of services to asset managers in a professional, timely and accurate manner that addresses their diverse and growing demands. The philosophy permeating the psyche of the company is based on building long-lasting relationships with clients, underpinned by reciprocal trust, commitment and engagement.

VFS has over the years been awarded by multiple specialist magazines as the Best Administrator in Malta, no doubt an endorsement by our client base who contributed to this. It must also be stated that business generated through word-of-mouth recommendations by existing clients is another major contributor to the company’s business growth. VFS recognises its employee’s as the company’s main asset.

VFS therefore invests heavily and continually in its staff development, with a view to improve their skill-sets, knowledge and competencies, considered fundamental to offer a qualitative service that meets clients’ expectionations. 

Name: Joseph Camilleri
Email: [email protected]
Web Address: www.vfs.com.mt
Address: TG Complex, Suite 2, Level 3, Triq il-Birrerija, l-Imriehel Birkirkara
BKR 3000 – Malta.
Telephone: (356) 2275 5599

Ones to watch in Hedge Funds 2016
FundsHedge

Ones to watch in Hedge Funds 2016

Our company’s niche area is in alternative investments, and at the moment we manage two investment funds. The first is the Physical Diamond Fund, which broadly invests in rough diamonds and natural polished diamonds. The diamonds are directly sourced from producers and they are certified by a Gemmological Institute. The fund targets a return of 5% to 6% p.a. with a target volatility of 2%-3% p.a. Furthermore, in 2015, the fund was selected as “Swiss Fund of the Year” by “Global Awards”.

Our second fund is called the Triple Opportunity Fixed Income Fund, which invests globally in government bonds, corporate bonds, convertible bonds and short term securities and securitised derivatives. The fund may use up to 200% Leverage, and the target return of the fund is 6% to 8% p.a., with a target volatility of 10% p.a. In 2013, the fund was elected as “Best Fixed Income Fund Europe” by “World Finance Hedge Funds Awards” and in 2014 the fund was elected as “Best Fixed Income Fund Switzerland” by “IFM Awards”.

When it comes to our process, risk management is essential. Finanz Konzept AG has a risk management framework that is designed to identify, monitor and mitigate the portfolio risk. Alongside this implementation, Finanz Konzept AG combines external research and inhouse proprietary research in order to adapt to changes in the market environment and future opportunities. In order to stay ahead in our highly competitive industry, our team of research analysts are constantly investigating the markets in order to identify the best opportunities for our clients.

With regards to our region, Switzerland is one of the most competitive markets worldwide in terms of wealth management and asset management. Nonetheless, we manage to constantly grow our assets under management by offering innovative investment solutions and products to our clients.

As well as our highly innovative investment strategy, our approach towards client services also adds to our armoury in terms of standing out from our peers. Clients are our top priority, and we spend a lot of time with our clients to permanently understand their goals and needs. This enables us to construct “state of the art” tailor made portfolios.

Across the board, we are a people orientated company, and this extends beyond the close relationships we keep with our clients. Our staff are a tightly knit team who share the same values but at the same time bring their own unique skills to the company too. We employ experienced staff and look for a mix of employees with different educational and cultural backgrounds, and in this way we can learn from past experience and benefit from insights from best practice from multiple geographies. Moreover, we ensure that we work in teams so that discussion is possible and the best ideas make it to client portfolios.

Within this environment, our employees care passionately about doing work that helps others. They value teamwork, and they’re always willing to pitch in or stay late if someone is behind on an important deadline. This has led to a culture of trust, friendliness and mutual respect within the team and to much better results for our clients in terms of service and performance. Our people are by far our strongest asset, and we know that the talent and points of view of diverse individuals are what has built our legacy and shapes our future.

Looking towards the future, we are confident that our company will continue to grow and prosper. In the second half of 2016 we are planning to set up a Private Equity Buyout Fund which seeks to finance proven and technology driven businesses in the DACH region. Our cost efficient structure enables us to profitably focus on the micro segment. We expect MBOs/MBIs -because of a lack of succession-and growth financing to be the major drivers for private equity in this segment. Companies at that size often lack to make the best out of clear technology advantages. Therefore, we follow a hands on approach and support our companies not only with capital, but also with know how in specific fields like internationalisation, structure and strategy. This is quite an exciting opportunity for us, and we look forward to see what’s in store for us in the coming months.

Company: Finanz Konzept AG
Name: Florian Agarwalla
Email:[email protected]
Web Address: www.finanz-konzept.ch
Address: Schulhausstrasse 42, 8001 Zurich, Switzerland
Telephone: +41 44 204 34 62

Ones to Watch in Hedge Funds 2016
FundsHedge

Ones to Watch in Hedge Funds 2016

24FX Global is an independent family office and a trading, advisory and currency hedging firm for global institutional and HNW clients. We spoke to Andy Schnappberger, MD of the company, to find out more about their company and learn the secrets behind their success.

At our firm, we manage individual accounts in the Forex Market and offer tailor made solutions for an external capital markets advisory, technical research and act more and more as an exclusive advisor for HNW and family offices. In terms of our approach, this is focused on technical and quantitative algorithms that are unlike any that you’ll find at our peers. Moreover, our performance target is over 20% per annum in all market conditions.

In terms of our background, 24 FX Management started as an external prop trading unit of a family office in the Monaco/South of France region at 2002. As a result of the success in our trading, we grew relatively fast, having another two family offices under management and consolidated all of our trading relevant activities in 24FX Management. This meant that all prop trading and capital market advisory was provided as an external firm to these three family offices. After that, our client base expanded, and led us to being involved with smaller FO, prop trading units, hedge funds and HNW with an understanding of risk. Due to our structure, we do not work for the retail sector. While growing even further in the past few years, we partnered with a financial advisory firm to form and to consolidate all trading and capital markets management and advisory, as well as external technical research activities.

Throughout this time, we are proud to say that we still have our very first investors and founding investors as clients or under management, and believe that this is a testament to how important we value long-term client relationships. Our understanding of risk and volatility (and of course the real difference of these two most important factors) as well as the needs of our clients have provided the basis for some very fruitful and long-term business relationships.

Looking closer at the services we provide, our main experience and investment experience lies in global spot FX trading as well as trading in derivatives such as bonds and indices. Meanwhile, we are also partner with family offices who want to build up an active trading arm as well offering tailor made technical research. One of our newer features is that we teach and coach HNW or trading units on several low risk trading tactics. This is if they want to manage some funds on their own or in-house alongside their external or third party investments. We have found that this service has resonated well with our clients, particularly in the Asia and Middle East regions. It is expensive and demanding, but has the possibility to reap some very impressive rewards. However, our main focus is in managing individual spot FX accounts.

Our portfolios are 90% managed in the Forex market. So the main risk and reward comes from actively forex trading. During this process, we discuss with a client the risk tolerance as well as the connected reward and volatility aspects with these parameters. It is between these parameters that all currency risk is managed. In my view, a good managed forex portfolio account should have a good share in everyone’s global portfolio. I believe that the performance opportunities are the best from all asset classes when it comes to technical trading. From my experience, currencies as an asset class can be very much less riskier than other asset classes. Among other factors, it depends on the leverage of the account, and FX can be the performance booster of any account. Therefore, it is extremely important that the risk is completely understood by both the investor and the trader/portfolio manager.

When looking back on our success, I believe that there a number of ingredients that have contributed to our performance. First and foremost, we have an excellent and trustworthy team. Further, we have a philosophy that is against any corporate games and ego trips, and don’t worry about the fancy titles on our business cards. From our perspective, the most important card for a trader should be his/her ATM card. As our industry can be quite intense, the right mind-set when it comes to trading and managing financial markets is fundamental, and you need the willingness to adopt and develop your personality. Perhaps often undervalued in our industry is that every member of our team needs a personal life that is outside of the financial markets. All in all, I believe that an open mind is important as well as surrounding myself with people who share the same qualities and habits.

When it comes to alpha management and pure trading risks, I believe that the quote from Albert Einstein “Everything should be made as simple as possible, but not simpler” speaks volumes.

Company: 24FX Global Advisors
Name: Managing Director Andy Schnappberger
Email: [email protected]
Web Address: 24fxglobal.com
Telephone: Voice: 33 4 8973 2266 / Direct: 49 15902 47 49 47

Hedge Fund Manager of the Year 2015 - USA
FundsHedge

Hedge Fund Manager of the Year 2015 – USA

Exception Capital was born out of a family office structure, and as such our work revolves exclusively around the management of The Family Fund and ensuring we generate the best risk managed returns possible for investors. Currently the firm’s AUM stands at $42mm.

Launched in 2012, the Family Fund is a unique global multi-strategy portfolio that is designed to mimic the asset allocation of a classic Family Office. As such the fund invests globally in public equities, private securities, direct lending structures as well as external niche alternative managers.

Diversified by geography, asset class and positions it has, since inception in Q3 2012, outperformed all benchmarks and indices but with lower volatilities and reduced correlations.

The fund seeks to uncover ‘below the radar’ investment opportunities which our competitors misprice, misunderstand, overlook, disregard or simply cannot access. Since inception the fund has appreciated over 51% and has average annualised returns of approximately 14%. In 2015 the fund returned an impressive 12.4%

We consider this fund to be completely unique product in the marketplace, as no one else as of yet has developed such a hybrid structure.

Another means by which we differentiate our business from that of our competitors is our strong returns. This business is a performance business and the risk-adjusted returns are how we are all measured against our peers and, where applicable, benchmarks.

As a company we stand out on all those measures, and our ability to consistently generate returns for our
clients from multiple sources has been particularly satisfying over recent years. In Q4 of 2014 it was adding to oversold positions in the downturn that got us through a tough October; last summer we took one of our private positions public on the London market; in 2015 our basket of Argentinian ADR’s has produced excellent returns, as have our UK smaller company names and external managers.

With regards to risk we take a view that you have to take some degree of risk in order to create returns. We don’t put ourselves forward as risk free as we would not be able to generate the returns we have if we were. However, we do operate robust risk management controls and the main driver of which is diversification of the portfolio by strategy, geography, number and size of positions. This strategy has proved very effective and provided us with minimal correlation with the markets.

The fund operates on a global basis and it is my experience of living and working in Asia, Europe and the US and the networks developed that have come to bear on the portfolio.

The opportunities available within these markets provide us with an exciting challenge. When you have a global universe as your opportunity set it is important to develop the skill to rapidly cut the wheat from the chaff. Developing and maintaining networks, finding and researching opportunities and realising the value in those opportunities is what drives us. 

This is reflected in our mission statement: “We aim to deliver consistent mid-teen returns with upside volatility supported by a corporate culture underpinned by integrity and trust.” These principals pervade throughout everything we do, and ensure that we are always on the best possible terms with our investors and delivering strong returns.

Moving forward we intend to continue with our current strategy. We have proved over a number of years that our repeatable process works and we will stick with that. The year ahead means more hard work finding and working on opportunities and turning those opportunities into hard performance numbers.

I have seen so many fads come and go over the years that I have come to believe that we are best developing our business on what we do best.

From a business perspective we will be looking to grow the assets under management and the infrastructure of the firm. I have sat across from many hedge fund managers over the years and have seen so many with say $50m under management and based on that an all-encompassing infrastructure – numerous analysts, a good sized office, numerous Bloomberg screens etc. A few poor months of performance and it becomes impossible to raise AUM and as result they soon go out of business. I have always said I would grow the infrastructure as we grow the AUM. I consider
this to be prudent business practice and it considerably de-risks an investment in the Family Fund.

Hedge Fund Manager of the Year
FundsHedge

Hedge Fund Manager of the Year

The world of investment management has never been more competitive, and so it was refreshing to speak with Andrew Sandoe, Chief Investment Officer for Fidelis Capital. Andrew said unabashedly, that Fidelis (from the Marine Corps motto Semper Fidelis) is an extension of the service orientation espoused in the US military. “At Fidelis, our mission is to offer our investors greater economic opportunity and lower stress by delivering consistently high risk adjusted returns.” Fidelis uses a quantitative value strategy that historically has offered 15 – 20 percent annualized returns with about 18 percent of the risk of the S&P 500. Andrew describes Fidelis’ stock-picking differently, by quoting Mohnish Pabrai: “Heads – we win, tails – we don’t lose much.” This confidence led Fidelis to offer an almost unheard of zero management fee structure, where Fidelis only thrives by delivering profits, above a hurdle rate, to investors.

To achieve these results, Mr. Sandoe focuses on two primary jobs within Fidelis: rigorous portfolio analysis and assembling the top talent in the field. He notes, “My first and primary job is managing the portfolio in a way that maximizes long-term, risk-adjusted returns. As for the team, he adds that he is truly inspired by those on Fidelis’ close-knit team. The founding team came together while pursuing graduate work at MIT. Concurrently with their founding, they began working with three top faculty members, two of whom authored some of the seminal research in the quantitative value space. To this strong academic core, he added team and Board members who had each spent 30+ year careers in applied investment management.

As for the thinking behind Fidelis’ strategy, Mr. Sandoe relies on hard lessons learned during his career as a pilot in the Marines. Through several combat deployments, Mr. Sandoe saw how people functioned under significant stress. He noted that “most people make terrible decisions while under the influence of emotion or duress. This is equally true in the stock market.” This experience was empirically validated in the research of Daniel Kahneman. Recognizing the inherent risk of emotion based decision -making, Fidelis developed a systematic process which strips out human bias and emotion.

Mr. Sandoe and his team began their research in 2012 by proving that value investing was the single best performing investment strategy across US market history. The Achilles’ heel to this method is human bias and emotion, particularly our need for immediate gratification. With this in mind, Fidelis developed a systematic process that corrected for the unhelpful tendencies inherent in human nature. Fidelis’ process allows them to filter the entire investable universe down to an extremely high potential portfolio of stocks.

The filters include eight core tests:

• Value – Cheap stocks relative to the potential returns they could generate.

• High and improving financial quality – Well capitalized, low debt, improving fundamentals.

• Conservative accounting – no earnings or accounting manipulation.

• Value Traps: Is the company cheap for a good reason?

• Insiders: Are the insiders buying back shares in their personal accounts?

• Systemic risk: Is systemic risk supportive of equity gains?

• Momentum: Is the market momentum supportive of equity investment?

• Asymmetric upside: Is there at least 5:1 upside opportunity vs. downside risk?

The result of this process has been consistent outperformance of the indices and happy investors. In any competitive occupation, whether professional sports, investment management or the military, being able to deliver consistently is paramount. The ability to delay gratification in order to achieve a larger reward at a later time is crucial to long-term success. Many investors undermine their investment performance with a short-term orientation, recency bias, and loss aversion (to name a few). Fidelis uses its rulebased approach to avoid these common traps.

In a world where central banks have put a floor under asset prices (via the artificial stimulus of Quantitative Easing “QE”), there has been no need for hedge funds. Since early 2009, markets have moved almost entirely in one direction. However, since QE ended, volatility has returned to the market and hedge funds are once again showing their value. As Seth Klarman (Baupost Group) loves to reference, an investor who earns 16 percent annualized returns over a decade will retire at the end of it with more than a similar investor who earns 20 percent for nine years and then loses 15 percent in a market correction. If markets continue to revalue to reflect a post-QE, rising interest rate, high valuation environment, we can expect that hedge funds will continue to grow as they protect investors from heightened equity risk.

Within this industry, competition will remain fierce. However, when you look at risk-adjusted returns (Sharpe ratios) across hedge fund strategies, one can identify the good stewards of client assets. This industry attracts more than its fair share of snake oil salesman, but a knowledgeable consumer should look at the amount of risk managers are taking in pursuit of compelling gains. The vast majority of managers are simply trying to achieve gains through leverage, and these strategies are ultimately doomed to fail.

A consumer is better served by identifying managers with two or three verifiable edges, who can consistently buy high quality companies at cheap prices, and has the patience to wait while market prices shift to reflect the portfolio’s fundamental health. Investors that stick to these timeless (and empirically proven) methods are likely to be very satisfied.

Fidelis employs timeless value investing principles, but applies them using cutting edge quantitative tools, in order to identify high potential companies that may have been dismissed by the market. Essentially they are front-running market expectations. They acquire companies when markets are convinced that they will languish forever, but only do so after the company’s fundamentals indicate robust health. This has worked well in 2015, a year many said was the most challenging of their careers. We expect that since humans do not change much value investing will continue to deliver strong risk adjusted returns, and will remain as unpopular as ever.

Name: Andrew Sandoe
Company: Fidelis Capital Management
Web: www.fidelis-capital.com
Phone: 781-990-1861

MFA
FundsHedge

MFA, AIMA File Comment Letter on SEC Derivatives Rule

While generally supporting several aspects of the SEC’s proposal, including asset segregation requirements and an activities-based approach to regulation, the Associations have concerns with the adverse effects of the rule’s imposition of a new notional-based leverage limit on registered funds.

The letter also questions the SEC’s attempt to redefine and regulate derivatives as “senior securities” under Section 18 of the Investment Company Act of 1940.

MFA President and CEO Richard H. Baker said: “Both institutional and retail investors have shown increasing demand for registered funds that offer alternative strategies using derivatives. Many of these strategies provided substantial benefits to investors during the global financial crisis and continue to do so today. While we support many aspects of the SEC’s proposal, the Commission’s policy objective to protect investors would be well-served by establishing a better balance between authorizing funds to use derivatives for hedging, risk-mitigation and investment purposes, and imposing reasonable, practical restrictions that address the risks derivatives may present to funds and their investors.”

AIMA CEO Jack Inglis said: “Basing funds’ portfolio exposure limits on the aggregate notional amounts of derivatives transactions is too blunt a measure, and will force many funds that do not, in fact, have a material amount of risk due to leverage to substantially alter their strategies or de-register without good reason. This outcome will have the potential unintended effects of limiting investor choice and undermining investor protection by depriving investors of opportunities to invest in alternative mutual fund strategies and their potential benefits.”

The letter suggests alternative options for the Commission’s consideration and provides qualitative and quantitative support for the Associations’ main concern – that a new notional-based limit is “unnecessary and inappropriate, because it lacks sufficient justification given the practical effect of the Commission’s proposed asset segregation requirements and the potential reinforcing effect of the Commission’s other related regulations after their adoption.” The letter also notes that basing a fund’s portfolio leverage limit on the aggregate notional amount of a fund’s derivatives is too blunt of a measure because it has inherent problems as an accurate measure of risk and leverage.

To address these and other concerns with the proposed rule, the Associations make several recommendations in their letter, including that:
• A broader scope of liquid assets with appropriate regulatory haircuts be allowed as qualifying coverage assets for asset segregation purposes – rather than restricted only to cash and cash equivalents – so the proposed rule would not strain a fund’s ability to hold sufficient cash and cash equivalents in reserve to satisfy the payment obligations under its derivatives transactions;
• A fund’s board should be authorized to base the proposed risk-based coverage amount on no less than the required initial margin for each of the derivatives transactions in the fund’s portfolio;
• A fund should have the flexibility to determine which types of derivatives transactions may properly offset other derivatives transactions in calculating derivatives exposure. For example, a fund should be permitted to offset a futures contract against an option, if the offset reduces exposure and risk; and
• If the Commission decides to impose a notional-based limit in its final rule, the letter explains the merits of allowing funds to use risk adjustments to notional exposure based on a derivatives transaction’s underlying asset class to determine more accurate measures of a fund’s actual derivatives exposure.

 

Hedge Fund Manager of the Year 2015
FundsHedge

Hedge Fund Manager of the Year 2015

Alkimis SGR was established in 2008 by Massimo Morchio, backed by several well-known Italian family offices. The firm is regulated by the Italian/European law and supervised by Bank of Italy/Consob. Massimo Morchio was previously CIO at RAS, Italy’s second largest insurer, where he ran over EUR 40 billion in long only assets. He left in the wake of the company’s takeover by Allianz.

The firm currently manages Luxembourg Sicavs and Italian mutual funds, all run with the same equity long/short, low volatility strategy. Morchio heads up a team which also worked together at RAS, including Luca Montorfano, former head of European equities and currently Chief Investment Officer of Alkimis.

With regards to products, Alkimis equity L/S strategy is implemented into several investment vehicles:UCITs compliant mutual funds and SICAVs or advisory mandates, managed either directly or as delegated investment manager.

This strategy aims to generate absolute returns with moderate volatility. It invests – purchase and short sell – in international equities selected through proprietary fundamental analysis based on cash flow. Long/ short performance is the main driver of the strategy return, not correlated with the direction equity markets. The strategy is declined into 4 investment vehicles with identical portfolios.

• Alkimis Capital UCITs (ALKCUTS IM, IT0004550882). Open-end mutual fund established in Italy. Also available as a “coupon fund”). Inception Nov 2009.
• Alkimis Capital (ALKCAPC IM, IT0004550783). Hedge fund established in Italy. Winner of the Mondoalternative 2014 prize. Inception Nov 2009.
• Duemme Alkimis Absolute (DUEALKI LX, LU0630939048; DUALKCI LX, LU1031506550). UCITs compliant Luxembourg Sicav. Available on AllFunds Bank. Inception July 2011.
• Unicorn Alkimis Equity Alpha (UAEARCE LX; LU0987301685; UAEAICE LX, LU0987301842), UCITS compliant Luxembourg Sicav. Inception February 2014. Also available in CHF hedged units.

The firm’s Alkimis UCITs fund is among their most successful, and since inception (27/11/2009) the fund has returned 26,6% with a volatility between 4 and 5%. The equity L/S strategy employed by the fund has proved to be uncorrelated not only with equities, but with all major asset classes, like bonds and commodities.

More recently, the firm has started to offer an additional strategy to its clients, called “Special Values”. This high conviction – long only strategy is designed to provide capital appreciation over the medium term, investing
in a limited number (20-25) of international companies selected across all sectors, with attractive shareholder remuneration policies. It was originally implemented as an advisory mandate in Feb 2012, and later (Feb 2014) incorporated into two investment vehicles with identical portfolios.

The strategy is available through the following funds/subfunds:
• Alkimis Special Values (DUMSAII LX; LU1008677459), UCITS compliant Luxembourg Sicav. Available on AllFunds Bank. Inception February 2014.
• Unicorn Alkimis Dividend Plus (UADPRCE LX; LU0987301925), UCITS compliant Luxembourg Sicav. Incorporated in February 2014.

The idea behind the strategy is to select companies that, while still growing the business, have been able to reward their shareholders with stable and growing dividends or/and regular buybacks. With zero or negative rates on corporate and government bonds, investing in companies that provide high and growing dividends year after year, is becoming an increasingly attractive investment proposition for a lot of investors.

As well as these unique investment products, the firm also boasts a cohesive and successful team. Prior to founding Alkimis SGR Senior Partners have worked together for nine years as a team at Ras Asset Management (the 2nd largest insurance co. in Italy), applying the same investment methodology and achieving superior long term results. Ras Asset Manangement was consistently ranked among the best SGR in Italy.

The firm’s CEO Massimo Morchio has previous experience as Head of Global Financials and Head of Specialist Fund in the Allianz Group (Pimco, AGF, Allianz, RAS), as well as being Chief Investment Officer at Ras.

Luca Montorfano, the Chief Investmernt Officer, is also an experienced investor, having previously worked as Deputy Head of European Equity in the Allianz Group (Pimco, AGF, Allianz, RAS) and Head of European Equity at Ras, Italy.

Hedge Fund Manager of the Year Mauritius
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Hedge Fund Manager of the Year Mauritius

Barak’s core investment pinpoints sub-Saharan Africa and is related primarily to the soft agricultural commodities and food product-related sectors. The Barak investment approach is based upon the principles of discipline, diversification, collateralisation and downside-case scenario valuation. The company acknowledges that African investments encompass a certain degree of risk given the nature of investing in a continent whose primary markets are influenced by a multitude of volatile factors. Each investment is thus approached with a stringent on-boarding process
– using both desktop and on-the-ground due-diligence processes
– in order to determine the viability of a potential project’s funding.

As for our fund, The Barak Structured Trade Finance Fund came into inception in February 2009, with approximately USD 500,000 AUM of the Fund Manager’s own money. This is now currently in excess of USD 250m AUM, and up from 160m at the start of 2015. As a result of its success, the fund has won numerous awards over the last few years, with the most recent being the winner of the Global Trade Review Best Alternate Financier in sub-Saharan Africa, which was also won in 2014.

In terms of personnel, there are two fund managers on the fund, as well as four deal originators based in South Africa and two in other parts of Africa. We currently have in excess of 80 counterparties on the book who we provide short-term trade finance to, and operate currently in 15 countries in the SSA region. The fund predominately looks at soft-agricultural commodities to invest, with the most popular commodities currently being fertiliser, FMCG, pulses, equipment, minerals and rice. The majority of the investors are located in the UK and Europe, as well as increasing popularity in the US. To date, the fund has produced highly consistent returns since inception with no negative months to date in its 7-year life, and has a goal of 10% annual returns.

In terms of our strategy, the fund will seek to invest in the full value of trade finance assets or the first loss portion required by all trade financing banks. A particular emphasis will be placed on commodities with a high physical liquidity, and commodities can be of an export, import or regional nature.

Furthermore, transactions always contain an off-take agreement, although typically less emphasis is placed on the credit quality of the off-taker and investment decisions are weighted heavier on trading principles and track record rather than debt principles. Investments are entered into with counterparties well known to the fund managers and track records of counterparties are placed high on the list when investment decisions are made. Investments are short-term and cyclical with most investments made during harvesting season when markets are typically at their lowest. The intention is always to maintain a book with the majority of deals averaging between 100 to 120 days, and this ensures that the deals are not overly short term and that that new deals are permitted as old deals roll-off. Furthermore, it reflects repayment trends by clients, which is very important to the fund managers.

Additionally, the strategy also focuses heavily on global and African commodity prices, and thus takes on transactions that are not heavily reliant on volatile prices, i.e. portfolio exposure will focus on FMCG when commodity markets are as volatile as they currently are.

Although we work in a highly competitive industry, the Barak Structured Trade Finance Fund is arguably the only alternative investment fund focusing purely on African agricultural commodities and trade finance, by providing up to 100% debt to clients. Another important factor is that we have an on-the-ground presence in Africa with the ability to fly out to all of our clients in the matter of a few hours. At the same time a competitor may appear to have an impressive setup in Europe for example, but will be without the capability of an on-the-ground ever-presence in the sub-Saharan African region.

Furthermore, our on-the-ground Origination Team ensures that we are always ahead of the curve in terms of the changing industry, and we have members of this team in all the countries in which we operate as least once a week. The due diligence that is constantly conducted in these countries extensively covers all the possibilities of new opportunities, and we do not rely merely on research papers or what the news is saying or what current news is speculating may be unfolding in the regions.” The bottom line is that Barak’s deal-makers prefer to get a first-hand view before actively pursuing a potential deal.

Looking further into 2016 and beyond, the future holds many exciting ventures, with a strong pipeline of deals and continued strong investor sentiment to fulfil the funding required for these deals. Furthermore, Barak is going to be launching three new funds in the first quarter of 2016 (a longer-term Impact finance fund, a structured credit fund, and an FX fund), which will provide the company even more opportunities to be the leading alternative financier in sub-Saharan Africa, and arguably the whole continent. Watch this space!

Company: Barak Fund Management
Email: [email protected]
Web Address: www.barakfund.com
Address: 14 Marbella Road, Pellegrin,
Trianon, Quatre-Bornes, Mauritius
Telephone: +230 698 0397

Hedge Fund Manager of the Year Europe
FundsHedge

Hedge Fund Manager of the Year Europe

Investment strategy
QW Capital was set up in 2008 and launched their first fund in March 2009. The fist strategy was European equity market neutral investing in Large Cap stocks only. It then evolved into a Global Equity market neutral Large Cap adding to the original European investable universe, an American one; plus, to benefit at the most from diversification a Japanese Portfolio is under construction. From the very beginning, the firm’s approach has been purely non-discretionary and full systematic. All mathematical models underpinning the trading strategies have been
developed internally at 100%.

QW Capital always trades in pairs of stocks belonging to the same economic sector, so that the downside is really limited and the time horizon of the trade is short (i.e. a few days); the investable universe, made out of ca. 10,000 pairs, is re-assessed on a daily basis: In that timeframe it is assumed that two stocks in the same sector will revert to a longer term mean under certain conditions. The models are designed in order to detect whether and when these conditions are met and to gauge the mean-reversion chance, providing the portfolio manager profitable signals to trade.

The company believes that their own models are on average more efficient than their main competitors’ ones because they manage to get rid of more inaccurate, so called “false” signals. A convincing proof of this is their high hit ratio (i.e. the percentage of profitable outcomes on the total of the trades): hit ratio is 63%, rarely heard about in the industry. The strategy is by construction Zero Beta and Pure Alpha, totally uncorrelated to the market: the source of Alpha is given by the dispersion of the different stocks in the market that QW Capital calls Market Vitality; Looking for market dispersion and benefiting out of it implies that this strategy performs particularly well when market are volatile or in presence of market stress or turbulences: it represents a very good “Tail-risk hedge”, so performing particularly well under market stress conditions as proven by QW Capital track record. At the same time it manages to offer a positive absolute performance: indeed, the performance in 2015 was 7% and it is in excess of 3% for 2016 (as per the 17th of February).

“We decided to start with an Equity market and Sector Neutral fund because we wanted to build a strategy that provided “pure Alpha” performance being “strictly sector and market neutral” at any point in time, explains the firm’s CEO and Managing Partner Gianluca Lobefalo in an exclusive interview.

He goes on to expand this point by saying this is pure alpha by definition “because all our position are made of spreads of large cap stocks belonging to the same sector (long and short), and with the same size. The investable universe comprises the 270 largest stocks in Europe excluding Ireland and Greece and the 660 Largest Cap traded in the USindices and are in the process to add the 120 Largest Cap traded on the Nikkei 225. The strategy, along with being zero correlated is characterized by low volatility and limited downside as a direct consequence of the structure of any spread, where the same amount is invested on the long and on the short, with all the spreads equally weighted in the portfolio. So, the exposure in general and in any sector will always be zero.”

“You have limited volatility because whatever happened to the marketyou are always market and sector neutral”. We ended up having a low risk strategy that benefits when there is a lot of trading activity especially where the market is under stress” he continues.

Gianluca Lobefalo cut his teeth in the industry when he worked at JP Morgan in 1997, in foreign exchange research for a couple of years before moving into the buy side at Schroders Investment management still in London for another couple of years. He then moved on to Morgan Stanley where he worked in fixed income for eight years until he had the experience and motivation necessary to start his own firm. But how did he achieve this? “The idea for the firm came to me whilst at Imperial College where I enrolled in PhD program in applied mathematics, during my eight years at Morgan Stanley.

Investment management 

The portfolios, Europe, US (and soon Japan) are run independently. Lobefalo is of the opinion that 2015 started off very well, due to the lessening of interventions by the American Central Bank which enabled the market to be freer, despite some intervention in Europe, Japan and China. However, as stress created by the economic crisis in Greece spilled over into the market, “the market became more unpredictable and under stress”. Our models allow us to see “order and investment opportunities” where most investors just see “Chaos”.

The performance for 2015 was of 7% of “pure Alpha” with zero correlation to the market and low volatility. As expected, our strategy performed particularly well during the most stressed periods of 2015, such as August and December, confirming our effectiveness as a “Tail Risk Hedge”. All in all, 2015 was the year where we managed to over perform our direct competitors in the equity market neutral space, the hedge fund community in general and most, if not all, major equity indices, Lobefalo adds. The final word of Lobefalo who comments that, “If the market continues the way it currently exists, then the future holds many challenges to the fund industry as currently making money is not an easy goal to accomplish; at the same time we expect it to be a friendly scenario for QW Capital strategy

Company: QW Capital
Name: Gianluca Lobefalo
Email: [email protected]
Address: 26 Cadogan Square, London SW1X 0JP
Telephone: 0207 581 3505

Hedge Fund Manager of the Year - Best Long / Short Equity Fund Manager
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Hedge Fund Manager of the Year – Best Long / Short Equity Fund Manager

Chilton has a long-term focus and we view ourselves as investors not traders. The firm seeks to invest in, on the long side, high quality and sustainable business models with organic growth, strong cash-flow generation, good pricing power and management who are good stewards of capital. At Chilton, our strategy is fundamental and the investment process is conducted mainly from the ‘bottom-up’. This ‘bottom-up’ approach involves meeting many companies in order to find the best, and most enduring, investment ideas. On the short side, Chilton looks for ‘melting ice-cubes’ i.e. business models that are in secular decline and with deteriorating fundamentals.

One of the key features of our company is that we seek to generate alpha on both sides of the portfolio, long and short, throughout market cycles. In this sense, having a permanent short book is advantageous in periods of volatility or drawdown, however in a bull market long/ short investors will invariably lag long only investors. Over the full cycle though, we seek to generate a return superior to that of the market, combined with lower volatility.

Although Chilton conducts deep fundamental qualitative and quantitative research on the companies that it invests in, we find that the market is always capable of delivering surprises. As mentioned earlier, Chilton is predominantly focused on constructing portfolios from the bottom up, but at the same time it is also important to be aware of the macro environment in which we operate, and this helps us develop themes as well as leading us to prefer some countries and sectors over others.

Looking back on 2015, we were very pleased with our performance as it was clearly a stock picker’s market, which plays to our strengths. We believe Chilton’s out-performance of comparable benchmarks was attributable to strong stock selection within our sector allocations. In addition, our short book performance enhanced our returns and accounted for approximately one third of our positive attribution. 2015 marked a return to lower correlations in stocks, coinciding with the end of QE which helped the short performance. For several years between 2009 and 2014, the market often ignored poor fundamentals and stocks sometimes traded up, even on earnings misses, simply because they were in the right indices. Those days appear to have ended and we saw the market distinguish more clearly between the winners and the losers.

As we progress further through 2016, it is clear that global growth concerns continue to dominate the investor’s mind-set. We believe the US will experience solid but not spectacular GDP growth in the region of 2.5%. After 6 years of a US Federal Reserve fuelled bull market (QE), we have seen a structural shift in the market and we believe that passive index exposure is less likely to be successful going forward. For 2016, we comfortably expect mid-single digit earnings growth for the S&P 500 which is similar to what we witnessed in 2015. We believe the US market currently offers very good opportunities to find high quality business models trading at attractive levels (long side) and ‘melting ice cubes’ which are being punished by the market (short side). Furthermore, we expect to see some volatility during the year and we are equipped to be opportunistic and to take advantage of these market movements.

Company: Chilton Investment Company, LLC
Name: Richard L. Chilton, Jr.
Email: [email protected]
Web Address: www.chiltonfunds.com
Address: 33 Sackville Street, London W1S 3EB
Telephone: 44(0)20 7087 6000

Hedge Funds Ended 2015 2.42% up
FundsHedge

Hedge Funds Ended 2015 2.42% up

AIMA says the analysis, based on returns reported to HedgeFund Intelligence (HFI) by funds with total assets under management (AUM) of around $1.1 trillion, represented one of the most comprehensive assessments of the global hedge fund industry’s performance in 2015.

The analysis includes the first measurement of the industry’s risk-adjusted performance in 2015. Risk-adjusted returns are closely watched by institutional investors such as pensions and endowments since they measure both the total return and the volatility of those returns. AIMA’s analysis also contains an extensive breakdown of returns by the different hedge fund investment strategies.

According to AIMA:

– Hedge funds on average outperformed stocks and bonds on both a headline and risk-adjusted basis;

– Hedge funds globally finished the year up 2.42% net of all fees;

– Around two-thirds of funds (65.30%) reported positive returns;

– Risk-adjusted returns were positive, as measured by a Sharpe ratio of 0.52;

– The best performing strategies were equity market neutral / quant (up 10.44%), long/short equity (up 6.79%) and multi-strategy (up 5.65%).

Jack Inglis, CEO of AIMA, commented:

“While 2015 will not be remembered as a vintage year for the industry, the majority of hedge funds still produced positive returns amid challenging market conditions, beating stocks and bonds on both an absolute and risk-adjusted basis and preserving capital for pension funds and other investors. Given that this period of market volatility is set to continue during 2016, we remain confident that hedge funds will continue to meet their investors’ expectations for competitive, diversified and low-volatility returns.”

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Focus Starts 2016 Strong by Helping its Partner Firms Close Three

Legg Mason Announces Combination of EnTrust Capital and Permal Group
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Legg Mason Announces Combination of EnTrust Capital and Permal Group


Legg Mason, Inc. announced it has entered into a definitive agreement to combine Permal, Legg Mason’s existing hedge fund platform, with EnTrust Capital. EnTrust is a leading independent hedge fund investor and alternative asset manager headquartered in New York with approximately $12 billion in total assets and complementary investment strategies, investor base and business mix to Permal.

The business combination will create a new global alternatives firm with over $26 billion in pro-forma AUM1 and total assets of $29 billion2. The firm will have a diverse offering of proprietary investment products with a significant number of institutional and high net worth investors. As a result of the combination, Legg Mason will own 65% of the new entity, branded EnTrustPermal, with 35% being owned by Gregg S. Hymowitz, EnTrust’s Co-founder and Managing Partner.

EnTrustPermal will be led by Mr. Hymowitz, who will become the Chairman and Chief Executive Officer of EnTrustPermal. Key investment and business professionals from both firms will continue to serve the investors of the new organization. EnTrustPermal will have the global infrastructure, resources, investment professionals and underlying investment managers to source, research and structure investment opportunities worldwide on behalf of its international client base.

The combination creates a platform with the necessary scale and leadership team to significantly expand and evolve its multi-alternative capabilities and offerings.

Joseph A. Sullivan, Chairman and CEO of Legg Mason, said, “The combined EnTrustPermal brings together two leading names in the alternative space, creating a significant potential growth engine for Legg Mason. The team at EnTrust has a proven track record for driving significant organic growth through product innovation, with over 20% growth annually since the financial crisis. We see meaningful opportunities to combine this innovation with Permal’s blue chip client base, product offering and global footprint.”

Gregg S. Hymowitz, Managing Partner of EnTrust, said, “The combination of EnTrust and Permal creates a powerful organization in the hedge fund universe. EnTrustPermal’s scale, resources and global investment talent will be able to deliver market differentiated proprietary investments to our over 700 combined institutional accounts and significant number of high-net worth investors. The complementary nature of our investment strategies, geographies and global investor/partner base dramatically springboards us over our competition. The EnTrust and Permal teams are eager to start delivering for our loyal investor base.”

Basel III Reforms - Fundamentally Changed how Asset Managers are Connected to the Financial System
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Basel III Reforms – Fundamentally Changed how Asset Managers are Connected to the Financial System

Jack Inglis, CEO of AIMA, commented:

“There is no doubt that the Basel III banking standards are having a significant impact on hedge funds and other alternative asset managers. Financing costs are rising and the fund manager / prime broker relationship is changing fundamentally. It is our hope that this timely and important report will provide clarity and direction to those who have felt the impact of the recent regulations, and to give context to issues that are being felt across the industry.”

Bob Sloan, CEO of S3 Partners, commented:

“New bank capital regulations are creating downstream financing challenges and opportunities for asset managers and hedge funds. The survey clearly shows how plugging into the financial power grid is getting more expensive.
“Managers of all shapes, sizes and strategies now seek to answer the question: How can we maintain access to the grid, while optimizing for the right amount of efficiency? As the survey results show, access to unbiased data, comprehensive Return on Assets/Return on Equity analytics, and a common language are critically important towards determining fairness – as rates, margin, spreads and contracts will be a key determinant for an asset managers’ success.”

 

Hedge Fund Manager of the Year - 2015
FundsHedge

Hedge Fund Manager of the Year – 2015

Congratulations on Absolute Value Capital Management being named Hedge Fund Manager of the Year – 2015
Thank you.

The U.S. stock market was down a bit last year. Bonds aren’t yielding much these days. How does one achieve triple digit returns in such an environment?

Back in early 2011 I saw commodities markets were peaking and being on the verge of a long nasty bear market. I wanted to go on record as predicting the end of the secular bull market in commodities so that when I turned bullish I would have established a bit of credibility. So I started writing articles for a financial news website. Commodity cycles seem to have a pattern. Commodities do not do much for a long time. Then there is a fantastic spike up for nine years. Then there is a crash. Lather, rinse and repeat.

So what you want to look for is a big 9 year spike in commodities. The biggest one was 1613-1622 when commodities went up 254%. That immediately led to a 50 year 78% bear market.

Number two on the list is 1938-1947 when commodities went up 240%. Commodities went down 16% in 1948, down 19% in 1949, up 58% in 1950 and peaked in January 1951. Then they had a 39% 18-year bear market. Therefore, in the quarter century after the 1947 signal, the upside was 12% (January 1951) and the downside was 32% (August 1968). Coming in at #3 is 2001-2010. Commodities went up 238%. They peaked in April 2011 and have since declined by 48%. From 1910-1919 commodities went up 202%. They peaked in April 1920 and then went into a 13-year 74% bear market. From 1971-1980, commodities went up 198%. Commodities immediately went into a 19-year 45% bear market. Furthermore, over the last century or so, the timing of these commodity cycles has been regular.

The major peaks in commodities were April 1920, January 1951, November 1980 and April 2011. The tops are roughly 30 years apart. So at the end of 2010, you had a situation where, going back to 1259 (the starting point of my data), the maximum historical upside was quite limited. Not only that, but a top was overdue with respect to the 30 year cycle.

I am getting the sense you were not bullish on commodities last year. 

This has been the worst commodity bear market in the last 83 years. The Barron’s Gold Mining Index recently hit the worst bear market in history mark. The inception date of this index is in 1938. The previous bear market record was -82% from 1980-2000. The bear market which started in 2011 is already down 85%.

 

Prior to 1938 the data gets rather dodgy, but it looks like this is the worst gold stock bear since at least 1920. So over 95 years. The junior gold mining stock ETF, GDXJ, has already gone down by over 90%. During the early 2000’s tech crash, an Internet index went down 95% and a telecommunications index dropped by 93%. The Russian stock market went down 93% in less than a year in 1997-98. The internet and telecom indices subsequently rallied 410% and 271% from their bottoms over the next 5 years. The Russian stock market went up by 6,384% in less than ten years!

However, before you mortgage the house, be aware the Baltic Dry Index is still down by 97% from its 2008 high as of late January 2016. There are two commodity indices that I follow. The ^CCI is an equal weighed commodity index and the ^CRB has more of a “real world” (i.e. energy) weighing. In January 2016, the ^CRB index hit its lowest level since 1973!

How low can commodities go?

Since 1933, we have had bear markets of -36%, -39%, -23%, -45%, -47% and the current one is -48% as of this interview. But if you look at 1622 to 1933, we had commodity bear markets of -78%, -77%, -68%, -79% and -74%.

Why were the pre-1933 bear markets more draconian in nature? A major reason is FDR took the US off the gold standard in 1933. From 1665 to 1932, the annualized inflation rate in the United States was 0.16%. From 1932 to today it is 3.49%. If you look at charts from the 1200s to 1932, they looked like a sine wave. Post 1932 the charts look like a sine wave tilted up to the right.

So the question is will the current commodity bear act like a typical post-1933 commodity bear? In that case the downside is limited. But if you look at pre-1933 scenarios it can get much worse. In light of this ambiguity, the short side in commodities is not as exciting as it was back in 2011 or even a year ago. But there are a lot of other indicators giving off interesting readings right now. For example, two indicators have given off signals which have led to triple digit gains in one asset each time they have gone off. I am excited about 2016.

Company: Absolute Value Capital Management
Name: James Debevec
Email: [email protected]
Web Address: www.absolutevaluefund.com
Telephone: 001 (954) 973-1428

Survey on Hedge Funds Finds Managers and Investors Hold Simular Views
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Survey on Hedge Funds Finds Managers and Investors Hold Simular Views

Since the 2008-09 global financial crisis, regulators rolled out multiple, substantial regulations aimed at mitigating systemic risk. Over time, popular opinion has held that investors largely favor the new rules while managers of hedge funds uniformly oppose them. However, a survey from Northern Trust Hedge Fund Services reveals that investors and fund managers express surprisingly similar views on regulation.

In a white paper about the survey findings, Minimizing Risk or Missing the Mark, Northern Trust Hedge Fund Services found that managers actually voiced slightly more optimism than investors about the effectiveness of the regulations adopted in the last five years. 

Fifty nine percent of managers said they believe at least some of the regulations implemented over the past five years have helped decrease the likelihood and severity of another financial crisis, while 53% of investors held that view. Forty percent of investors said the new rules haven’t done anything to reduce the chance of another financial calamity or its severity versus 34% of managers.

“The widely held belief that investors and investment managers hold conflicting views about regulation emerged because the regulations typically fell into two camps,” said Peter Sanchez, head of Northern Trust Hedge Fund Services. “They either changed market practices to limit what market participants can do, or they demanded more disclosure as a means of managing systemic risk. Dig a little deeper, however, and you discover – as the survey did – a far more nuanced and complex picture.”

At the same time, regulations vary widely both in terms of whom they affect and how they are implemented. These differences impact how market participants on both sides view them, the study indicates. Some changes are seen as providing benefits to managers and investors alike.

Managers indicated they are especially concerned about the impact of new rules when they are implemented by multiple regulators. An example is central repository requirements for derivatives. Since derivatives are a complex instrument and many countries or jurisdictions have varied rules and procedures around them, these regulations can pose compliance challenges. While these regulations have the goal of limiting market risk, they can also dampen potential industry innovation.

Hedge Funds Confront Impact of Financial Market Regulations
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Hedge Funds Confront Impact of Financial Market Regulations

Hedge fund managers are experiencing the ripple effects of new regulations on banks and prime brokers, with hedge funds facing increased trading fees and broader changes to business relationships. These dynamics place additional pressure on margins and are leading managers to seek new growth strategies, according to The evolving dynamics of the hedge fund industry, EY’s 2015 Global Hedge Fund and Investor Survey.

Regulations such as Basel III and Dodd-Frank have caused banks and their prime brokerage businesses to focus more closely on liquidity, balance sheet capacity and funding, resulting in changing economics for fund managers who finance trades through prime brokers. Twenty-nine percent of respondents said their prime brokers increased fees in the past year, and an additional 22% expect an increase in fees within the next year.

Fund managers using strategies such as distressed credit, fixed income and global macro, which can be balance-sheet intensive from the prime brokers’ perspective, have been among those who have experienced price increases the most. Respondents now expect price increases and broker limitations to change the way they trade, including moving toward swap-based trade execution and reducing repo financing and overall leverage.

Michael Serota, Global Leader, Hedge Fund Services at EY, says:

“These dynamics are the newest challenge to an industry that continues to grapple with margin compression, heightened competition for asset growth and ongoing requirements for technology investments. All forms of financing are becoming more expensive for a majority of managers, and these costs have a direct effect on overall trade economics. Investors will be indirectly affected by the increasing costs and will need to rely on communications from the manager to understand the full effect on the fund’s performance.”

Hedge funds expand their prime broker relationships

Regulatory changes have altered the traditional business relationship between prime brokers and hedge fund managers. Prime brokers have suggested that hedge fund managers concentrate more business with them, though 60% of managers affected by repricing have in fact added more prime broker relationships. Only 12% of respondents who have experienced repricing reduced their prime broker relationships.

Many prime brokers are becoming reluctant to hold cash for hedge funds because of how such balances are classified toward banks’ capital reserves under new regulations. Fifty-eight percent of hedge fund managers have moved cash to custodians as a result, while 35% have purchased highly liquid securities as cash alternatives.

Natalie Deak Jaros, Americas Co-Leader, Hedge Fund Services at EY, says: “Many hedge fund managers are larger and more complex, with increased financing needs. As many prime brokers have less capacity to offer than in the past, hedge fund managers are increasing the number of relationships they have to reduce counterparty capacity risk. We are also seeing the need for hedge funds to dedicate individuals to manage counterparty risk, collateral and treasury functions as a result of these shifting industry dynamics.”

Managers seek financing from non-traditional sources

Hedge fund managers are beginning to explore non-traditional financing sources outside of prime brokers. Thirteen percent of respondents are seeking or plan to seek financing from non-traditional sources in the next two years, from sources including institutional investors and sovereign wealth funds, custodians, or other hedge funds.

Asset growth remains top strategic priority

Achieving asset growth to counteract margin pressure is the top strategic priority for 57% of managers surveyed. New growth methods include adding new hedge fund strategies, identifying new investor bases and increasing penetration with existing investors.

New product launches, which was the top method for achieving growth in last year’s survey, has dropped to less than 20% this year. New products have presented opportunities for managers, but they also have come with challenges, as 24% of managers reported that new products had a negative impact on operating margins.

Fiona Carpenter, EMEIA Leader, Hedge Fund Services at EY, says: “As the hedge fund business has evolved, increased competition, as well as heightened demands from investors and regulators alike, has compressed margins via the two-fold squeeze of lower top-line revenues and larger expenses. Growing assets to critical mass within a shorter timeline is critical for managers looking to run profitable organizations.”

Technology investments are critical for transformational change

Respondents plan to allocate 12.4% of their overall expense budgets to major technology expenditures over the next three to five years, similar to the amount budgeted over the past two years, as managers aim to develop robust infrastructures capable of supporting larger and more complex hedge funds. Seventy percent of managers expect to make major technology investments in the next two years, including investment management and trading operations, enterprise infrastructure, and risk management systems.

George Saffayeh, Asia-Pacific Leader, Hedge Fund Services at EY, says: “Today’s technology environment and the effect it has on the business is rapidly evolving. Managers are investing to develop tools that allow for more seamless front- to back-office data transmission, timelier and customized reporting to various constituents, and to deal with ongoing concerns over cybersecurity. The importance of being strategic with these investments has never been more critical.”

Hedge Funds Confront Impact of Financial Market Regulations
FundsHedge

Hedge Funds Confront Impact of Financial Market Regulations

These dynamics place additional pressure on margins and are leading managers to seek new growth strategies, according to The evolving dynamics of the hedge fund industry, EY’s 2015 Global Hedge Fund and Investor Survey.

Regulations such as Basel III and Dodd-Frank have caused banks and their prime brokerage businesses to focus more closely on liquidity, balance sheet capacity and funding, resulting in changing economics for fund managers who finance trades through prime brokers. Twenty-nine percent of respondents said their prime brokers increased fees in the past year, and an additional 22% expect an increase in fees within the next year.

Fund managers using strategies such as distressed credit, fixed income and global macro, which can be balance-sheet intensive from the prime brokers’ perspective, have been among those who have experienced price increases the most. Respondents now expect price increases and broker limitations to change the way they trade, including moving toward swap-based trade execution and reducing repo financing and overall leverage.

Michael Serota, Global Leader, Hedge Fund Services at EY, says:

“These dynamics are the newest challenge to an industry that continues to grapple with margin compression, heightened competition for asset growth and ongoing requirements for technology investments. All forms of financing are becoming more expensive for a majority of managers, and these costs have a direct effect on overall trade economics. Investors will be indirectly affected by the increasing costs and will need to rely on communications from the manager to understand the full effect on the fund’s performance.”

Hedge funds expand their prime broker relationships

Regulatory changes have altered the traditional business relationship between prime brokers and hedge fund managers. Prime brokers have suggested that hedge fund managers concentrate more business with them, though 60% of managers affected by repricing have in fact added more prime broker relationships. Only 12% of respondents who have experienced repricing reduced their prime broker relationships.

Many prime brokers are becoming reluctant to hold cash for hedge funds because of how such balances are classified toward banks’ capital reserves under new regulations. Fifty-eight percent of hedge fund managers have moved cash to custodians as a result, while 35% have purchased highly liquid securities as cash alternatives.

Natalie Deak Jaros, Americas Co-Leader, Hedge Fund Services at EY, says: “Many hedge fund managers are larger and more complex, with increased financing needs. As many prime brokers have less capacity to offer than in the past, hedge fund managers are increasing the number of relationships they have to reduce counterparty capacity risk. We are also seeing the need for hedge funds to dedicate individuals to manage counterparty risk, collateral and treasury functions as a result of these shifting industry dynamics.”

Managers seek financing from non-traditional sources

Hedge fund managers are beginning to explore non-traditional financing sources outside of prime brokers. Thirteen percent of respondents are seeking or plan to seek financing from non-traditional sources in the next two years, from sources including institutional investors and sovereign wealth funds, custodians, or other hedge funds.

Asset growth remains top strategic priority

Achieving asset growth to counteract margin pressure is the top strategic priority for 57% of managers surveyed. New growth methods include adding new hedge fund strategies, identifying new investor bases and increasing penetration with existing investors.

New product launches, which was the top method for achieving growth in last year’s survey, has dropped to less than 20% this year. New products have presented opportunities for managers, but they also have come with challenges, as 24% of managers reported that new products had a negative impact on operating margins.

Fiona Carpenter, EMEIA Leader, Hedge Fund Services at EY, says: “As the hedge fund business has evolved, increased competition, as well as heightened demands from investors and regulators alike, has compressed margins via the two-fold squeeze of lower top-line revenues and larger expenses. Growing assets to critical mass within a shorter timeline is critical for managers looking to run profitable organizations.”

Technology investments are critical for transformational change

Respondents plan to allocate 12.4% of their overall expense budgets to major technology expenditures over the next three to five years, similar to the amount budgeted over the past two years, as managers aim to develop robust infrastructures capable of supporting larger and more complex hedge funds. Seventy percent of managers expect to make major technology investments in the next two years, including investment management and trading operations, enterprise infrastructure, and risk management systems.

George Saffayeh, Asia-Pacific Leader, Hedge Fund Services at EY, says: “Today’s technology environment and the effect it has on the business is rapidly evolving. Managers are investing to develop tools that allow for more seamless front- to back-office data transmission, timelier and customized reporting to various constituents, and to deal with ongoing concerns over cybersecurity. The importance of being strategic with these investments has never been more critical.”

Hedge Fund Manager of the Month: Laureola Advisors - Tony Bremness
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Hedge Fund Manager of the Month: Laureola Advisors – Tony Bremness

Stock market corrections have a nasty habit of surprising both investors and their advisors, usually when they are least prepared. The worst corrections can take years if not decades to recover, causing investors loss of sleep in the short term and significant loss of capital in the long term.

The Laureola Investment Fund has been a steady performer through recent market turbulence in the global stock markets. It has proven its credentials as a genuine alternative strategy, and is capable of delivering positive returns in all market conditions.

This fund invests in the asset class of life settlements in the USA. In the United States, it is both legal and encouraged for an individual to sell his life insurance policy to an investor. The insurance policy then becomes a financial asset called a life settlement.

Probably the most impressive aspect about this type of investment is that life insurance companies in the USA have never missed paying the death benefit on a valid life insurance policy since 1864. This is a track record unmatched in investment and banking.

Life Settlements currently trade at an average Yield (IRR) of 16%, with a range of 12% to 25%. As such, the safety, predictability, and double digit returns are an attractive combination, and are not available in other asset classes.

In terms of its history, the legal basis for life settlements in the USA was established in 1911, in the Supreme Court decision delivered by Justice Oliver Wendell Jones. Today, the Government encourages insureds to consider selling unwanted policies by not including the proceeds in calculations to determine eligibility for government funded health care.

With over $17 trillion of life insurance outstanding in the USA, the source of policies available for a possible settlement is not an issue. So far less than 1% have been sold to investors.

Furthermore, a stable and growing supply is also ensured because the seller benefits from the transaction in several ways. Most policies are sold by senior citizens (aged 65 ), and the senior receives an immediate cash payment from the investor. This payment on average is between three and four times what the insurance company would pay. Moreover, the senior no longer has to pay the premiums, and therefore frees up future cash flow. Together these enable the senior to have a more comfortable and enjoyable retirement, and, in some cases, pay for necessary medical treatments which the senior could not otherwise afford.

The best feature of the asset class is the genuine non-correlation with stocks, bonds, real estate, or hedge funds. Consequentially, life settlement investors will make money when others can’t.

The fund is structural, and can be confirmed with a straightforward qualitative analysis. For a well structured portfolio of life settlements to make money, the insureds have to die, and the insurance company has to pay. The former is (unfortunately) beyond question, the latter has been universally true for over 150 years.

Both of these factors provide reliable foundations on which to build an investment strategy.

Neither has any dependency on or connection with stock prices, interest rates, commodity prices, or the economy. Nor is there any connection to general levels of confidence in the capital markets. Perhaps best of all, the asset class generates its own liquidity internally and does not require other investors to come in and buy the assets at a higher price.

A properly structured life settlement portfolio delivers double digit returns even in the absence of price increases, and can do it in all environments. As a result, the asset class boasts some very powerful economics.

However, even the best strategies in the best asset classes require proper implementation. This is especially true in less transparent and less liquid asset classes such as life settlements. Life settlement investing requires a unique set of skills including: knowledge of life insurance, life settlement experience, legal and portfolio management expertise, fund structuring and design capabilities, and access to the deal flow.

We provide our clients with a wealth of experience that ensures that the best strategy is properly implemented. Our CIO, Christopher Erwin, is a member of both the Orange County Bar Association and the Life Insurance Settlement Association. He has over 10 years’ experience in all aspects of evaluating and transacting life settlements, and has built a successful business in these fields. He has sourced and serviced nine figure life settlement portfolios in the past, and now brings this expertise to the Laureola Fund as Chief Investment Officer and as an investor.

Chris is supported by a group of nine life settlement professionals at his two life settlement related businesses in California. Through his network built up over the past decade and through the life settlement brokerage he owns, Chris ensures that the Laureola Fund has access to the best policies at the best prices. One of our main differentiating factors is that many of the policies purchased by the fund since inception were never shown to the rest of the life settlement market.

Personally, I have over 30 years’ experience in portfolio management and fund design and structure. I graduated with an MBA and have been accredited the CFA designation. My responsibilities mainly include the day to day operations of the Laureola Fund.

This fund has been designed with multiple layers of protection for the investors, and is much more than most other offshore funds. Moreover, the fund suppliers are globally recognised and leaders in their respective fields. They include: Apex (Fund Administration), Lewis & Ellis (Actuarial Consultant and Valuation Agent), Bank of Utah (Custodian), Bermuda Monetary Authority (Regulator), and Deloitte (auditor). Furthermore, the fund is on a fund platform in Bermuda with an EAM (an affiliate of Apex) as the platform manager. EAM oversees the fund’s activities on a daily basis.

Laureola Advisors was founded in 2013 by myself and Chris to take advantage of the opportunities in this asset class. The Principals invested their own capital, and other interested investors are invited to join. Despite currency crises and share price shocks, the fund has delivered. 

Like all investment strategies, life settlements do have some risks. The most important are longevity risk (individuals living longer than expected) and cash flow risk (there must be money to pay the premiums).

Longevity risk must be assumed in any investment based on longevity, including life settlements. This risk is manageable by competent portfolio managers, and can be further reduced using the competitive advantages of Laureola Advisors.

From our experience in the life insurance industry, the widely held assumption that everybody is living longer is not actually supported by a detailed analysis of the statistics. The reality is that some are living longer, while some are not.

Advances in medical treatments can now cure or manage many ailments that people used to die from 25-50 years ago, extending the life expectancies of individuals aged 50-70. However, the life expectancy of individuals aged 85 has not budged in many decades, and in some years has actually decreased, and nature simply takes its course.

Statistics also show that life expectancies have been routinely overestimated for individual with certain ailments, and for certain segments of the population. This knowledge has been particularly useful in the management of the Laureola Fund.

The ability of the Laureola Fund to acquire quality assets at below market value is also useful in longevity risk management – it provides a margin for error that other investors won’t have. The fund will typically generate a profit on every policy it buys even if the individual lives twice as long as expected, which is very rare. As for cash flow risk, this is entirely in the control of the portfolio manager and can be virtually eliminated, simply by keeping the necessary liquidity reserves on hand.

The risks in life settlements are clearly identifiable and easily managed, and in some cases they can be eliminated. Compared to the increasing turbulence in capital markets and the growing appetite of all governments for market manipulation, the risks in life settlements are moderate. The asset class has a risk level between that of equities and government bonds, perhaps closest to that of the real estate markets.

Despite this low level of risk, the returns are significantly better than any of these traditional asset classes and also has the important benefit of having no correlation with any of them, making them a genuine alternative. As a result, experienced investors who require both growth and diversification are increasingly allocating to life settlements. We assure them that they will sleep better through the next round of market turmoil.

For further information please contact:
Tony Bremness
[email protected]
www.LaureolaAdvisors.com

Highland Capital Management Launches Three ETFs
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Highland Capital Management Launches Three ETFs

Highland Capital Management Fund Advisors L.P. (“Highland”) announces the launch of three new exchange-traded funds (“ETFs”) that leverage the industry-leading indices and research from HFR (Hedge Fund Research, Inc.). The three ETF products designed in collaboration with HFR will be the first of their kind to replicate aggregate hedge fund positions in an ETF and will trade on the New York Stock Exchange, with trading commencing today.

The three new ETFs represent the firm’s continued expansion of its alternative beta product suite and mark the first of 17 new ETFs for the firm. The three initial ETFs are:

– Highland HFR Global ETF (NYSE: HHFR)
– Highland HFR Event Driven ETF (NYSE: DRVN)
– Highland HFR Equity Hedge ETF (NYSE: HEDG)

“The launch of these three ETFs further demonstrates Highland’s commitment to pursuing alternative beta solutions,” said Ethan Powell, Chief Product Strategist for Highland. “We believe that our collaboration with HFR on these new products illustrates Highland’s dedication to delivering tailored products to meet investor demands.”

In conjunction with the recently launched Highland Alternative Investors platform, the launch of these funds underscores Highland’s expanding efforts to offer differentiated strategies at a competitive price.

“With more than $320 million already invested in our first ETF, SNLN, we believe there is market appetite for alternative income and uncorrelated alternative beta products that satisfy investors’ concerns over interest rate and equity volatility,” explained Powell.

“ETFs are a cost-effective option for investors looking to benefit from exposure to alternative investment strategies,” said Kenneth Heinz, President of HFR, the established global leader in the indexation, analysis and research of the global hedge fund industry. “We’re excited to combine HFR’s expertise in indexing and research with Highland’s experience in creating and marketing investment strategies to offer these innovative new investment products.”

Revolutionary HedgeCoVest Platform Goes Live
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Revolutionary HedgeCoVest Platform Goes Live

With over 1,500 beta users, HedgeCoVest offers advisors and all retail investors real-time replication of hedge fund strategies directly into their brokerage accounts. HedgeCoVest combines the unique liquidity, security and transparency advantages of a separately managed account with the long/short investment strategies of hedge funds to satisfy investors’ demands for a better way to invest in alternatives.

“The traditional limited partnership investing model is being disrupted,” comments Evan Rapoport, CEO of HedgeCoVest. “Until now, only ultra-high net worth investors and institutions had access to high-quality alternative investments. We believe all investors should be able to benefit from hedge fund strategies with the transparency, liquidity, security and lower fees they seek. This is why we created HedgeCoVest.”

With real-time performance reporting, flat fees and the ability to allocate or liquidate at any time, HedgeCoVest is changing the way investors allocate to hedge funds. Through the HedgeCoVest separately managed account structure, investors realize the benefits of hedge fund investing without the risks associated with commingling assets.

HedgeCoVest has generated over $80mm in committed capital for the platform and signed 45 investment management companies, including the multi-billion dollar firms Fred Alger, The Boston Company, Cornerstone, Kovitz and Sandell.

The platform also offers 14 custom HedgeCoVest investment products including the industry’s first real-time, investable hedge fund index. Investors can also create their own custom portfolio of hedge fund strategies based on their risk/return profile and investment objectives.

HedgeCoVest is fully operational with Interactive Brokers and is in the process of completing integration with Pershing Advisor Solutions and TD Ameritrade. For the first time, financial advisors will be able to easily offer their clients access to leading hedge fund strategies with a higher degree of control, transparency, due diligence and liquidity, with much lower fees.

“Every portfolio can benefit from having alternatives in it. HedgeCoVest is a game changer for all portfolios by allowing easy access, complete transparency, a simplified fee structure and no K-1. I am aggressively migrating a large portion of my practice into HedgeCoVest investments,” commented Ed Butowsky, Managing Partner, Chapwood Capital Investment Management.

Hedge Fund Rich List 2015
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Hedge Fund Rich List 2015

The Sunday Times Rich List 2015
The 25 Richest Hedge Fund Managers

Hedge Fund
Rank 2015
Hedge Fund
Rank 2014
Name
(Fortunes include family wealth)
Hedge Fund Name 2015 Wealth Wealth Increase/
Decrease
1= 1 Alan Howard Brevan Howard £1,500m Down £100m
1= 2 Michael Platt BlueCrest Capital £1,500m No change
3 3 Alexander Knaster Pamplona Capital £1,364m Up £98m
4 4 Sir Michael Hintze CQS £1,230m Up £175m
5 8 Crispin Odey and Nichola Pease Odey Asset Management £1,100m Up £580m
6 5 Robert Miller Search Investment Group £1,040m Up £55m
7 6 David Harding Winton Capital £1,000m Up £250m
8 7 Sir Chris Hohn Children’s Investment Fund £663m Up £6m
9 9 Martin Hughes Toscafund £510m Up £32m
10 10= Andrew Law Caxton Associates £425m Up £75m
11= 14= Paul Marshall Marshall Wace £400m Up £100m
11= 22 Chris Rokos Brevan Howard £400m Up £170m
11= 14= Ian Wace Marshal Wace £400m Up £100m
14= 10= Sir John Beckwith Rivercrest Capital £350m No change
14= 14= Yan Huo Capula Investment £350m Up £50m
16 13 Michael Cohen Och-Ziff Captial Management £335m Up £5m
17 14= Sir Paul Ruddock Lansdowne Partners £300m No change
18 24= John Armitage Egerton Capital £280m Up £80m
19 21 Pierre Lagrange Man Group £258m Up £18m
20= 19= Andy Hall Astenbeck Capital £250m No change
20= 24= Jonathan Hiscock GSA Capital £250m Up £50m
20= 34= James Vernon Brevan Howard £250m Up £100m
23 18 Hilton Nathanson Marble Bar Asset Management £230m Down £23m
24 19= Nicolai Tangen AKO Capital £225m Down £25m
25 23 Chris Levett Moore Capital £220m No change

Alan Howard, co-founder of Brevan Howard, and Michael Platt, of BlueCrest Capital, jointly head the list of Britain’s wealthiest hedge fund managers, each with £1.5bn fortunes, in The 2015 Sunday Times Rich List, to be published this Sunday, April 26. The 128-page special edition of The Sunday Times Magazine reveals the wealth of the 1,000 richest people in Britain.

There are seven billionaire hedge fund managers in The 2015 Sunday Times Rich List, compared with just four in 2014. Crispin Odey and Nichola Pease, now sharing at £1.1bn fortune, have seen their joint wealth rise by £580m in the past 12 months, thanks to the success of Odey Asset Management. Its profits trebled to a record £174m in 2013-14, with Odey earning £47.8m.

David Harding, who runs Winton Capital and is another new hedge fund billionaire, has added £250m to his wealth in a year. Profits at Winton last year rose to £199m. Since 2006 it has paid nearly £690m in dividends, with Harding receiving £378m.

The Sunday Times Rich List – 128 pages on April 26th

The 2015 Sunday Times Rich List – the definitive guide to wealth in Britain and Ireland – is published on Sunday, April 26. The 128-page special edition of The Sunday Times Magazine is the biggest issue of the Rich List ever published since it first appeared in 1989. It charts the wealth of the 1,000 richest people in the UK and the 250 richest in Ireland. The list is based on identifiable wealth, including land, property, other assets such as art and racehorses, or significant shares in publicly quoted companies. It excludes bank accounts, to which the paper has no access.

The Sunday Times Rich List is compiled by Philip Beresford, the leading British expert on wealth, and edited by Ian Coxon. The complete list will be available to all the paper’s digital members and will be fully-searchable online at thesundaytimes.co.uk/richlist

Asset Manager of the Month: SMH Capital Advisors
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Asset Manager of the Month: SMH Capital Advisors

SMHCA Capital Advisors, Inc. (SMHCA) is a privately-owned, value-oriented investment manager based in Fort Worth, Texas, specialising in fixed income management. Dwayne Moyers, Morgan Neff, and Daniel Rudnitsky make up the portfolio team.

The firm, which was founded in 1989, has a global clientele, catering to individuals, high net worth individuals, investment companies, pension and profit sharing plans, pooled investment vehicles, charitable organisations, corporations and state or municipal government entities. SMHCA strategies are available directly, through platforms, and as well as through RIA’s.

As of 31 December 2014, SMHCA managed approximately $1bn in total assets.

A key part of the SMHCA offering is managing portfolios of high-yield corporate bonds. Bonds are essentially loans to a company – and that is how SMHCA treats them. “We start our analysis with an asset-based lender mentality,” says Morgan Neff, Vice President & Senior Portfolio Manager. As such, in order to lend money, SMHCA needs to see at least that amount on the company’s balance sheet based on their proprietary analysis.

The firm takes a hands-on approach to its work, says Neff, gaining an understanding of what a company is before dealing with it, learning about its operations, capital deployment and strategic development of the portfolio investments.

The firm uses an active, high conviction discipline for the portfolio construction. SMHCA does not believe that approaching the asset class with a passive index mentality is a better substitute for superb credit research, according to Neff.

And being based in Fort Worth, Texas – a location some 1,500 miles from the financial hub of Wall Street, means the firm occupies a “unique position”, says Neff.

Pursuing high yield

SMHCA offers a number of different strategies, all incorporating to various degrees its high yield approach, using a combination of quantitative, fundamental, and technical analysis to make its investments.

With their primary strategy, SMHCA High Income, portfolios are managed with a target of 100% high yield corporate and convertible bonds, with residual cash. Occasionally, investment grade bonds may be purchased that, while still rated above high yield, are trading as high yield securities in anticipation of downgrades to follow. It is an approach conceived to provide a higher current yield and total return. “The ultimate goal is to generate a high level of income,” Neff says.

The high yield universe is currently comprised of 2,000 or more securities.

Discipline number one of their proprietary investment process targets Credit Risk Reduction. SMHCA conducts financial analysis, looking for inherent value and tangible assets to support the debt, and reduce credit risk. The universe is subsequently reduced to 300-500 securities.

The second discipline is aimed at Maximising Returns for the Risk. SMHCA selects securities that provide an adequate yield over treasuries. SMHCA does this by avoiding overpriced securities and overpriced markets and by looking for the best relative values in the bonds. Thus the universe is reduced to 50-100 securities.

Finally, the third discipline, Reduction of Market Risk, sees the universe reduced to 20-40 securities to be purchased by the SMHCA team.

A diversified approach

A second strategy, the SMHCA Diversified Income Strategy, targets, at time of purchase, 50% investment grade or AAA bonds and 50% high yield bonds, with residual cash. Thus, it aims to provide income and capital appreciation above investment grade indices, with less risk than a pure high yield portfolio.

The strategy is comprised of 50% high yield and 50% AAA bonds – from issuers of the very highest quality, with an exceptional degree of creditworthiness.

SMHCA looks for the highest available coupon for the best price and value, and tries to buy CMOs with an average life of 8 to 11 years based on formulas for pre-paid speed assumptions that are based on market conditions.

It’s what SMHCA calls a “credit barbell approach”. The AAA element – one side of the “barbell”, performs well in “flight to quality” markets, or when the economy is waning. It’s also more sensitive to interest rate movement than high yield, which forms the other side of the strategy. The high yield side performs well in a flat and improving economy. And, due to its shorter duration, and typically higher coupon, it is less sensitive to changes in interest rates. All this makes for a well-balanced strategy.

Challenges and the future

Asked about challenges for the industry, Neff says they include the high volume of money moving in and out of the asset class. ETFs have made it very accessible to investors which can create unnecessary volatility that coincides with investor sentiment about the high yield asset class.

But despite such challenges, the firm is well positioned to continue to generate excellent returns. “Our strategy is designed to produce a high level of income, with the ability to capture additional return through trading gains.” he says.

Their approach has served them well as SMH Capital Advisors has been consistently ranked by Lipper Marketplace as one of the Best Money Managers for their long term results in the Intermediate Fixed Income Category for its Institutional High Yield Composite.

www.smhca.com

Currency Hedging Crucial in Run-up To UK Election
FundsHedge

Currency Hedging Crucial in Run-up To UK Election

“A recent article in Reuters posits that hedging against sterling will be more expensive as the May 7th election nears, particularly against the euro and US dollar,” said Hasty.

“Although this may be the case, businesses should be aware that this would be the lesser of two evils, the worse-case scenario being that they will have to throw themselves upon the mercy of live or ‘spot’ rates, which could move even more unfavourably in their favour.

“We saw how the vote on Scottish independence affected currency markets last year. It is likely that the elections will also influence markets significantly.

“Businesses that know that they will need to be purchasing currency in the run up to the election need to have clear strategies, most of which should involve hedging their currency purchases to protect their bottom line against risk. This is also a prudent move post-election, when the dust settles from whatever results.”

 

Many Investment Firms Now Outsourcing Services
FundsHedge

Many Investment Firms Now Outsourcing Services

Research recently carried out suggests that many City firms are now moving towards outsourced services, rather than running everything in-house.

The outsourcing concept for regulated firms has taken many years to become a readily accepted alternative. However, the steep and rising costs involved to remain compliant coupled with high infrastructure and salary costs are forcing regulated firms to move towards a more compatible structure in order to remain competitive and profitable.

Stephen Pinner, Managing Director of Goodacre UK which conducted the research, said:”Firms within the wealth management sector have had a range of clearing and outsourcing services available to them for some years. However, as a new set of cost, legislative and regulatory pressures increase and new service providers emerge, many business owners are re-evaluating their infrastructure.

Interestingly, buy side firms such as Hedge and Pension Funds who have similar pressures to the sell side, can also now take advantage of support services offered by regulated organisations. It is now possible for these firms to outsource a variety of requirements, including trading. A small hedge fund employing a couple of dealers could save as much as £750k, perhaps more, by using an outsourced alternative. Quite simply, any benefits from the ‘do it all in-house’ approach are being very strongly challenged by the high fixed costs and related encumbrances involved. A switch to specialist outsourcers could deliver significant cost savings and quite possibly, an improved level of service”.