Ludovica Brignola https://alpha-week.com/ en Profile: ProMeritum Investment Management https://alpha-week.com/profile-promeritum-investment-management <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--title--features.html.twig x field--node--title.html.twig * field--node--features.html.twig * field--title.html.twig * field--string.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'core/modules/node/templates/field--node--title.html.twig' --> <span>Profile: ProMeritum Investment Management</span> <!-- END OUTPUT from 'core/modules/node/templates/field--node--title.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--created--features.html.twig x field--node--created.html.twig * field--node--features.html.twig * field--created.html.twig * field--created.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'core/modules/node/templates/field--node--created.html.twig' --> <span>Tue, 04/23/2019 - 12:02</span> <!-- END OUTPUT from 'core/modules/node/templates/field--node--created.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--body--features.html.twig * field--node--body.html.twig * field--node--features.html.twig * field--body.html.twig * field--text-with-summary.html.twig x field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <div class="field field--name-body field--type-text-with-summary field--label-hidden field__item"><p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>London-based ProMeritum Investment Management runs a fixed income hedge fund – the ProMeritum EM Segregated Portfolio – which launched at the beginning of 2015. Founded by Renaissance Capital veteran Anton Zavyalov and Pavel Mamai, formerly of Goldman Sachs, the fund focuses on sovereign and corporate credit in Eastern Europe, the Middle East, and Africa.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>The trading strategy and the investment philosophy, designed by founders Zavyalov and Mamai, is thematic. ProMeritum Partner Frederick Schroder explains more.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>“We are looking for credit situations within our universe where there is a clear catalyst or event that you can identify over a known time period that will be transformative for the capital price of that instrument”, he said. “Yield is a consideration but it's not what we're investing for – we're investing for that event that's transformative for the price”.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>That ‘event’ could be anything from an index inclusion to a ratings change, a sovereign credit event like an election, and anything in between. The fund can be concentrated, has a relatively high turnover, and comprises significant levels of cash, which can account for around 30% of the portfolio at any given time.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>“The reason we have quite high cash levels is we may want to deploy that into what we refer to as a post-disruption environment”, said Schroder. “Let’s say that credit is merrily ticking along or staying at par and then you have an event that causes a repricing – it could be a corporate event, or a macro environment event; there could be many factors that cause the market to retreat. That retreat gives you an opportunity”.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>Unusually, ProMeritum’s product is unlevered.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>“I think you don’t need to [use leverage]”, said Schroder. “If you have reasonable underlying volatility at the position level, and you are prepared to be high-conviction and concentrated, it’s amazing how much heavy-lifting a position can do without making it more exciting than it needs to be”, he said.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>As is often the case with trading emerging markets, political risk plays a major role within the risk management framework of the fund. ProMeritum’s approach to managing risk is rooted in local knowledge. Brian Seel, Economist at ProMeritum, offers his own experience as an example.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>“I spent three years in Kiev (Seel was the Treasury Attach</span></span></span><span><span><span>é </span></span></span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>at the U.S. embassy), and as a representative of the U.S. government I worked very closely with our Ukrainian  counterparts”, he said. “I formed a pretty deep knowledge of how the country works. At the same time, Pavel and Anton have a similarly deep level of understanding of Russia and other regional markets, while our trader, James Marshall, worked on the ground in South Africa for several years”.  </span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>“Collectively, that means we have very good insight into what’s going on now and hopefully good insight into where things are going in the future. In addition to understanding the macro drivers, developing a deep presence on the ground and having that additional insight and relationships to understand the context I think is pretty important”.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>Understanding the nuances of the markets which ProMeritum trades provides the firm with a symbiotic relationship between the risk management process and the overall investment strategy of the fund.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>“Emerging markets are notoriously complex. So, let’s take little bullets of risk that we can understand and manage. If you isolate the risks and know what you’re going for and stress test that, I feel that’s a better strategy to deploy in these complex markets”, said Schroder.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>“Our starting position is no position”, he said. “The biggest risk you have in emerging markets is being 100% invested 100% of the time across a wide range of names. Our view is let’s wait for stuff to actually go wrong and then enter into a post-disruption environment.”</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>But what happens if it goes wrong?</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>“No-one is immune from that. Our worst performing theme in 2018 was Turkey; every time we thought it was bad and couldn’t get worse, it got worse”, said Schroder. “But then it comes down to risk management and having an appropriate risk framework for the assets and markets you’re trading in. In our case, that meant that we were able to limit losses on Turkey to less than 1% of the fund”.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>The disciplined investment process is made manifest in the numbers.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>"A family office or an institutional investor have a lot in common; they aren’t necessarily looking to make very volatile returns”, said Schroder. “They’re looking for consistent, repeatable, return numbers. That’s what we’re trying to achieve. We have low volatility  high single digit annualized returns”.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>ProMeritum’s research-intensive approach to idea generation and risk management carries over to its approach to client communication; the firm often tells its clients what it’s going to do.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>“Our forward looking thematic letters educate our clients more about what we’re doing. That makes us better custodians of their money”, said Schroder.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>ProMeritum’s strategy is capacity-constrained, but that’s partly down to the belief of where hedge funds should sit in an investor’s portfolio.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>“There’s always a place for hedge funds who are trying to unlock a particular problem, in a place that they really understand”, said Schroder. “There will always be opportunity for specialist managers to generate alpha provided that they remain focused and they have an appropriate capacity”.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>As for the future, ProMeritum will continue to look for those ‘disruption events’; it likes markets such as Ukraine, Russia, Turkey, Ghana, and Oman to name a few. Schroder likes how the firm’s infant years have turned out and is enthusiastically looking forward.</span></span></span></span></span></span></span></p></div> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <drupal-render-placeholder callback="flag.link_builder:build" arguments="0=node&amp;1=10449&amp;2=bookmark" token="iyoxgOqUNb_8qnt7tV-JsaGffoj2mgePG2vb1jhr8XI"></drupal-render-placeholder> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--field-author--features.html.twig * field--node--field-author.html.twig * field--node--features.html.twig x field--field-author.html.twig * field--entity-reference.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field--field-author.html.twig' --> <a href="/author/ludovica-brignola" hreflang="en">Ludovica Brignola</a> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field--field-author.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--field-content-role--features.html.twig * field--node--field-content-role.html.twig * field--node--features.html.twig * field--field-content-role.html.twig * field--list-string.html.twig x field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <div class="field field--name-field-content-role field--type-list-string field--label-above"> <div class="field__label">Content role</div> <div class="field__item">AlphaWeek Basic</div> </div> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> Tue, 23 Apr 2019 11:02:39 +0000 AlphaWeek Staff 10449 at https://alpha-week.com Canada's 81-102: Opening The Floodgates For Foreign Managers? https://alpha-week.com/canadas-81-102-opening-floodgates-foreign-managers <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--title--features.html.twig x field--node--title.html.twig * field--node--features.html.twig * field--title.html.twig * field--string.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'core/modules/node/templates/field--node--title.html.twig' --> <span>Canada&#039;s 81-102: Opening The Floodgates For Foreign Managers?</span> <!-- END OUTPUT from 'core/modules/node/templates/field--node--title.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--created--features.html.twig x field--node--created.html.twig * field--node--features.html.twig * field--created.html.twig * field--created.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'core/modules/node/templates/field--node--created.html.twig' --> <span>Wed, 04/10/2019 - 07:13</span> <!-- END OUTPUT from 'core/modules/node/templates/field--node--created.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--body--features.html.twig * field--node--body.html.twig * field--node--features.html.twig * field--body.html.twig * field--text-with-summary.html.twig x field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <div class="field field--name-body field--type-text-with-summary field--label-hidden field__item"><p><span><span><span>Canada’s new liquid alternatives law – or National Instrument 81-102 Investment Funds to give it legal nomenclature – came into effect on January 3rd. The amendment to the regulation was years in the making and is designed to modernise Canada’s mutual fund laws to provide retail investors with more choice when it comes to investing in funds - and investment managers with a new avenue for raising capital.</span></span></span></p> <p><span><span><span>Reception to the new laws within Canada’s alternative investment community has been positive.</span></span></span></p> <p><span><span><span>“I think it’s a significant development for the Canadian investment space from two perspectives. From the investor’s perspective it’s going to be very beneficial for Canadian retail investors in that it will provide these investors with access to investment strategies that were largely unavailable to them previously”, said Michael Burns, Partner at law firm McMillan LLP. “The new rules benefit the investment fund management industry in Canada both on the conventional side and the alternative side. On the conventional side, traditional mutual fund manufacturing companies will be able to design and offer an additional sleeve of products to help diversify their client’s investment portfolios. At the same time, this opens an entirely new market of potential clients for the alternative investment management (hedge fund) sector of the market”, he added.</span></span></span></p> <p><span><span><span>Distribution of mutual funds in Canada is heavily controlled by the five main banks – Royal Bank of Canada, TD Bank, Scotiabank, Bank of Montreal and CIBC. James Burron, President of Toronto-based trade association Canadian Association of Alternative Strategies and Assets, feels that there won’t be any problem communicating the nuances of alternative strategies to retail clients.</span></span></span></p> <p><span><span><span>“If you can explain what a long is, you can probably explain what a short is. And having shorts lowers the overall volatility since they will generally go the other way of the longs,” he said. “It [the updated 81-102 rule] gives people real diversification from both stocks and bonds; in the case of bonds, the diversification isn’t duration constrained.”</span></span></span></p> <p><span><span><span>Whilst much of the fanfare has been around the benefits for Canadian retail investors, foreign asset managers sniff an opportunity. Australia’s Munro Partners, which runs an equity hedge fund, has partnered with CI Investments to sub-advise the Munro Alternative Global Growth fund and New York-based systematic investment manager Mackay Shields is the sub-adviser to the IA Clarington U.S. Equity Opportunities Fund. Franklin Templeton also launched a Canadian dollar share class of its Franklin K2 Alternative Strategies fund.</span></span></span></p> <p><span><span><span>Does Canada’s small population – at least, relative to the size of its landmass – mean that the realistic opportunity for meaningful asset gathering isn’t worth it for the ‘brand name’ hedge fund managers in the US and London? Burron doesn’t think so.</span></span></span></p> <p><span><span><span>“Let’s say it [the size of the Canadian liquid alternative industry] grows to CAD$100bn in the next five years, like CIBC says it will. For someone like Bridgewater or AQR – if they got 1% of that, it’s significant. That’s a larger institutional account” he said.</span></span></span></p> <p><span><span><span>Burron also doesn’t think that Canadian investment managers which run alternative strategies will be crowded out by foreign managers rushing into the space.</span></span></span></p> <p><span><span><span>“You need to get a mutual fund shop on board to sell it [an alternative mutual fund] up here. You can package it and sell it yourself but if you’re going to have someone fly up from New York and go and wholesale it to IAs (retail Investment Advisors) they can be a little indifferent, preferring a local wholesaler. Like many spots, it’s a relationship-based market up here,” he said.</span></span></span></p> <p><span><span><span>Some parts of the updated regulation do limit the strategies that can be executed in a liquid alternatives fund. One example is that investment managers can’t offer a pure market neutral strategy because 100% shorting isn’t permitted; the manager would need to have 50% of the fund’s NAV in true short positions and then use derivatives for the remaining 50%. Leverage is limited to 3 times the total NAV of the fund. Burns would like to see developments here.</span></span></span></p> <p><span><span><span>“I would like to see some additional latitude given around the actual components of the overall (300% of NAV) leverage calculation”, he said.</span></span></span></p> <p><span><span><span>Macro and managed futures strategies would also welcome a more flexible leverage allowance.</span></span></span></p> <p><span><span><span>“They’re usually 5-10 times levered” said Burron. “So, you can’t have a CTA strategy in a Canadian liquid alts fund wrapper. They may be able to do so under exemptive relief, but not under the rules as written.”</span></span></span></p> <p><span><span><span>The amended regulation is only three months old, and, as is the case with many new regulations, some creases still need ironing out. All mutual fund prospectus’ in Canada must show the fund’s risk rating; that rating is standardised, set by the Investment Funds Institute of Canada. Currently, there isn’t a standard which has been established for investment managers of alternative mutual funds to show on their prospectus. In January, AIMA and CAIA co-authored their own set of guidelines but neither these, nor any others, have been officially adopted by the Canadian Securities Association. At present, risk ratings are set by the investment manager of the fund.</span></span></span></p> <p><span><span><span>This doesn’t mean that Canada is stuck with the updated regulation as-is; at least, not in the long term. Burns thinks this is just the beginning for the Canadian liquid alternatives industry.</span></span></span></p> <p><span><span><span>“I think that we will see a further evolution of these rules as market participants gain experience in constructing and offering alternative mutual fund strategies and once the marketplace has an opportunity to see how these funds perform and provide value to investors”, he said.</span></span></span></p> <p><span><span><span>Liquid alternatives have seen mixed fortunes in other jurisdictions. ’40 act liquid alternatives were introduced in the 1940s in the United States with a similar objective (namely offering access to alternative strategies to retail investors – specifically the defined benefit pensions space). Europeans walked a similar path after the global financial crises with the UCITS directive.</span></span></span></p> <p><span><span><span>These initial amendments to NI 81-102 are likely just the beginning of Canada’s foray into alternative mutual fund strategies. Time will tell whether this CAD$ multi-billion opportunity is gobbled up by domestic managers or their foreign counterparts.</span></span></span></p></div> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <drupal-render-placeholder callback="flag.link_builder:build" arguments="0=node&amp;1=2335&amp;2=bookmark" token="aJ66nZt4qSW7OKfFxEjXjY39baWybbBmfP5u3S8Z3RA"></drupal-render-placeholder> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--field-author--features.html.twig * field--node--field-author.html.twig * field--node--features.html.twig x field--field-author.html.twig * field--entity-reference.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field--field-author.html.twig' --> <a href="/author/ludovica-brignola" hreflang="en">Ludovica Brignola</a> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field--field-author.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--field-content-role--features.html.twig * field--node--field-content-role.html.twig * field--node--features.html.twig * field--field-content-role.html.twig * field--list-string.html.twig x field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <div class="field field--name-field-content-role field--type-list-string field--label-above"> <div class="field__label">Content role</div> <div class="field__item">AlphaWeek Pro</div> </div> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> Wed, 10 Apr 2019 06:13:11 +0000 AlphaWeek Staff 2335 at https://alpha-week.com Green Shoots Amidst Low Hedge Fund Launches Data https://alpha-week.com/green-shoots-amidst-low-hedge-fund-launches-data <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--title--features.html.twig x field--node--title.html.twig * field--node--features.html.twig * field--title.html.twig * field--string.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'core/modules/node/templates/field--node--title.html.twig' --> <span>Green Shoots Amidst Low Hedge Fund Launches Data</span> <!-- END OUTPUT from 'core/modules/node/templates/field--node--title.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--created--features.html.twig x field--node--created.html.twig * field--node--features.html.twig * field--created.html.twig * field--created.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'core/modules/node/templates/field--node--created.html.twig' --> <span>Thu, 03/28/2019 - 16:02</span> <!-- END OUTPUT from 'core/modules/node/templates/field--node--created.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--body--features.html.twig * field--node--body.html.twig * field--node--features.html.twig * field--body.html.twig * field--text-with-summary.html.twig x field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <div class="field field--name-body field--type-text-with-summary field--label-hidden field__item"><p><span><span><span><span><span><span><span>According to a recent press release published by data provider Hedge Fund Research, new hedge fund launches have dipped to their lowest since 2000, with only 561 openings in 2018. According to HFR, the number of new hedge funds coming to market has been falling each year since 2011, when there were 1,113 new launches.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Some might see this data as symptomatic of an industry that has been consistently battered over the past decade; whilst 2018 was the first year that the HFRI beat the S&amp;P 500 since 2008, the past ten years have seen the hedge fund industry’s alleged struggles prompt both management and incentive fee pressures from investors who could simply buy an index fund for a few basis points and ride wave of the QE-inspired stock market bull run.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Looking closer at the data suggests the are some green shoots which provide a good news story for the industry.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Liquidations – hedge funds closing their doors – have, since 2016, also been falling. Indeed, 2018 saw the lowest number of closures of the post-crisis decade. The gap between liquidations and new launches is also closing, from 328 in 2016 to 98 last year. Looking back over the entire past ten years, there are 371 more products available to investors of than at the beginning of 2009 (figure 1).</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Figure 1: Hedge Fund Launches and Liquidations, 2009-2018</span></span></span></span></span></span></span></p> <p><img alt="AlphaWeek" data-entity-type="file" data-entity-uuid="fedaddc7-cf6d-47cd-8cbf-990f7d40d7e0" src="https://www.alpha-week.com/sites/default/files/inline-images/AlphaWeek-2019-03-28-A.png" width="550" height="354" loading="lazy" /></p> <p><span><span><span><span><em><span><span><span>Source: HFR</span></span></span></em></span></span></span></span></p> <p><span><span><span><span><span><span><span>With regard to returns, whilst performance has compared unfavourably to the S&amp;P500 (and other equity markets), hedge funds are still up since 2009 began. Indeed, HFR data shows that yearly performance has been negative only three times in the last decade – in 2011, 2015 and 2018; returns in the other years have varied between 3% and 19%.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Figure 2: HFRI Returns, 2009-2018</span></span></span></span></span></span></span></p> <p><img alt="AlphaWeek" data-entity-type="file" data-entity-uuid="53eea5b3-972a-4d51-9cce-d2a5d1886a89" src="https://www.alpha-week.com/sites/default/files/inline-images/AlphaWeek-2019-03-28-B.png" width="550" height="341" loading="lazy" /></p> <p><span><span><span><span><em><span><span><span>Source: HFR</span></span></span></em></span></span></span></span></p> <p><span><span><span><span><span><span><span>The hedge fund industry has also been growing its assets under management. Whilst 2018 saw the first fall in AUM vs. the prior year, assets have been steadily on the rise since 2009. At the end of 2018, total hedge fund industry assets at $3,106.7bn, almost double the amount of assets held by the industry in 2009 ($1.6bn).</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Figure 2: Hedge Fund Industry Asset Growth 2009-2018</span></span></span></span></span></span></span></p> <p><img alt="Image removed." data-entity-type="file" data-entity-uuid="d3b3116c-1f6e-4179-8527-659e90eba928" src="/core/misc/icons/e32700/error.svg" title="This image has been removed. For security reasons, only images from the local domain are allowed." height="16" width="16" class="filter-image-invalid" /></p> <p><span><span><span><span><em><span><span><span>Source: HFR</span></span></span></em></span></span></span></span></p> <p><span><span><span><span><span><span><span>Clearly, there are some positives for the industry. Structurally, European hedge fund managers have further reason to feel bullish. On February 26th the European Commission said that the European Parliament and its member states had reached political agreement on more proportionate and effective prudential rules for investment firms. The December 2017 Commission Proposal on IFR set out to reduce the administrative burden on investment firms; most investment firms in the EU will no longer be subject to rules that were originally designed for banks. This will boost competition and increase investment flows. Smaller – and newer – firms will benefit from more streamlined requirements.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Furthermore, a resolution of the Brexit situation – regardless of the specific outcome – will at least provide certainty for the European hedge fund industry, providing a stronger platform for new launches.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>New launches might well be fewer, but the fall in liquidations is good news for the industry, as is the strong growth in assets. Coupled with a promising regulatory change for European funds specifically, it’s not all bad news for hedge funds.</span></span></span></span></span></span></span></p></div> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <drupal-render-placeholder callback="flag.link_builder:build" arguments="0=node&amp;1=10524&amp;2=bookmark" token="pL8KG6TJEjXPmN0_-wdQlzyel35XknRa4L4ko5-3Pkc"></drupal-render-placeholder> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--field-author--features.html.twig * field--node--field-author.html.twig * field--node--features.html.twig x field--field-author.html.twig * field--entity-reference.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field--field-author.html.twig' --> <a href="/author/ludovica-brignola" hreflang="en">Ludovica Brignola</a> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field--field-author.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--field-content-role--features.html.twig * field--node--field-content-role.html.twig * field--node--features.html.twig * field--field-content-role.html.twig * field--list-string.html.twig x field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <div class="field field--name-field-content-role field--type-list-string field--label-above"> <div class="field__label">Content role</div> <div class="field__item">AlphaWeek Basic</div> </div> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> Thu, 28 Mar 2019 16:02:01 +0000 AlphaWeek Staff 10524 at https://alpha-week.com EnTrust Global: Not Only A Fund Of Funds https://alpha-week.com/entrust-global-not-only-fund-funds <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--title--features.html.twig x field--node--title.html.twig * field--node--features.html.twig * field--title.html.twig * field--string.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'core/modules/node/templates/field--node--title.html.twig' --> <span>EnTrust Global: Not Only A Fund Of Funds</span> <!-- END OUTPUT from 'core/modules/node/templates/field--node--title.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--created--features.html.twig x field--node--created.html.twig * field--node--features.html.twig * field--created.html.twig * field--created.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'core/modules/node/templates/field--node--created.html.twig' --> <span>Tue, 03/26/2019 - 10:37</span> <!-- END OUTPUT from 'core/modules/node/templates/field--node--created.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--body--features.html.twig * field--node--body.html.twig * field--node--features.html.twig * field--body.html.twig * field--text-with-summary.html.twig x field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <div class="field field--name-body field--type-text-with-summary field--label-hidden field__item"><p><span><span><span><span><span><span><span>Largely known as one of the most prominent fund of funds in the world, EnTrust Global recently dropped half of its name, swapping the well-recognised Permal, a company founded forty years ago, with Global, chosen to emphasise what the company has evolved into; a multi-asset class, global alternative asset manager.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>In the last decade, EnTrust Global has steered away from its traditional fund of funds business and morphed into an alternative investment giant. Gregg Hymowitz, founder and CEO of EnTrust (which merged with Permal in 2016), said that the brand change was a necessity, more than a choice.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>“As they say, evolve or evaporate. In the asset management industry the goal is adding meaningful value to each and every one of your clients, otherwise you won’t be in business for long. My view was that you have to compete in the industry on four things: quality, product differentiation, alpha and value. And that’s why ten years ago, after the crisis, we started looking at opportunistic, or direct, co-investment businesses”.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>EnTrust Global considers itself something of a pioneer in the co-investment world. The idea is simple: if a hedge fund manager wishes to take a position in a company – whether the trade be an equity or credit one - but cannot because of its co-mingled fund position limits, EnTrust Global steps in to invest the remainder of the money to allow the manager to make the desired trade.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Hymowitz saw an opportunity to tap into co-investments after the global financial crisis of 2008 triggered a sudden dearth in the availability of capital. In Europe, for example, capital that would historically have been destined for hedge funds found its way into UCITS and very liquid funds, or longer dated private equity. Hymowitz saw the chance to plug the gap in the middle. “What we decided to do post-crisis was to try to fill a void of capital that was focused on a 2-5-year horizon. We went out and raised our first pools of capital around that duration”.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>That gap in the market also provided – and still does - Hymowitz and EnTrust Global with an opportunity to minimize fees and realign incentives.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>“It was and is capital that was in high demand. We went to our partners that we were allocating capital to and said ‘look: we’re going to provide this capital but we’re going to change the terms. We’re not going to pay traditional hedge fund fees. What we’re going to do is to align incentives much greater [than they are now]’”.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>EnTrust Global typically pays zero management fees and an average incentive fee of less than 10% on its co-investment deals; the business runs approximately $8.5bn of capital and has done more than 100 transactions in the last ten years (and exited more than half of these). Hymowitz’s enthusiasm for the co-investment division of EnTrust is clear.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>“You have a real alignment of interest. The manager has no incentive to hold onto the asset; they have every incentive to execute on the game plan and return the capital back to you. It ultimately creates ‘proper’ behaviour”.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>The company still has a significant core hedge fund business - after all, it’s what the company was founded upon - but they are increasingly shifting from off-the-shelf fund of funds products to more customised vehicles due to client demand.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>“They wanted something more specific; they wanted their portfolio of hedge fund managers to complement their other portfolios. It became much more customised,” he said.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Furthermore, as the allocations from institutional investors became more substantial, EnTrust found those investors negotiating more on terms; this development was another contributor to the evolution of its fund of funds platform. Rather than swim against the tide, Hymowitz said that EnTrust Global encouraged its clients to go down the customisation route. “In a way, we’ve disrupted ourselves: we went out to our investors and said you should be customised, you should be looking at doing more idiosyncratic investments, we should be able to negotiate better fee deals for you,” he said. The separate account business accounts for approximately $10 billion of client capital today.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>EnTrust’s approach to manager selection has evolved in parallel to its approach to managing client capital.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>“The most notable change over the past 5 years is the fact that we’ve moved away from household names towards smaller, less well-known, idiosyncratic investment partners. People don’t need EnTrust to help them invest in a name that everyone knows. Our ability to source managers all over the world that have phenomenal performance records is the value add,” Hymowitz said. “If you look at our core portfolio 10 years ago you would have recognised almost all the names. Today, the investor probably doesn’t because they’re off the beaten path but it’s all about figuring out a way to add value”.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>The co-investment business isn’t the newest division of the firm, however. In more recent years, EnTrust Global has been making a play in the world of transport; 3 years ago it launched a maritime lending vehicle.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>“Once again we saw this dislocation and our view was that there wasn’t going to be a lot of capital going after this dislocation,” said Hymowitz. “It’s differentiated; you don’t have a lot of competition. It’s what I would deem to be real value-add,” he said. The idea behind the maritime business has its origins in the aftermath of the financial crisis: European banks, which for years had been the primary capital providers to that industry, stopped lending and the asset prices of the vessels decreased significantly.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>“In the end, you make the most amount of money when you’re able to buy assets cheaply or lend when the assets are cheap,” said Hymowitz. The maritime business has over a billion dollars in commitments, of which $600mn has been deployed. More than fifty vessels have been financed in the program’s three-year existence.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Hot on the heels of launching the maritime investment business came EnTrust’s aviation business, which launched a year and a half ago. It provides direct lending to aircraft companies. “We really like this view of lending against hard assets. If you’re lending against a hard asset, and if you don’t get paid, you have the ability to seize the asset,” enthused Hymowitz. He’s naturally bullish on the outlook for the private debt division of the company. “Going forward I think these will make up for a very significant part of the growth of the business,” he said.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Looking ahead, Hymowitz says the Middle East – “there’s a lot of demand for direct investments” - and South East Asia - “there’s a lot of interest in co-investments and shipping” - both represent significant opportunities for the company, and he sees significant growth ahead for his firm’s real assets division.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>“We’re building out this whole direct lending real asset business which I think will be a very significant part of the growth of the business going forward. I think by the end of the year that business is a $2billion business going into $5billion. The demand for capital is significant”.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Hymowitz spends most of his working life travelling, meeting with existing and potential investors and seeing the investments first-hand. “I’ve always taken the view that you have to go out and meet your investors,” he said.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>He thinks that connecting and understanding the investors offers a competitive advantage that is generally lacking on Wall Street.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>“When you go to Detroit and you meet the Iron Workers, or Pennsylvania and you meet the Steel Workers, or again the pension beneficiaries in California, or people in other countries where a sovereign wealth fund is based, there’s a different level of appreciation of who you are managing money for. The level of responsibility one feels for producing returns is much higher”.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>In 2019 and beyond, Hymowitz will continue plane-hopping – his firm has clients in 47 countries - to source deals and meet the asset owners his firm manages money for, but now he’ll be doing it with a new brand behind him to reinforce his message; EnTrust Global is not only a fund of funds.</span></span></span></span></span></span></span></p></div> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <drupal-render-placeholder callback="flag.link_builder:build" arguments="0=node&amp;1=10485&amp;2=bookmark" token="txm_GlfCZ6OJs5VJGvP1rHizFEXRdD6vUaQGp5TbMAY"></drupal-render-placeholder> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--field-author--features.html.twig * field--node--field-author.html.twig * field--node--features.html.twig x field--field-author.html.twig * field--entity-reference.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field--field-author.html.twig' --> <a href="/author/ludovica-brignola" hreflang="en">Ludovica Brignola</a> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field--field-author.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--field-content-role--features.html.twig * field--node--field-content-role.html.twig * field--node--features.html.twig * field--field-content-role.html.twig * field--list-string.html.twig x field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <div class="field field--name-field-content-role field--type-list-string field--label-above"> <div class="field__label">Content role</div> <div class="field__item">Public</div> </div> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> Tue, 26 Mar 2019 10:37:19 +0000 AlphaWeek Staff 10485 at https://alpha-week.com Believe It: Some Managed Futures Good News https://alpha-week.com/believe-it-some-managed-futures-good-news <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--title--features.html.twig x field--node--title.html.twig * field--node--features.html.twig * field--title.html.twig * field--string.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'core/modules/node/templates/field--node--title.html.twig' --> <span>Believe It: Some Managed Futures Good News</span> <!-- END OUTPUT from 'core/modules/node/templates/field--node--title.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--created--features.html.twig x field--node--created.html.twig * field--node--features.html.twig * field--created.html.twig * field--created.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'core/modules/node/templates/field--node--created.html.twig' --> <span>Wed, 03/13/2019 - 12:02</span> <!-- END OUTPUT from 'core/modules/node/templates/field--node--created.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--body--features.html.twig * field--node--body.html.twig * field--node--features.html.twig * field--body.html.twig * field--text-with-summary.html.twig x field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <div class="field field--name-body field--type-text-with-summary field--label-hidden field__item"><p><span><span><span>Most coverage of the managed futures industry could be described as ‘all doom and gloom’. Industry aggregators and commentators can’t help but paint a bad picture of the industry. BarclayHedge’s CTA Index closed 2018 with a loss of -3.05%; it’s been in negative territory in all but three years since 2009. HFR’s HFRI Macro: Systematic Diversified Index – comprised largely of trend-following CTAs – has endured a similar fate. The SG CTA Index – which is comprised of the largest twenty managers open to new investment – has fared better, but not by much. None of these three indexes are setting the world alight to begin 2019, so we wondered if there was any good news to be had.</span></span></span></p> <p><span><span><span>As it happens, there is.</span></span></span></p> <p><span><span><span>We asked BarclayHedge for a list of all of the investment managers in its CTA database which had reported positive returns in each of the past three years. Of the 734 funds in the database, 95 of them – so 13% - were in the green in each of the past three years. The selection below shows the top ten managers flying the flag for the beleaguered managed futures industry whose funds’ AUM comes in at more than $500mn managers.</span></span></span></p> <p><span><span><span>In first place is Graham Capital’s Quant Macro fund, which exhibited a staggering 15.18% return in 2018 and didn’t leave investors unsatisfied in previous years, posting returns of 12.03% in 2017 and nearly 7% in 2016 for a compound annual return (CAR) of than 11.33%.</span></span></span></p> <p><span><span><span>PIMCO’s Commodity Alpha fund follows closely behind in second place, with 2018 returns coming in at 4.73%. 2016 and 2017 returns came in at 16.47% and 12.06% respectively, for a CAR of approximately 10.98%.</span></span></span></p> <p><span><span><span>The bronze medal goes to London-based John Street Capital’s Vantage fund. Vantage’s CAR was just over 10% - 2018 returns were 13.30%, 2017 was 5.72% and 2016 was 11.78%.</span></span></span></p> <p><span><span><span>Just outside the top three is Paris investment manager Capital Fund Management’s Discus Composite fund. Discus posted returns of 7.5% in 2018, double digits in 2017 at 12.58% and 5.78% in 2016 for a CAR of 8.58%.</span></span></span></p> <p><span><span><span>The UK boasts another entrant in fifth place – ADG Capital’s Systematic Macro fund. Returns of 3.42% in 2018, 2.05% in 2017, and 14.4% in 2016 were good for a compound return of 6.49%.</span></span></span></p> <p><span><span><span>More household names round out the remainder of the top ten. Millburn’s Diversified Program came in sixth (6.02% CAR), followed by Episteme Capital in seventh (5.40%), Bridgewater’s Pure Alpha Fund I in eighth (4.33%), Stockholm-based IPM’s Systematic Macro in ninth (3.79%) and PIMCO’s Trends Composite fund (3.00) rounding out the top ten.</span></span></span></p> <p><span><span><span>Despite the headlines, some tactical trading firms are generating alpha – and more importantly, consistent alpha - returns for their clients. Clearly, some managed futures products aren’t that bad after all.</span></span></span></p></div> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <drupal-render-placeholder callback="flag.link_builder:build" arguments="0=node&amp;1=10343&amp;2=bookmark" token="vXQyAMP_Pr3xDYgzDR3qmoblayhecYhvOGvOJuEtWIU"></drupal-render-placeholder> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--field-author--features.html.twig * field--node--field-author.html.twig * field--node--features.html.twig x field--field-author.html.twig * field--entity-reference.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field--field-author.html.twig' --> <a href="/author/ludovica-brignola" hreflang="en">Ludovica Brignola</a> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field--field-author.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--field-content-role--features.html.twig * field--node--field-content-role.html.twig * field--node--features.html.twig * field--field-content-role.html.twig * field--list-string.html.twig x field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <div class="field field--name-field-content-role field--type-list-string field--label-above"> <div class="field__label">Content role</div> <div class="field__item">AlphaWeek Basic</div> </div> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> Wed, 13 Mar 2019 12:02:21 +0000 AlphaWeek Staff 10343 at https://alpha-week.com CFTC 4.7 Exemption: Still Worth It? https://alpha-week.com/cftc-47-exemption-still-worth-it <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--title--features.html.twig x field--node--title.html.twig * field--node--features.html.twig * field--title.html.twig * field--string.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'core/modules/node/templates/field--node--title.html.twig' --> <span>CFTC 4.7 Exemption: Still Worth It?</span> <!-- END OUTPUT from 'core/modules/node/templates/field--node--title.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--created--features.html.twig x field--node--created.html.twig * field--node--features.html.twig * field--created.html.twig * field--created.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'core/modules/node/templates/field--node--created.html.twig' --> <span>Wed, 03/13/2019 - 09:49</span> <!-- END OUTPUT from 'core/modules/node/templates/field--node--created.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--body--features.html.twig * field--node--body.html.twig * field--node--features.html.twig * field--body.html.twig * field--text-with-summary.html.twig x field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <div class="field field--name-body field--type-text-with-summary field--label-hidden field__item"><p><span><span><span>A myriad of questions linger on the mind of a neophyte investment manager registering as a CTA, but one decision is of paramount importance as it sets the legal framework within which the vehicle can be marketed: whether to file an exemption with the NFA under CFTC rule 4.7.</span></span></span></p> <p><span><span><span>Most hedge funds are permitted only to market their fund to ‘accredited investors’ (as defined by the SEC) but managed futures funds enjoy more latitude than their hedge fund cousins with regards to their marketing options. Their legal requirements – as overseen by the CFTC and the NFA – do not strictly oblige them to market to ‘Qualified Eligible People’ only: indeed, the fund manager has the option to be open to all investors, regardless of status.</span></span></span></p> <p><span><span><span>As stated in the 4.7 rule of the Commodity Exchange Act, a qualified eligible person is defined as someone who owns at least $2 million in securities (and other investments) and possesses at least $200,000 in initial margin and option premiums for commodity interest transactions. In addition, one can be considered a QEP if they have maintained an open account with a futures commission merchant at any time during the preceding six months.</span></span></span></p> <p><span><span><span>As these investors are considered well-informed, the bureaucratic burden is lessened on the part of the CTA when the decision is taken to limit the marketing of the fund to these investors in two main ways. Firstly, they don’t have to abide by the ‘general disclosure’ requirements. As section 4 of the CFTC document explains, each commodity trading advisor has to deliver a disclosure document stating that the CFTC has ‘not passed upon the merits of participating in the trading program’, outlining all risks of long/short trading, exchanging future foreign exchanges, options contracts and swaps, and add a full account of the entirety of the fees that are to be charged to the client.</span></span></span></p> <p><span><span><span>Secondly, they are not obliged to provide a past performance disclosure, a document which details information such as the total assets under management at the time of the document compilation, the largest monthly draw-down for the account or trading program in the most recent five calendar years (expressed as a percentage of client funds), and changes in the net performance of the period related to additions, withdrawals, redemptions, fees and expenses.</span></span></span></p> <p><span><span><span>At first glance, the seemingly onerous nature of the task of compiling these documents makes it easy to view the exemption route as an effective and immediate problem-solver; fewer investors allocating bigger tickets with less regulatory burdens. Furthermore, less administration allows the CTA to focus their energies on trading. What’s not to like?</span></span></span></p> <p><span><span><span>In reality though, not many new CTAs will be the next Winton; not every institutional investor will want to look at a new CTA.</span></span></span></p> <p><span><span><span>IRS data shows that in 2007<sup>[1]</sup> 1.8 million households in the U.S had a net worth of over $2 million – and hence could be considered Qualified Eligible People. That’s a large pot of money that a CTA which decides to file the exemption is missing out on. Furthermore, established allocators are shunning CTA strategies given the well-documented challenges with performance since the global financial crisis; it’s a case of more managers chasing less money.</span></span></span></p> <p><span><span><span>These are the questions that every CTA has to confront before making a decision and new CTAs would be well served to consider the bigger picture, because it has such a large impact on the fund’s ability to raise assets in the short-medium term. New CTAs would do well to pay heed to Benjamin Franklin, the father of American legislation. As he put it, “an investment in knowledge pays the best interest”.</span></span></span></p> <p><span><span><span><sup>[1]</sup> Latest available IRS bulletin https://www.irs.gov/statistics/soi-tax-stats-personal-wealth-statistics#2</span></span></span></p> </div> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <drupal-render-placeholder callback="flag.link_builder:build" arguments="0=node&amp;1=10346&amp;2=bookmark" token="bXIlFhFTcz9m2l_rimh-zT3xyAnhNwgvnpiYdNqURqA"></drupal-render-placeholder> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--field-author--features.html.twig * field--node--field-author.html.twig * field--node--features.html.twig x field--field-author.html.twig * field--entity-reference.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field--field-author.html.twig' --> <a href="/author/ludovica-brignola" hreflang="en">Ludovica Brignola</a> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field--field-author.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--field-content-role--features.html.twig * field--node--field-content-role.html.twig * field--node--features.html.twig * field--field-content-role.html.twig * field--list-string.html.twig x field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <div class="field field--name-field-content-role field--type-list-string field--label-above"> <div class="field__label">Content role</div> <div class="field__item">AlphaWeek Basic</div> </div> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> Wed, 13 Mar 2019 09:49:25 +0000 AlphaWeek Staff 10346 at https://alpha-week.com Interview: Olga Chernova, Sancus Capital https://alpha-week.com/interview-olga-chernova-sancus-capital <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--title--features.html.twig x field--node--title.html.twig * field--node--features.html.twig * field--title.html.twig * field--string.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'core/modules/node/templates/field--node--title.html.twig' --> <span>Interview: Olga Chernova, Sancus Capital</span> <!-- END OUTPUT from 'core/modules/node/templates/field--node--title.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--created--features.html.twig x field--node--created.html.twig * field--node--features.html.twig * field--created.html.twig * field--created.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'core/modules/node/templates/field--node--created.html.twig' --> <span>Tue, 02/26/2019 - 11:59</span> <!-- END OUTPUT from 'core/modules/node/templates/field--node--created.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--body--features.html.twig * field--node--body.html.twig * field--node--features.html.twig * field--body.html.twig * field--text-with-summary.html.twig x field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <div class="field field--name-body field--type-text-with-summary field--label-hidden field__item"><p><span><span><span><span><span><span><span>Raised during the post-Brezhnev years of communist Russia, Olga Chernova moved to the United States at the age of seventeen, leaving family and friends behind. She enrolled at University of Northwestern – St Paul; even then, Chernova was somewhat of a pioneer, unfazed by the 180-degree flip in culture.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>“I arrived in the US in 1992, just after I finished high school. At that point there were not too many people from Russia in the States because it had only recently become possible to travel; it was very difficult before that. Even if you had a foreign passport, you had to provide a reason for your travel. I gave study as my reason, got approved and subsequently went to study in the US. I was very excited to be able to go to the States; when you are seventeen, everything is new and exciting, so you don’t worry too much about adjustment or transition” she said.  </span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Chernova moved to the US without a preconceived idea of what she wanted to study. Indeed, she almost fell into finance. “When I came to study in the US, I was assigned an advisor which helped me to figure out my major. Back then, everybody in Russia was either an engineer or a doctor, and my advisor talked about finance. I chose finance as my major because it was something I knew little about, and in Russia, finance wasn’t available. I was attracted to it for that reason.”</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Chernova’s career to date has run the gamut of credit investing. She spent seven years at Goldman Sachs and a had a brief sojourn at JP Morgan before launching Sancus Capital Management, a multi-strategy credit fund, in 2009, in the ashes of the global financial crisis.</span></span></span></span></span></span></span></p> <p><span><span><span><span><strong><span><span><span>“</span></span></span></strong><span><span><span>During the crisis I was working at JP Morgan in the proprietary trading group. At the time, all proprietary trading companies were taking money from the government, so they all came into question, and it became very clear to me that the banks were just not going to “work” in the future. They [JP Morgan] were trying to change the group and have everyone transfer into the sell-side of the business. I really enjoyed what I was doing - I wanted to continue doing asset management. I felt that it was the right time for me to go and launch my own fund.”</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>The zeal displayed by Chernova when she moved to the US found itself employed once again when she launched her hedge fund. It was 2009, in the midst of the worst financial crisis since 1929.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>“It was such a difficult time to be starting a hedge fund. Everyone was scared by a “no money” scenario, and everyone was expecting me to not succeed. If I didn’t, nobody would have judged me too harshly, so I thought it was a good time to go risky and take the contrarian approach.”</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Moreover, credit derivatives – just some of the instruments which Sancus trades – were, at the time, a mass-media poster child for the near-collapse of the markets. One might argue it’s a surprise Chernova raised any money at all. Undeterred, and true to form, Chernova began making waves in the space, unapologetically.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>“I chose to focus on this product way before the crisis, and by the time the crisis came around I was a relatively experienced trader in this field. I decided to apply this to my fund because it was a sector that I knew very well” she said. “I think it’s pointless to criticise an instrument. It’s not the instrument, it’s the use of it. There was definitely a lot of irrational exuberance in the market, and derivatives make use of leverage, which make the exuberance even clearer. It’s the lack of regulation and risk limits on the part of banks that caused the financial crisis, as well as the same irrational exuberance in consumers that kept buying real estate that they couldn’t afford. I think it’s very simplistic to attack a product: it is never inherently bad or good.”</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Chernova, of course, disagrees with the negativity surrounding the use of credit derivatives, instead championing how they should be used by investors.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>“There are many wonderful uses of derivatives that can help investors create the right-matching profile for the investments that they needed or to protect themselves from losses. Look at the CLOs in their senior tranches: they allow investors to actually hold an instrument that is very senior in the capital structure and it’s very loss-remote; I think blaming it on the financial instruments is a bit short-sighted.”</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>The ten years in which Sancus Capital has been in existence have provided more ups (eight years out of ten) than downs (two years out of ten) and have taught Chernova many lessons, none of which were more challenging than the energy crisis of mid-2014 to early 2016, when the price of crude oil dropped by more than 50%.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>“That crisis was very damaging for us because we had a lot of CLO equity investments at that time and many of them were allocated to energy leveraged loans. CLOs had a fair amount of exposure and what happened was very hard to hedge. It was a perfect storm for foreign equity investors because a particular sector [oil] was blowing up but the rest of the market wasn’t, so CLO managers were struggling as they wanted to trade out of the energy sector but everything else that they could buy was very expensive. It really was a perfect storm for CLO equities, and it was a good example of an environment of very high dispersion where one particular sector blows up but everything else does not.”</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Chernova’s fund consequently took a hit in 2015, but Sancus rebounded strongly in 2016 and exceeded its previous high-water mark in the autumn of that year.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>In recent years, Chernova has become a flag-bearer for the ‘women in hedge funds’ zeitgeist, partially because of her background, and partially because of her fund’s solid performance. She’s listed in 100 Women in Finance’s ‘Female Fund Manager Visibility Campaign’ and has an entire chapter of Meredith Jones’ book ‘Women of The Street: Why Female Money Managers Generate Higher Returns (and How You Can Too)’ devoted to her. Chernova appreciates the recognition but doesn’t feel that her gender has hampered her path to success.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>“I have never really felt disadvantaged, but the place I come from plays a big role. One of the good things of communism is that during the cold war, productivity wasn’t very high. With a country like Russia, which was particularly poor on a technological level, the only way it could compete with the US was by having a very high labour force participation. They made sure that women would work; growing up in Russia, girls never felt that there was something that they couldn’t do”.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Chernova does, however, believe that the structure of organisations can provide an impediment to women progressing in some companies.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>“I don’t want to pretend that there are no issues for women in finance, but I think there are more issues for women at a senior level or those further along in their career. If a woman might want to have children, that’s what makes it difficult. I don’t think someone purposefully wants to discriminate against women, but very often, especially in the big banks at the senior level, there are a lot of political decisions to be taken and it is required that managers be present at those meetings. You have to be there when the markets are open, and when decisions are made. Life doesn’t stop”.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Chernova is an advisory member to the Board of Northwestern College and has a number of philanthropic interests in arts and nature conservation. Like many entrepreneurs, she stands ready to offer advice not only to women but young people in general.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>“Large institutions such as banks and big asset management companies generally have good trading programs and are good at teaching young people. The traditional approach – a young person starting their career at a bigger place - is good in terms of learning. And most of these institutions now are very cognizant as to increase the number of women in their firms”.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>She pauses for a moment, and then continues. “I think that the best advice I can offer women interested in a career in finance is to try to do what I did. Don’t worry about it; if you like it, you should do it, and the less you focus on the fact that you are a woman, the less it would inhibit you. I think the industry is focused on meritocracy and in the end, rewarding talent. Generally, when you genuinely love a job - when you don’t do it only for money - you tend to have good results, and that is true in any field”.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Chernova has seen it all and done it all. Her experiences of moving halfway across the world as a teenager, studying something completely new and in a foreign language and starting her own hedge fund (not only in an industry dominated by men but in the ashes of the worst financial crisis that history has ever seen) has taught her a thing or two. These lessons manifest themselves in a cautionary stance right now. “A recession would be caused by the speed at which the Fed is raising rates” she explained. “So, it would be in a way self-inflicted and it would affect everyone in other markets as well as credit. We are very cognizant of that in terms of how we are constructing our portfolio. Potentially, there is some irrational exuberance in some areas of tech, so we are cautious, but outside of that we do not think that credit quality is bad”.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Fundamentally of course, Chernova is bullish on the outlook for credit investing. Whatever challenges the next ten years hold for the credit markets, hedge funds and alternative investments more broadly, Chernova’s unique perspective - gained through her upbringing in communist Russia through to her move to the States and finally from launching her own hedge fund - should see her well placed to thrive.</span></span></span></span></span></span></span></p></div> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <drupal-render-placeholder callback="flag.link_builder:build" arguments="0=node&amp;1=10486&amp;2=bookmark" token="Edqeh1W6NzZ5emDFmixl-P0cs1VPOQBKgr7OsJHrgJk"></drupal-render-placeholder> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--field-author--features.html.twig * field--node--field-author.html.twig * field--node--features.html.twig x field--field-author.html.twig * field--entity-reference.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field--field-author.html.twig' --> <a href="/author/ludovica-brignola" hreflang="en">Ludovica Brignola</a> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field--field-author.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--field-content-role--features.html.twig * field--node--field-content-role.html.twig * field--node--features.html.twig * field--field-content-role.html.twig * field--list-string.html.twig x field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <div class="field field--name-field-content-role field--type-list-string field--label-above"> <div class="field__label">Content role</div> <div class="field__item">AlphaWeek Basic</div> </div> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> Tue, 26 Feb 2019 11:59:48 +0000 AlphaWeek Staff 10486 at https://alpha-week.com Profile: Northern Gulf Partners https://alpha-week.com/profile-northern-gulf-partners <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--title--features.html.twig x field--node--title.html.twig * field--node--features.html.twig * field--title.html.twig * field--string.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'core/modules/node/templates/field--node--title.html.twig' --> <span>Profile: Northern Gulf Partners</span> <!-- END OUTPUT from 'core/modules/node/templates/field--node--title.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--created--features.html.twig x field--node--created.html.twig * field--node--features.html.twig * field--created.html.twig * field--created.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'core/modules/node/templates/field--node--created.html.twig' --> <span>Tue, 02/26/2019 - 11:38</span> <!-- END OUTPUT from 'core/modules/node/templates/field--node--created.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--body--features.html.twig * field--node--body.html.twig * field--node--features.html.twig * field--body.html.twig * field--text-with-summary.html.twig x field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <div class="field field--name-body field--type-text-with-summary field--label-hidden field__item"><p><span><span><span><span><span><span><span>Launched in March 2009, Iraqi Investment Partners I, a hedge fund advised by Northern Gulf Partners, is betting on the future of a country that was cast into the abyss by war: Iraq.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Its founders, Zaab Sethna and Bartle Bull, think that the signals coming from the much-maligned nation are pointing to growth and economic momentum, and that Iraq offers a significant opportunity for alpha generation in the coming years.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>After the invasion of Iraq in 2003, Sethna was working in the Iraqi government where he had roles in the ministry of finance, the oil ministry and the prime minister’s office. His colleague and co-founder Bull also had experience working in emerging markets, having spent time at frontier market funds and in the Middle East as political and economic analyst.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>“We both had a good grounding in Iraq, that’s how we decided to come together and realised there were opportunities in the country, as well as capital outside: there was space for us to be the bridge between that external capital and the opportunities within Iraq”.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>The strategy is long only and discretionary, and the investment universe is predominantly blue-chips on the ISX – the Iraqi stock exchange. The fund doesn’t preclude itself from investing on other exchanges, but it does so trying to exploit opportunities in the energy sector by investing in oil companies that are listed abroad but work in and derive their revenues from Iraq.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>The fund charges a 2 and 10 fee structure rather than the more common 2 and 20 employed by the market. “Shorting in Iraq is impossible, so there are less ways for us to produce alpha. Our returns above the market usually come from deep research, local knowledge, and local contacts” Sethna explained.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>According to Sethna, the instability and the violence that the country endured, from the US-led invasion in 2003 to the establishment and subsequent defeat of the Islamic State of Iraq and the Levant in in 2017, is coming to an end.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>“In January the United Nations stopped issuing statistics on Iraqi political violence, because they say now that it’s too low to measure. Violent incidents have declined by 99%; you can now essentially say that violence has ended,” he said.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Opportunities in the country are far-reaching: the nation is slowly transitioning out of a centrally-planned economy torn by war to an increasingly open free-market system in a post-war environment. But the potential of the country lies in one specific area.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>“Growth is driven by Iraq’s hydrocarbons – oil and gas. Iraq is essentially a poor country but it has an opportunity to lift itself very quickly into the ranks of middle-income countries, and eventually it has the possibility to become a rich country. That’s all driven by oil and gas” said Sethna. “Iraq is sitting on one of the world’s largest oil reserves. It’s currently the world’s fourth largest producer - and the second largest producer in OPEC, just after Saudi Arabia - so that’s what’s driving it. From an investment standpoint we see two particular scenes: one is the large expenditure that will go into oilfield development and basic infrastructural development as a spinoff from that, such as roads, ports and airports. The other broad investment theme is the large jump we observed in consumer spending power in the last decade; we foresee this will continue in the next decade.”</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>GDP per capita has almost quadrupled in Iraq in the last 12 years and socio-economic trends which follow increases in disposable income, like spending on consumer products, financial services, education and healthcare all have investment opportunities that you can gain exposure to through the Iraqi public equities market. Examples of this can be seen in the holdings of Iraq Investment Partners I; mobile phone carrier Asiacell gained 47% last year, and local Pepsi-bottler Baghdad Soft Drinks Co was up 37%.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Despite the opportunities within the investment landscape, Iraq is still a region viewed with scepticism by investors.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>“There is regional risk, and Iraq is in the middle east, which, as everyone knows, is an area of heightened geopolitical risk.But this nation itself is now emerging from that period, and there is no question that it will ever be under sanctions” Sethna stressed.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Furthermore, the threat posed by ISIS – or Daesh – is, according to Sethna, slowly fading.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>“In Iraq, ISIS exists as a terrorist group but it’s no longer in the cities; they are now doing pin prick attacks in rural areas out in the desert or in the mountains. You hear about an attack every now and then against a military convoy, but they don’t pose any kind of threat to the state. Take Iraq’s oil facilities which are predominantly in the south of Iraq: there has never been a single terrorist attack against any oil facility, or against any foreign companies or foreign investor in Iraq”.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Political risk aside, a major impediment to investing in the Iraq Stock Exchange is the lack of third-party custodians.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>“This holds back institutional investors from the Iraq market. Our custodian is an Iraqi organisation called the Iraq Depositary Centre (IDC) which is owned by the ISX which in turn is owned by the brokers who are members of the ISX. It’s not enough of an arm’s length relationship for many of the large institutional investors. To mitigate those fears, we constantly stay in touch with the IDC to make sure that their records tally with our records. When we go and visit them, we stand behind them and watch them as they examine our account so we can see that the custodian records reconcile with our own records for our holdings”.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Northern Gulf’s risk management process follows international standards with regards to middle and back office, audit, banking and legal counsel, and it’s particularly focused on due-diligence on the brokers.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>“We visited all the available licenced brokers, met them, asked to examine their books whenever that was possible, and then we did sample trades, until we had short-list of the brokers that we believed were the best in class in Iraq. We continue that process on an annual basis, and we look at any potential new relationships that we think may be useful to us”.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Good demographics and a strong education system also inspire confidence in the opportunity for alpha returns, according to Sethna.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>“Iraq has a population of 38 million, with a high proportion of those being under 25. Iraqis are in general well-educated and the country needs everything: the demand is huge in all sectors, from hotels and hospitality, to real estate. For example, Baghdad is a city of 10 million people and for now there’s only one shopping mall”.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Looking ahead, Sethna foresees a big rise in domestic liquidity driven by rising stability and enhanced oil production. Foreign investment is noticeably picking up. “In terms of our fund we have had more interest in the last few months than we had in 2 or 3 years before that. We would not be surprised at seeing new funds entering the market”.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Once the cradle of civilisation, Iraq endured one of the longest conflicts of the twenty-first century. But the withdrawal of armed forces, the return of stability and the rise of a middle-class determined to rebuild an entire country from the rubble of war could signify a new Golden Era for modern Mesopotamia and a corresponding outsized opportunity for alpha generation for investors.</span></span></span></span></span></span></span></p></div> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <drupal-render-placeholder callback="flag.link_builder:build" arguments="0=node&amp;1=10450&amp;2=bookmark" token="zL1dwXbt5eYaNyqGgsEztqtk2_g9LO5ztHr4FxD5QjY"></drupal-render-placeholder> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--field-author--features.html.twig * field--node--field-author.html.twig * field--node--features.html.twig x field--field-author.html.twig * field--entity-reference.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field--field-author.html.twig' --> <a href="/author/ludovica-brignola" hreflang="en">Ludovica Brignola</a> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field--field-author.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--field-content-role--features.html.twig * field--node--field-content-role.html.twig * field--node--features.html.twig * field--field-content-role.html.twig * field--list-string.html.twig x field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <div class="field field--name-field-content-role field--type-list-string field--label-above"> <div class="field__label">Content role</div> <div class="field__item">AlphaWeek Basic</div> </div> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> Tue, 26 Feb 2019 11:38:07 +0000 AlphaWeek Staff 10450 at https://alpha-week.com Litigation Finance: A Hedge Fund Opportunity? https://alpha-week.com/litigation-finance-hedge-fund-opportunity <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--title--features.html.twig x field--node--title.html.twig * field--node--features.html.twig * field--title.html.twig * field--string.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'core/modules/node/templates/field--node--title.html.twig' --> <span>Litigation Finance: A Hedge Fund Opportunity?</span> <!-- END OUTPUT from 'core/modules/node/templates/field--node--title.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--created--features.html.twig x field--node--created.html.twig * field--node--features.html.twig * field--created.html.twig * field--created.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'core/modules/node/templates/field--node--created.html.twig' --> <span>Tue, 02/26/2019 - 10:58</span> <!-- END OUTPUT from 'core/modules/node/templates/field--node--created.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--body--features.html.twig * field--node--body.html.twig * field--node--features.html.twig * field--body.html.twig * field--text-with-summary.html.twig x field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <div class="field field--name-body field--type-text-with-summary field--label-hidden field__item"><p><span><span><span><span><span><span><span>Now a rapidly maturing industry, litigation funding - the practice by which a third-party investor offers capital to a plaintiff in return for a share of a settlement - started off as a crime. Ancient English “champerty” and “maintenance” laws, archaic common law doctrines that date back to the medieval period, prevented disinterested parties from encouraging or financing a lawsuit.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>In the 20th century, across the English-speaking world, criminal law acts were issued which abolished these crimes, providing an impetus for the business to spread across the globe, eventually morphing into what is now a billion-dollar industry.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>This ‘parting of the seas’ has seen hedge funds and private equity funds rush into the asset class in order to chase the golden chalice of uncorrelated returns.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>To this day, though, litigation funding is still regarded as a niche investment. Furthermore, according to Amy Hirsch, CIO of litigation funding hedge fund RD Legal, the strategy is not widely understood by allocators to hedge funds and private equity funds.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>“I think that a preconception about litigation finance is that they [investors] believe it's all pre-settlement and there's no way you can know what's going on. Some investors put both types of litigation finance in one bucket rather than distinguishing between pre-settlement and post-settlement”, </span></span></span><span><span><span>she said.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Per Hirsch’s point, litigation funding as an investable asset class can be split into two very different strategies; pre-settlement and post-settlement funding. Pre-settlement litigation entails the loan of capital to a claimant <em>before</em> a case has been resolved. This is considered significantly riskier, as Oliver Gayner of IMF Bentham explains.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>“Pre-settlement is sophisticated investing requiring significant expertise in order to take acceptable risks; it’s non-recourse finance and there is no security. You are betting on the outcome of a case, but if the case loses, our investment is lost, and we also have to pay the other side’s cost so you’re almost doubling your exposure. Plus, it’s very hard to predict the outcome of highly complex commercial cases” he says.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>That risk naturally would have a higher return profile, as Hirsch explains.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>“When you're taking a huge bet you expect a large return for that because the risk is unquantifiable. The risk/return on a pre-settlement had better be far different than the risk/return from a post-settlement”, said Hirsch.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>On the other hand, post-settlement funding is considered less risky because the verdict has been reached, and the pay-out is already known. Successful plaintiffs benefit because they receive the cash more expeditiously  – sometimes it can take months, or even years for the pay-out to actually be deposited with the plaintiff.  </span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Hirsch explains that regardless of allocators’ risk appetite, so much about the asset class is misunderstood.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>“There are a lot of things that people need to understand when they're making these investments; either they're not even aware of them or they wouldn't think about these types of risks because it's not their bailiwick. I think it's important for people to ask questions that are outside the box”.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Hirsch believes that investment consulting firms and wealth managers can aid the education process.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>“The larger gatekeepers typically look to things that they're being asked to look at by their clients. And that's fair; they're very busy and they don't have time to look at everything. However, I think it behooves all the gatekeepers when a strategy is out there to know at least the minimum about the strategy regardless of what it is.”</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Whilst the litigation finance industry has been around for fifty years, publicity issues have always surrounded the sector, which has been a hindrance to some investors allocating money to the space. Neil Purslow, CIO at Therium Capital, said: “There are pension funds and endowment funds who are in the space and they are able to get their head around the reputational issue. Some of them though can be worried about a specific conflict, or about being perceived to be on one side of the line”.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Whilst litigation finance firms have been stuck in a continual education and PR battle, the lawmakers themselves are taking aim at the industry. In May 2018, US lawmakers introduced the Litigation Funding Transparency Act, which would require plaintiffs to disclose their funding arrangements to the defendants. The bill was re-introduced in early February 2019. Hirsch believes that this could have two immediate impacts.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>“There is a long way to go before or if any such legislation regarding litigation funding is approved or enacted.  The potential impact of any new regulation will clearly depend on what is implemented and how it is implemented.  Two immediate possible impacts would be that a) increased legislation can be expected to shake out weaker players, and b) increased transparency might create a compression on yield.”</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Eric Blinderman, CEO of Therium Capital, feels more strongly about the bill.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>“The U.S. Chamber of Commerce’s attempt to get this bill passed in the last Congress did not even get a hearing.  And the Chamber’s professed desire for “transparency” is simply code to grant defendants an indiscriminate right to peer into the financial resources of a plaintiff.  This approach is unfairly discriminatory to litigants who cannot afford access to the courthouse doors.  We don’t expect the bill to gain traction given its fundamental lack of merit, particularly now that Democrats control the U.S. House of Representatives.  Litigation finance is an invaluable tool which allows injured parties possessing meritorious claims to have their day in court, and this should not change.”</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Despite the pending additional oversight from the government – at least, stateside - the asset class is growing, and will therefore continue to provide opportunities for allocators. “This market is growing very fast, and the opportunity is evident” said Purslow. “As a funder, you need to bring in external capital. You cannot do it all organically by re-investing returns, or you would reduce the opportunity significantly”.</span></span></span></span></span></span></span></p></div> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <drupal-render-placeholder callback="flag.link_builder:build" arguments="0=node&amp;1=10487&amp;2=bookmark" token="elFx9c55nDD8xiu-MEB12pfgJgCcg5WdHeB8IuRozTc"></drupal-render-placeholder> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--field-author--features.html.twig * field--node--field-author.html.twig * field--node--features.html.twig x field--field-author.html.twig * field--entity-reference.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field--field-author.html.twig' --> <a href="/author/ludovica-brignola" hreflang="en">Ludovica Brignola</a> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field--field-author.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--field-content-role--features.html.twig * field--node--field-content-role.html.twig * field--node--features.html.twig * field--field-content-role.html.twig * field--list-string.html.twig x field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <div class="field field--name-field-content-role field--type-list-string field--label-above"> <div class="field__label">Content role</div> <div class="field__item">AlphaWeek Basic</div> </div> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> Tue, 26 Feb 2019 10:58:13 +0000 AlphaWeek Staff 10487 at https://alpha-week.com Profile: Fasanara Capital https://alpha-week.com/profile-fasanara-capital <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--title--features.html.twig x field--node--title.html.twig * field--node--features.html.twig * field--title.html.twig * field--string.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'core/modules/node/templates/field--node--title.html.twig' --> <span>Profile: Fasanara Capital</span> <!-- END OUTPUT from 'core/modules/node/templates/field--node--title.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--created--features.html.twig x field--node--created.html.twig * field--node--features.html.twig * field--created.html.twig * field--created.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'core/modules/node/templates/field--node--created.html.twig' --> <span>Tue, 02/26/2019 - 10:08</span> <!-- END OUTPUT from 'core/modules/node/templates/field--node--created.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--body--features.html.twig * field--node--body.html.twig * field--node--features.html.twig * field--body.html.twig * field--text-with-summary.html.twig x field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <div class="field field--name-body field--type-text-with-summary field--label-hidden field__item"><p><span><span><span><span><span><span><span>Launched in 2013, two years after the opening of London-based Fasanara Capital - originally a spin-out from Merrill Lynch - Fasanara tail-risk fund is a macro hedge fund with a bearish stance at its core; it is predicting a market crash worse than the ones experienced in 1929 or in 2008.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Fasanara Capital CEO Francesco Filia, an Italian who moved to London during the build-up of the dotcom bubble, says that he saw a twin bubble - simultaneous bubbles of equities and bonds – developing in the markets and in 2016 Fasanara tilted their position accordingly. “We had become increasingly bearish on the market by then, so we tilted our macro fund into a fully-fledged bearish strategy. This then translated into a tail-risk strategy” he said. “The resulting position the fund has is a consequence of our macro view about the world and more specifically of the set-up of markets after 10 years of market doping in the forms of quantitative easing and zero/negative interest rate policies. This gave rise to a twin bubble: US equity on one side and European and Japanese bonds on the other”.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>The idea for the strategy - and later the fund - has its genesis at Merrill Lynch, where Filia worked as Head of Mid-Caps and Principal Investors. “We had a team of 15 people looking opportunistically across asset classes, across financial instruments and across the capital structure to identify the biggest value opportunities irrespective of where we could find them. We were very agnostic to the asset class. This proved to be very successful through the years, especially during the Lehman Crisis.”</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>After observing two major crises - the dotcom bubble in 2000 and the global financial crisis of 2008 - Filia thinks that the markets have yet to see their real bottom. “If a crash materializes today it will be more impactful than what we have seen in the past because both bonds and equities may crash at once. This implies a significant difference from the Lehman shock, from the technological crisis, and from the market crises of 1929 and 1987, where equities collapsed but bonds rallied. This one may be more severe to financial portfolios…which for us means a historical generational  opportunity”.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>The fund is systematic and applies the rules of complexity theory – an interdisciplinary science that has roots in systems theory, which originally examined uncertainty and non-linearity in the natural sciences in the 1960s – to its models. Complexity theory proposes that systems have a better degree of predictability than that of its constituents’ parts. Pioneers of complexity economics, notably MIT physicist Cesar Hidalgo and Harvard economist Ricardo Hausman, state that some economic statistics, such as GDP per capita growth, can be predicted through the use of this science.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Filia is a firm supporter of this field of research and applies this science to his fund’s models to predict capital markets behaviour and the proximity to a major market cliff. </span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>“This theory is relevant for markets, although it has been rarely employed in these respects. We believe that it can help shed light on the functioning of the financial network. The main axiom [of complexity theory] is the complex adaptive system: big interactions among players which change over time, overlooked as a whole, and not singularly”.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Fasanara’s founder thinks complexity theory could be particularly useful in identifying systemic risk.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>“Markets today – especially the ones involved in a twin bubble - are going through a ’phase transition zone’: a vicinity to a market cliff, a sudden change. We see a fall approaching for the S&amp;P and the Nasdaq. We think this is easily detectable on the basis of complexity science, and we are now observing many early-warning signals which are general properties common to systems in transition, and therefore act to confirm the view.”</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>In complexity theory technical language, among the signals that Filia refers to are a “conditional slowing down” of the system, “flickering”, “auto-correlation”, “absence of traditional market buffer”, “loss of system resilience via a synchronicity of capacity constraints”, “flipping positive feedback loops”. In other words, he is observing a financial landscape that has gone through a long period of degradation and has become inherently unstable, fragile and vulnerable.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>“We use the analogy of a pile of sand. If you drop a grain of sand, one after the other, on top of each other, nothing happens for a long time - until one drop of sand provokes a mini-avalanche. That moment in time, just before that last drop of sand falls is called ‘poised to criticality’: the moment when the system is ready to go in a transition, so, using the sands analogy, the mini-avalanche. Complexity theory helps us determine when that moment in time is. All systems in transition, irrespective of whether they are lakes, pandemics, the human brain, or natural ecosystems, have universal properties that can be taken as an early warning signal of a big sudden change, a chaos outburst. If you focus on those common features, you can see those early signals”.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Fasanara Capital comprises 18 people, with offices in Milan and London. Its approach to risk management is ingrained in the models which it runs and is carried out through automatic trading which it calls ‘fat-tailed risk hedging’. Ten people within the technology team work on the model, which is continually updated.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>Looking forward, Filia wants his fund to stick to the same unorthodox approach that stems from the very foundation of the firm; namely, a multidimensional and atypical way of looking at the markets. Fasanara is positioned for a crash in the next twenty-four months. Last year, the tail-risk fund’s returns validated Fasanara’s hypothesis that the market is now navigating towards an inflection point.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>“2018 was a very good year for us, and a confirmation of our views: turbulent markets are just an anticipation of our scenario. For instance, last year we bet against the XIV that went bust, and we bet against Italian 2 years BTP, which down-spiralled in April and May. I think the scenario for which we are positioned is coming closer and closer and we should do well. Up until then we remain patient; we want to wait as long as is needed for our view to materialise.”</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>The firm will not compromise the strategy and venture into some short-term trades simply to secure some profits and show some positive monthly returns.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span>“We think that these days there is a definite trade-off between making good months and making good years – if you want to make a good year in a transition period you must go through some bad months. It’s inevitable, and the price you have to pay to see the end of the movie” says Filia. “And that transition period is exactly the point in history at which we are.”</span></span></span></span></span></span></span></p></div> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <drupal-render-placeholder callback="flag.link_builder:build" arguments="0=node&amp;1=10448&amp;2=bookmark" token="wIX1iY_rmXsRcN-XjLJ-Ru4EPx5-H4WpOC12bg9EPwU"></drupal-render-placeholder> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--field-author--features.html.twig * field--node--field-author.html.twig * field--node--features.html.twig x field--field-author.html.twig * field--entity-reference.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field--field-author.html.twig' --> <a href="/author/ludovica-brignola" hreflang="en">Ludovica Brignola</a> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field--field-author.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--field-content-role--features.html.twig * field--node--field-content-role.html.twig * field--node--features.html.twig * field--field-content-role.html.twig * field--list-string.html.twig x field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <div class="field field--name-field-content-role field--type-list-string field--label-above"> <div class="field__label">Content role</div> <div class="field__item">AlphaWeek Basic</div> </div> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> Tue, 26 Feb 2019 10:08:33 +0000 AlphaWeek Staff 10448 at https://alpha-week.com