Shout It Out Loud

Hedge fund industry interviews


In addition to our daily news feed, Hedge Funds Club’s Shout it out loud publishes interviews with interesting hedge fund managers and other senior industry figures that have something to say.

Mohammed Ali-Reda of Darkhorse Capital discusses his equity long/short strategy

Mohammed Ali-Reda

Mohammed Ali-Reda

Three years ago, Mohammed Ali-Reda founded Darkhorse Capital in Hong Kong to manage his own bottom-up emerging Asia and Middle East and North Africa equity long/short strategy. HFC’s Stefan Nilsson decided to have a chat with him about this journey so far.


You manage an equity long/short investment strategy focused on Asia as well as the Middle East and North Africa. What can you tell us about it?

Our strategy focuses on identifying quality companies that are run by honest and capable management who value shareholder creation. We look to capitalise on discrepancies between perceived value and underlying fundamental value of a company by adopting a rigorous and disciplined bottom-up research process. Our focus is on protecting capital while maintaining a sustainable long-term return profile. The portfolio is concentrated and will typically hold around 15 positions and currently has an estimated return on invested capital of 40%. In addition, virtually all my personal net worth is invested in the fund and I view all my investors as true partners in the fund.


What’s your edge? What sets you and your fund apart from the pack?

We focus on a business’ long term prospects, concentrate our holdings and focus on high-quality companies and management teams. This approach means we are able to delve deeper into a company versus a fund that has a shorter holding period. In essence we are looking to maximise the return on time invested for each position that we own and our target holding period is five years. Our investable universe is focused on companies between $500m and $10bn in market cap, with a preference towards ~$1bn range where there is little or no analyst coverage. This allows for us to really conduct differentiated primary research and unique view on the stock. We spend a lot of time on the ground talking to companies, suppliers, industry experts, regulators, other investors, etc. to help form that view – as an example I took over 40 flights last year. We are extremely focused in various sectors such as consumer, specialised manufacturing and specialised financial companies and our focus on the industry value chain provides a better understanding of the industry and competitive dynamics. I’ve spent a decade investing in Asia and most of my career looking at consumer companies. When you look at the world through the lens of trade and business as opposed to what the MSCI and other indexes outline, you find that the Asian and Middle East regions are very interconnected and show signs of further integration. In addition, the development of the capital markets and certain industries are following similar paths as they move from frontier to emerging to developed markets. We believe that ignoring benchmarks while focusing and analyzing companies using this approach provides us with a differentiated view and edge.


What can you tell us about your career prior to launching Darkhorse in 2014?

Prior to Darkhorse I was managing money for Asiya Investments in Hong Kong as Head of Consumer for the group, where I ran various portfolios that consistently generated alpha. I had joined the firm in early 2007 as the third member of the investment team and helped build out the firm. During that time the Kuwait government wanted to provide a way for the public to invest in Asia’s future, instead of opening another office for the sovereign wealth fund, Kuwait Investment Authority, in China. So the KIA and a few other institutions along with the public capitalised the firm. That’s how I got started and focused my career on Asia. Before that I was managing propriety capital for a large bank in Kuwait where we had a global mandate. Over the years I have also been actively involved with the CFA Society. I was a board member and treasurer of the Kuwait chapter.


You have launched your fund on the OPIM platform. Why did you choose to work with OPIM?

I found the OPIM platform was more focused on making sure all the middle and back office functions were taken care of by capable team members and systems. This allows me to focus on the portfolio and investing. The onboarding process was simple and having other mangers around also makes setting up the business part of the fund easier as you can talk to them about any questions, etc. Recently they have been helping a lot more on capital introduction and getting us in front of investors. I also like the people I work with, which is a big plus.


Why did you launch the fund with Hong Kong as a base?

Hong Kong geographically is situated well within Asia with a best-in-class airport infrastructure. Most cities are within a three-hour flight and a flight to Dubai is now around six-seven hours, so traveling is easier than if I lived in another city. The regulatory landscape in Hong Kong is very efficient and recognised globally, which is very important at a time when regulation is becoming more stringent. I also love the food and culture in Asia so I enjoy living here.


If you hadn’t been a fund manager, what would you have been doing?

Growing up I had started a few small businesses, the earliest already in middle school, so I always thought I would be an entrepreneur. I looked up to many successful entrepreneurs and read all their biographies. The notion of running my own business was very appealing to me. In a way I consider running a fund as an entrepreneurial venture within the financial services industry. On top of that, I get to be a part owner in many great companies through our investments as opposed to managing only one which can be a lot more interesting.

(Mar 2017)

Scott Treloar of Noviscient: Re-imagining investment management

Scott Treloar

Scott Treloar of Noviscient


HFC’s Stefan Nilsson decided to have a chat with Scott Treloar about Noviscient, the Singapore-based investment company he founded in 2016. Treloar has a solid background working in hedge funds, private equity and banking, where he has primarily worked on portfolio management and risk management, much of it focused on quantitative analysis and systematic trading strategies. “At Noviscient we offer something new and better” says Treloar.


Firstly, can you tell us about Noviscient and what you are trying to achieve?

Noviscient is a next generation investment manager. We are based in Singapore, but work with partners from around the world. We are aspiring to become a trusted partner of our investors by offering alignment, performance and transparency. Our first product is a dynamically allocated portfolio of systematic trading strategies called Liquid Systematic Trading.


Last year was the worst year for hedge fund start-ups and closures since 2008. Why are you are starting a fund now?

As it happens, we think now is the perfect time for us to start Noviscient. We see three big themes impacting investment management and we aim to take advantage of all three.

1) Technology wave – Cloud computing, big data and machine learning are driving fundamental change in all businesses. Investment management, as a pure information processing business, is particularly affected. These technologies are changing the basis of competition. Alpha no longer comes from privileged access to information, but rather from finding new sources of information and then using non-standard approaches for analysis and prediction. Smart use of modern technologies also enables companies dramatically lower their cost of doing business.

2) Partnering over employment – We also see great change in how people work. The gig economy, where people want to partner and consult rather than become employees, has been on the rise for several years now. It enables new and more flexible ways for companies to access the best global talent. We see many prospective traders and portfolio managers looking for new ways to offer their skills and work together.

3) Alignment of interests – Investors are frustrated with the current situation. Investors see that outsourcing their investment requirements to managers is expensive and producing lacklustre outcomes. There is a sense that investment managers are focused on building assets to increase management fees rather than on generating out-performance. They are losing faith in their investment managers and pulling out their money at an increasing rate. For want of better alternatives, this money is going to passive managers.

In summary, the traditional model of active management is coming to an end. At Noviscient we offer something new and better.




So, if the traditional model of active management is broken, how can Noviscient help investors?

At Noviscient we are building a new and innovative business model that acknowledges and addresses these three themes of technology, partnering and alignment. Our business model is a coherent system that creates value for our investing partners while being difficult to replicate, particularly for incumbent managers. Firstly, we were born digital. Our technology exists in the cloud and has been built to be modular and to take advantage of open source software. This allows us to operate at very low cost. It also enables the use of machine learning techniques both for finding alpha, using alternative data and for optimising our operations. A second element is that we partner with our systematic traders rather than employ them. We offer modern infrastructure, capital and attractive profit sharing. This positively selects for systematic traders who are very good. Interestingly, often our traders are from non-traditional backgrounds. The final element is our focus on alignment. We have no management fee. We have first loss protection. Profit sharing is only on performance. In other words, we are strongly aligned on both the upside and the downside with our investors. We want to signal to them that we are on their side as true partners. Our success is tied to our investors’ success.


If you hadn’t been a fund manager, what would you have been doing?

Well, I was a ski instructor in Austria for three years. That profession held a certain attraction. Alternatively, and completely orthogonally, I would have liked to have become a mathematician. I find mathematics very interesting and very influential in an understated way.

(Feb 2017)

Michael Wegener of Case Equity discusses his Asia-based global event-driven strategy

Michael Wegener of Case Equity

Michael Wegener of Case Equity

Hong Kong-based OP Investment Management (OPIM) keeps growing and helping some interesting hedge fund managers to launch their own funds. Former banker Michael Wegener, now Managing Partner of Case Equity, is one of them. HFC’s Stefan Nilsson decided to have a chat with Wegener about his event-driven investment strategy.


What can you tell us about your global event-driven strategy?

Case Equity is a global event-driven investment firm across merger arbitrage and special situation equities. Its philosophy is one of a global CIO office investing in best-in-class event-driven situations; defined as value-oriented, event-driven – hard or soft catalyst – with shareholder momentum overlay.


What sets you and your strategy apart from all the other emerging managers in Hong Kong?

Case Equity is the one and only event-driven hedge fund running a global strategy out of Hong Kong, Asia; as event-driven requires the key success factors of information transparency, board accountability and corporate governance. Intra-Asian investing were to add a political dimension coming with elevated risk beyond many investors control; hence our focus on Western markets, many of which trans-Atlantic deals, e.g. Johnson & Johnson’s recent US$30 billion acquisition of Actelion.


You have launched your fund on the OPIM platform. Why did you choose to work with OPIM?

I was keen to start on a multi-manager hedge fund platform allowing me to a) focus on investing and being in front of investors, b) know that the operational and regulatory aspects of the business are being taken good care of, and c) allowing me to keep full equity ownership, brand building identity and future growth support as a stand-alone entity.


Why did you launch the fund with Hong Kong as a base? You run a global strategy, are there advantages to being based in Asia?

I happen to be in Hong Kong, where Case Equity becomes one of the few choices for Asian high net-worth and family office investors looking for a) global equities diversification, b) absolute return strategy (9%-12% IRR target/run-rate) uncorrelated from broader equity markets (<30% beta to market), and c) exposure to global M&A activity (front-page, large-cap, cross-border, complex). Also, event-driven is not a day-trading strategy as an entry point depends on the right week or month – not day – with the investment exits predominantly sold in to the event at M&A (tender) offer price.


What did you do before you launched Case Equity?

I started my career as an investment banking analyst as part of Salomon Smith Barney’s (later Citigroup) Analyst Class 2000, having since focused on M&A/advisory for 15 years globally across multi-industries; prior to Case Equity’s Opportunities Fund launch in March 2016.


If you hadn’t been a fund manager, what would you have been doing?

Possibly M&A/strategy at a global corporate/diversified industrial group; though the skill set to anticipate M&A deals happening is best employed as an event-driven fund manager, delivering attractive risk-adjusted returns for investors.

(Jan 2017)

CME’s Ravi Pandit on ongoing changes in the FX and rates space

Ravi Pandit of CME Group

Ravi Pandit of CME Group

Hedge funds and other market participants are paying close attention to the changes going on in the Treasury markets and the role of futures. HFC’s Stefan Nilsson recently had a chat about this and other trends in the FX and rates space with CME Group’s Ravi Pandit.


Singapore-based Ravi Pandit serves as Executive Director, Foreign Exchange and Interest Rate Products, Asia Pacific, for CME Group. He is responsible for expanding CME Group’s existing FX and interest rate business and developing new opportunities across the region. Pandit joined CME Group in 2015 and has 25 years of experience in the financial markets. Prior to joining CME Group, Pandit was a consultant to Singapore Exchange, where he provided strategic advice and project management for its launch of listed FX futures. Before that, Pandit worked for 12 years in Dresdner Bank and subsequently Commerzbank post-merger, where he headed up the local markets trading team and helped build up its Asian presence in interest rate and FX derivatives trading. Pandit also worked in various trading roles at Barclays Bank in Hong Kong, Singapore and Tokyo, and in operations and technology at Citibank in Hong Kong and Mumbai. Pandit holds a master’s degree in Chemical Engineering from Syracuse University and an MBA in Finance from the University of California, Berkeley.


What is your outlook for the treasury market? Will we see futures having a significant impact on the cash markets?

Treasury cash market liquidity has been impacted by banking regulations such as the leverage ratio and consequent lack of growth in bank balance sheet. This can be evidenced by negative swap spreads which have persisted since September 2015, shrinkage of the repo market, and increasing price impact of trades. In the face of these challenges, Treasury futures offer market participants a capital efficient, off-balance sheet instrument for exposure to Treasuries. We have seen reports by market commentators which talk about how the liquidity in Treasury futures has become comparable to, if not superior to, liquidity in the cash Treasury securities markets, and that futures are especially resilient during non-US trading hours. Treasury futures daily volumes are now 77.8% of the cash market (on a 52-week moving average), up from 56% in 2012. This shift is expected to continue as participants realise the value proposition provided by Treasury futures from a round-the clock liquidity and capital efficiency perspective.

Ravi Pandit of CME Group

Ravi Pandit of CME Group


How can treasury notes be used as effective hedging tools?

Treasury futures provide an effective risk management tool that is liquid 24 hours a day. These instruments are listed with a variety of maturities, based on current market conditions. Their effective durations are approximately 2, 5, 7, 10, 20 and 25 years. Additionally, participants needing exposure at another maturity point can use a combination of these instruments to create a hedge. In a basic hedging strategy, Treasury futures can be bought – to hedge for a short cash bond or paid IRS position – or sold – to hedge for a long cash bond or received IRS position. The number of futures to be used for hedging is generally determined by matching the BPV (basis point value) of the Treasury futures contract to be used, with that of the underlying exposure being hedged. Besides directional hedging of a single exposure or a portfolio, Treasury futures can also be used to trade spreads versus other assets, such as corporate bonds or interest rate swaps, as well as targeting curve exposure for relative value positions, such as 5-year versus 10-year spread. In response to strong client demand, in January 2016 CME Group introduced the Ultra 10-Year Future, providing close proxy for cash 10-year Treasury note exposures, with an innovative application of the classic deliverable basket structure of Treasury Futures. This capital efficient instrument is highly complementary to existing benchmarks, enabling new spread and curve trading opportunities. In the 10 months since launch, we have seen wide market adoption with over 300 clients participating globally and open interest growing to 250,000 contracts.


What has the impact of uncleared margin rules been on bilateral trades?

Uncleared margin rules, imposed by the BCBS, have been implemented starting from September 2016 in a phased manner and are expected to cover most counterparties in all major jurisdictions by September 2020. The main thrust of the rules is the imposition of initial margin and variation margin for all non-centrally cleared derivatives. The imposition of the rules is expected to increase the cost of trading bilaterally on an uncleared basis due to the cost of posting initial margin with all bilateral counterparties – netting benefits are not achievable for bilateral trades – as well as the operational complexities of calculating and settling these margins. In the rates and FX products space, the products most likely to be affected include non-deliverable forwards (NDFs), FX options, cross currency swaps, swaptions, other OTC options and inflation swaps. Where the cost of trading bilaterally becomes prohibitive, we could see these market shrink or migrate to a centrally cleared or listed alternatives.


What other major trends are you seeing or expecting in the rates and FX space?

There is a great deal of interest from market participants in looking for capital efficient listed or centrally cleared solutions for replicating bilateral OTC trading. This has resulted in a significant increase in the clearing of non-mandated products. CME has seen evidence of this in the tremendous uptake of interest rate swaps denominated in Mexican peso and Brazilian real, and is beginning to see increased interest in clearing U.S. dollar swaptions and clearing FX non-deliverable forwards clearing. CME is also working on solutions to help reduce the margin impact for other products affected by regulations, including OTC FX options, additional interest rate swap currencies and a solution for clearing the repo market. We also expect a parallel increase in trading of listed FX and rates options, given the growing number of participants using these standardised instruments for managing risk. Related to the trends in OTC products is the evolution of the execution models as a result of growing client demand for more centralised and efficient forms of price discovery. History shows that when products begin trading electronically, the increased transparency and access expands the overall client base, particularly from international markets, and therefore the liquidity and trading volumes improve as a result. We have seen this trend manifest itself in listed interest rate options, where new firms have started participating in the electronic markets and, as a result, the percentage of options traded electronically has increased. In October 2016, this metric reached over 73% for Treasury options and 25% for Eurodollar options, a substantial uptick from a year ago.

(Nov 2016)

Global Commodities’ Gavin Bowden talks about his new risk premia long/short strategy

Dr. Gavin Bowden

Dr. Gavin Bowden

Australian fund manager Global Commodities Limited has a long history of managing commodities in its long-only flagship strategy. Now the firm has a long/short strategy as well. HFC’s Stefan Nilsson had a chat with portfolio manager Dr. Gavin Bowden about the new alpha strategy.


What can you tell us about Global Commodities’ new risk premia long/short strategy?

Global Commodities has a long track record actively managing commodity beta. However, we were often asked by investors if we could apply our strategy in a market-neutral approach to reduce the volatility associated with the commodity asset class. Historically, we have successfully captured commodity risk premia with our flagship Active Global Commodities (AGC) strategy, but reducing dependence on the economic cycle and isolating commodity alpha was something that was attractive to some of the investors we were speaking with. This was the catalyst that resulted in the long/short version of our commodity program. We call this approach the Global Commodities Risk Premia (GCRP) strategy. GCRP is an absolute return strategy designed to capture commodity factor premia over time. In the current zero interest-rate policy and negative interest-rate policy environments that we find ourselves in, the hunt for yield is paramount and GCRP provides a unique source of yield that is uncorrelated to the major asset classes and other forms of alternative risk premia.


What are the main differences between your strategy and a standard CTA?

The GCRP strategy capitalises on how commodities are stored, transacted and valued. Momentum is the premier market anomaly and most CTAs have a heavy reliance on trend following. GCRP not only looks at price signals such as momentum and mean-reversion but also at a range of commodity factors as diverse as carry/roll, seasonality and relative value. This results in return drivers that are more diversified than a typical CTA. In addition, GCRP focuses exclusively on commodity markets whereas most CTAs also have large exposure to bonds, equity indices and FX. GCRP is also unleveraged compared with CTAs that generally employ leverage and often carry greater volatility in their return profile. When we performed the analysis and looked at the correlation between GCRP and the SG CTA Index since January 2000, we found that there was effectively no correlation at all. Even over rolling three-year periods the correlation remained consistently low and oscillated around zero.


What’s the thinking behind running the investment strategy in a systematic fashion with a discretionary overlay?

The commodity factors that we have identified have been the basis of many years of research. Since they are readily quantifiable it makes sense to have them combined in a quantitative model to capture the return in a systematic fashion. The discretionary overlay only applies when we move into tail events that the model has not seen before. In these situations there are benefits to having a portfolio manager taking the system off of autopilot and managing risk appropriately. The outlier events are also quantifiable and we want to avoid situations where the model would be generalising too far beyond the range of the data seen during model development.


Dr. Gavin Bowden

Dr. Gavin Bowden

Some commodities markets have started to pick up this year – is it still a good time to invest in a long/short commodities strategy?

Commodities are certainly on the move in recent times and we have seen natural gas up over 50% in Q2 2016, with the entire energy sector rebounding strongly from the lows set in February. Soybeans, cotton and sugar have also put in very impressive rallies. Brexit and increasing global uncertainty has seen safe haven demand for precious metals increase with silver soaring in recent times as it also has industrial uses. The beauty of the commodities complex is that the return drivers are very diverse and there are generally always opportunities. Now is the time for an investor to be seriously looking at commodities as bonds and equities are in overvalued territory, especially in relative terms as commodities have been pushed lower over the last five years while other asset classes have been trending higher. Just recently former U.S. Federal Reserve chair, Ben Bernanke, the architect of U.S. quantitative easing and the subsequent “tapering”, held meetings in Tokyo with both Prime Minister Shinzo Abe and Bank of Japan governor Haruhiko Kuroda. It is likely talks were about the logical extension of current monetary policy, the adoption of so-called helicopter money. The next huge fiscal stimulus in Japan and then in other parts of the world will most likely be an expansionary move focused on infrastructure, which will bode well for commodity prices. With the adoption of helicopter money comes an increased risk of unexpected inflation at some point and it makes sense for an investor to look towards commodities to help protect against such risk. This is part of the case for commodity beta, however, the advantage of the GCRP strategy, which uses a long/short approach, is that it is agnostic to the economic cycle and it exploits cross-sectional opportunities rather than relying on directional market timing. So while there is stratification in the yield of each constituent in a given basket of commodities, there are always cross-sectional opportunities that the GCRP strategy can benefit from. It just depends on what the investor’s needs are. GCRP is really about providing a consistent source of yield that is uncorrelated to other styles or asset classes.



How do you divide up the work between you, as PM and head of research, and the firm’s founder, Greg Smith?

Since we have built the strategy to be largely systematic, it is a case of looking at the various metrics each day and ensuring the portfolio is tracking as expected. Greg and I have worked together for a long time and have a good understanding of how each other thinks and manages risk. When decisions do need to be made, we have a standard process for how that is determined. However, for most of the time the strategy is automated. As PM, I sign off on orders on a daily basis. In addition to both of us reviewing the portfolio daily, I spend a substantial amount of time in research to ensure that we remain at the forefront of latest developments and have incremental improvements in our technology and strategy, while Greg spends a large portion of his time in market analysis, client relations and marketing.


You have been with Global Commodities Limited since 2010. What did you do before that?

After completing a PhD in engineering, I undertook a postdoctoral fellowship at Harvard University. My work there involved utilising NASA’s remotely sensed satellite data and developing models based on artificial intelligence algorithms to forecast environmental variables, such as droughts. After completing my work at Harvard, I moved into the fund management industry where I worked in research and strategy development for two CTA hedge funds. It was a natural fit as I was able to keep developing the statistical and numerical modelling skills I had gained from my years working as an engineer, but in these roles I was able to apply those skills to the markets, which has been both challenging and fun and has suited my analytical mind.


You’re based in Adelaide, Australia. What do you get up to when you’re not running money?

I have a young family with two boys aged three and five and I love spending my free time with them. We are blessed in Adelaide with a great climate and we like to get outdoors as much as possible on the weekends. We have a family beach house down the coast where we often get away to enjoy some time fishing and surfing. I also enjoy cycling and love going for long bike rides through the Adelaide Hills or along the many scenic coastal routes that we have in South Australia. Each year I participate in the Tour Down Under cycling event where recreational riders are able to ride an actual stage of the UCI World Tour event before the professional riders complete the stage. I am also passionate about Australian Rules football and I’m a keen supporter of the local AFL team, the Adelaide Crows, so I like to attend their games with my family and cheer them on whenever possible.


If you hadn’t been a fund manager, what would you have been doing?

As I mentioned, my background is in engineering where I predominantly focused on artificial intelligence and machine learning. I think if I wasn’t a fund manager I would most likely be working in this area and would be applying the latest robotic and AI technologies to solve environmental problems or perhaps in medical research applications. I think that would also be rewarding and would satisfy my desire to keep learning while solving interesting problems and technical challenges.

(July 2016)

Clare Flynn Levy: Making fund managers better with behavioural data analytics

Clare Flynn Levy

Clare Flynn Levy

Clare Flynn Levy, during her stint at Beauchamp/Linedata, was one of the very early sponsors of the Hedge Funds Club. A decade later she is the talk of the town with her new fintech venture Essentia Analytics. London-based Clare Flynn Levy is a former fund manager and current financial software entrepreneur who uses behavioural data analytics to help fund managers do a better job of investing. Stefan Nilsson decided to have a chat with Flynn Levy about who she is and what she’s up to.


You’ve got an interesting career path so far – from asset management to fintech, back to asset management and, again, back to fintech. Tell us about your journey so far.

I started my career as a tech stock picker in the late 1990s, and was a long-only fund manager during the internet bubble. In 2001, I launched a long/short tech fund and I slogged away at that for a good four years, running very hard to stay in one place, and continuously aware that I probably wasn’t using my energy as efficiently as I could. I was always an early adopter of technology for fund management and while there was a lot going on in the electronic trading space at that time, what I really wanted was a data-driven feedback loop that could tell me exactly what I was good at, so I could do more of it, and exactly where I was repeatedly destroying value, so I could do less of that. No one could give me that, and without it, running money felt increasingly futile. When I joined Beauchamp Financial Technology, my hypothesis was that a tech company serving fund managers that was actually run by a fund manager would have a competitive advantage – and I was right. We sold Beauchamp to Linedata, and once we’d finished our earn-out, I joined Tisbury, a large European event-driven fund, this time on the business management side. The founder of Tisbury could see the need to diversify his investor base, and therefore his product offering, and he hired me to make that happen. My business plan got the green light in July 2007 – just in time for the first major rumblings of the financial crisis. By necessity, my business strategy focus switched from offence to defence, as we tried to stem investor redemptions. When I left Tisbury it was the end of 2009, I was pregnant with my first child and keen to get some distance, to figure out where the intersection of my skills, my passion, and my network lay. Essentia is the result of that soul-searching.


Your current firm, Essentia Analytics, is focused on using behavioural data analytics to help fund managers. How can you best describe what this means and how fund managers can benefit?

 As a fund manager, you’re continually under pressure to perform, but there is very little assistance available when it comes to telling you how to do that. It’s like being a runner who can see his final times, and maybe even his lap times, but has no insight into what he could be doing differently in order to win more consistently. You’re focusing on the result, not on the process. And in fund management, so much of the result is outside your control, that the only way to really develop skill is to focus on getting the process right – yet you can’t do that without in-depth, ongoing data analysis. Professional athletes figured this out decades ago – now you have no chance of competing if you’re not using a data-driven feedback loop to continuously raise your game. Essentia is a data-driven feedback loop for investors. It uses data about your past trading behaviour and its context, along with data about the current state of affairs, to tell you exactly where you’re adding value and exactly what is repeatedly tripping you up. Then it alerts you when it notices one of those patterns re-emerging in your behaviour. Unlike most performance analysis software, it is designed primarily to help the fund manager make better decisions, not just to report on him. It’s proven to help fund managers make significantly more alpha, effectively by holding up a mirror and giving them precise feedback on how to play to their strengths and avoid their weaknesses.

Clare Flynn Levy

Clare Flynn Levy


How did you come up with the idea for this business?

It was really born of my own frustration as a fund manager. When you’re making money, no one asks too many questions, but when you’re not, the pressure to turn it around is intense. Yet no one has any advice for you on exactly what, if anything, you should be doing differently. It’s up to the organisation to offer that support, and yet most organisations don’t have a platform that makes analysis easy, repeatable, and user-friendly for the portfolio manager to reflect on his own behavior.


You have gone down the cloud-based route. Was that the obvious way to offer access to your service?

Yes, the cloud simply is the most effective way to deliver software in this day and age. And the infrastructure available from the likes of AWS is far more secure than most companies can ever hope to be with their on-premises technology. A big part of why buy-side technology is so antiquated is the fact that it is mostly local-install and can only be upgraded once every few years, at great expense.


What have been your biggest challenges with setting up this business?

The biggest challenge has probably been the status quo. To the new generation of fund managers, what we do at Essentia is a must-have – they understand that our technology can empower them to make more money. But the old generation has been doing things the same way for 20 or more years – to them, what we’re doing sounds scary. They are used to technology being forced upon them, normally for the sake of compliance or reporting. It takes some patience on our part to help them realise that Essentia is a competitive advantage, not a threat or an admin burden.


What kind of fund managers have you mainly won as customers so far? Is it a service that can work both for major asset managers and smaller start-up funds?

Today, our customers are almost all equity managers, but they range from $200m AUM hedge funds who are keen to prove their skill to investors, to $300bn long-only managers who are trying to stem the flow of assets from active to passive funds. The patterns that our software identifies are unique to the portfolio manager, and the automated nudges we send them are based on those patterns, as well as on their personal workflow. In each case, our goal is to make the PM’s life easier, while helping him make measurably more alpha.


How do you anticipate Essentia’s business developing over the coming years?

I expect what we do at Essentia to become as standard in the fund management industry as “Moneyball” has become in professional sport. It’s common sense, really, but I expect the adoption of it to be driven by both the generational shift that is currently taking place in the industry and the growing threat of cheaper, passive investment strategies. Survival of the fittest is the name of the game if you’re a fund manager – more so than ever before – and Essentia is the key to investment fitness.


If you hadn’t worked in fund management and fintech, what would you have been doing for a living?

When I was a kid, I wanted to be a newsreader. I still think I would probably be good at that – I enjoy communicating. But I think I would miss the satisfaction that comes from building something and watching it grow.

(Jul 2016)

Misaki Capital’s Masaki Gotoh: Constructively adding value to corporate Japan

Masaki Gotoh, Misaki Capital
Masaki Gotoh

Masaki Gotoh

Misaki Capital is one of the bright new fund manager stars in Japan. HFC’s Stefan Nilsson decided to catch up with Masaki Gotoh, who is a partner and chief investment officer at Misaki Capital in Tokyo.


Masaki is a Partner and Chief Investment Officer/Portfolio Manager of Misaki Capital Inc. Prior to co-founding Misaki, he was Portfolio Manager of the Asuka Value Up Fund, responsible for managing the Fund and the investment team. Prior to this, he worked at SPC Japan (Standard Pacific Capital LLC’s Japan Advisory) jointly responsible for long-short investments in Japan, Korea and Taiwan, as well as Morgan Stanley Japan in International Proprietary Trading and Goldman Sachs Japan heading Asia-Pacific Derivatives and Trading Research and brings 15+ years of experience in Finance. Masaki received his B.Eng in Computer Science from Cornell University and MBA from Northwestern University.


Tell us the story about how this experienced team set up on its own.

The genesis of Misaki started over 15 years ago when Yasunori Nakagami, our CEO, was a partner of a domestic management consulting firm. He found that successful engagement via value-enhancing projects with management led to an increase in the value of the business and thus its stock price. Hence, rather than charging high consulting fees to only those large companies that could afford it, he decided that it would be more mutually beneficial to invest in businesses and management teams that he likes, provide the same services for free and generate the returns from the market as the market realized this value. This led to the launch of the previous fund in 2005, and, after having built and managed the strategy for over eight years, the senior members of that team spun out to form Misaki Capital in late 2013.


You manage a sort of a friendly activist or engagement strategy. How would you describe your investment strategy?

We prefer to use the word “constructive” vs “friendly” to describe our strategy. “Friendly” implies constant support of the business regardless of the strategies undertaken by senior management. We consider ourselves “constructive” as our sourcing is based on strong business models that have H-O-P – hungry, open and public – management teams who are willing to listen to minority shareholders. When we consider an investment in a business, we think to ourselves “what would we do if we were to inherit this company in its entirety today?” The answer to this question tends to lead to value enhancement through long term growth of cash flows rather than excessively focusing on efficient balance sheet use. We believe management teams appreciate this mentality and become more open to our proposals. While balance sheet efficiency is critical, the solution tends to be one-off projects whereas cash flow expansion requires constant improvement (kaizen) and leads to long term growth of the business and a healthy long-term relationship with management. Therefore, we believe that having both investment – financial – professionals and management – consulting – professionals is crucial to our investment strategy. We take seriously our three Misaki values, Value for Investors, Value for Businesses, and Value for Society. What this means, of course, is that our engagement should add value for the businesses but, of course, must add value to our investors. As such, there have been and will be times when we must be less “friendly”. However, that is not the preferred tool and would be used as a last measure to uphold our fiduciary duty to the fund’s investors which, ultimately, should be value enhancing for the business as well. Ultimately, whatever the methodology undertaken to persuade management, we do so for business value enhancement. We have simply found that collaborative, constructive dialogue is generally more productive.


Masaki Gotoh

Masaki Gotoh

What’s different about your strategy compared to other fund managers out there?

The Japan “activist” universe is still very small and growing and, thus, allows for many varieties of activism. Our peers have their own biases on with whom and how they invest. As we are a pure long-only strategy with no hedging overlay, we very much consider ourselves a value investor and base our valuations on the margin of safety vs intrinsic value and the potential engagement upside, or the “double discount”. We look for companies that have a sustainable competitive advantage, focusing on the moat of Buffett-speak, in order to assess the sustainability of the cash flow generation and to compute, in greater confidence, this intrinsic value. But equally important is whether management is “engage-able”, i.e. we will not simply wait for the gap to shrink. Engagement is inherently a very human, high-touch, high-context strategy. As such, local, cultural connectivity is crucial to successful engagement. The fact that our entire team is Japanese, physically based in Japan leads to positive interaction with our companies. Finally, the content of engagement is a very customised, management consulting based approach in addition to the financial toolbox that traditional activists focus on.


We’ve now seen about 3.5 years of the Abe administration and Abenomics. How has the economy and investment landscape changed?

Although it might seem from outside of Japan that the pace of change occurring in Japan is slow, being on the ground and having been doing this strategy well before the Abenomics tailwind, we can definitely feel the landscape progress, much faster than it ever has in my investing career. The multiplying effect of the JPX-Nikkei 400 Index, the corporate governance code, the stewardship code, implementation of external board directors, and other factors have all had an enormous impact to wake up corporate Japan. This snowball effect has made it much easier to engage with companies compared to pre-Abenomics and have allowed us to build a portfolio very quickly with active engagement with a majority of our companies, both in and out of the present portfolio. We are still in the very early stages of corporate governance reform. It took the UK 20 years for the investment landscape to fully embrace the stewardship code. Large, structural shifts take time and it is unrealistic, if not outright naïve, to think that such massive shifts can happen in a year or two. The government has kickstarted the movement. It is now up to corporate Japan to embrace and we hope that we may be assisting that change in some small way.


Is your investment strategy sustainable in the long term or is it a theme you run for a few years during a period of change in the economy?

Regardless of Abenomics, our strategy was and would be the same if the environment were different. We only invest in 10-15 companies and, at any given time, we believe there are enough good businesses with strong, open management teams that are valued at a discount. This was true before and continues now. The universe has simply expanded. We don’t invest based on a top down theme, and are bottom up driven from this selection criteria. Furthermore, unlike the private equity market, which our strategy is often compared with, the universe of potential investments is very large and valuations have fallen through the decades to rational levels. Finally, there is no “completion” to business management enhancement, and particularly so in Japan where the starting point is so far behind the “managerial skill” curve. Contribution to this enhancement from shareholders is even more new compared to Western markets.


Foreign investors are less bullish on Japan than many domestic investors are. Do you think this is because of better access to information, home bias or something else?

With regards to corporate governance change, I would argue that there is scepticism on both sides. But I have noticed that long-time foreign Japan-watchers have most noticed the change. Those less bullish have, in my view, yet to notice the subtle changes that are occurring in Japan. Domestic investors, on the other hand, are no more bullish with regards to corporate governance and continue to focus on the short term. Again, I would note that we are not talking months or quarters but years. Long-term investors will be able to capture the most upside, domestic or foreign, and we believe the opportunity set is tremendous.


If you hadn’t been a fund manager, what would you have been doing?

I would probably be running my own business. After starting as an engineer in a large Japanese firm, I moved to finance, focused on derivatives, given my quantitative background. I then moved to proprietary trading based on a quantitative model, then fundamental long-short investing and now in what is almost a private equity approach to public markets. My career has become less quantitative and more qualitative over time, understanding businesses better and focused less on the minutia of the numbers. As such, running a company like one of our portfolio companies would be the ultimate transition. In that sense, I not only am fulfilling my dream by co-managing a venture called Misaki Capital, but also have the luxury to assist many other great businesses in the process.

(June 2016)

OPIM’s Alvin Fan: “Entrepreneurship is in our blood”

Alvin Fan, OP Investment Management
Alvin Fan, OPIM

Alvin Fan, OPIM


HFC’s Stefan Nilsson decided to have a chat with Alvin Fan about the evolution of Hong Kong asset management house OP Investment Management. “Entrepreneurship is in our blood” says the OPIM CEO of how they help fund managers to launch funds without much of the hassle normally associated with setting up a fund business.


Alvin Fan is CEO of OP Investment Management where he is responsible for the company’s overall strategy. He has over 15 years’ experience in finance and strategy – spanning across managerial, private equity and fund of funds. Alvin was previously Director of Incubated Funds and Head of Investor Relations at OP Financial Investments Ltd, a Hong Kong listed Investment Company, where he was responsible for monitoring the company’s portfolio of public equity investments. Prior to joining OP, Alvin was working in private equity focusing on distressed assets and property. Alvin received his Master’s degree in Business Administration from the Ivey School of Business (University of Western Ontario, Canada).


Tell us the story about OP Investment Management and how your business model has evolved over the years.

For starters, OPIM is part of the Oriental Patron Financial Group which provides a broader scope of investment services, like M&A advisory, corporate finance, brokerage, etc. Although the company’s been around since 1993, we didn’t make a name for ourselves in asset management until around 2008 when we landed an oil and gas direct investment mandate with China’s sovereign fund, CIC. Around the same time, the group launched a JV with one of the largest fixed income managers in PRC to create CSOP, which is now running a very successful RQFII and ETF business. I heard they just opened their New York office. After these two successes, we were asked by a few friends in the industry to help them build their own funds and asset management companies from the ground up. These were really talented managers from deep buy-side background larger houses, but they were missing the AUM threshold that could sustain a business. It turns out there was a real need for fund business management – not just legal and licensing. These were managers who came out of bigger companies. They only ran the book. They didn’t have to think about regulation, settlements, reconciliation, or operational risk management. They’d stepped out of their ecosystem and now plunged themselves into the entrepreneur’s world. Who do you hire? What is AML? How do I review a rental agreement? How do I build an investor data center? What’s an AIMA DDQ supposed to look like? These were decisions that were previously deliberated by entire teams, now resting on the shoulders of the fund manager. Managers needed a fully functioning professional team and compliance oversight. This was when we made the conscious decision to convert OPIM into a business that partners with managers to build out strategies and early track record. To date we’ve launched around 30 funds with emerging managers. Not all survived and some have graduated and gone independent, but we now manage and advise over 17 funds.

OP logo

You now have a big focus on your growing fund platform. What can you tell us about this business?

Yeah, it’s been a great year. In the first half of 2016 alone, we’ve launched about seven new funds. A few years ago, we took a step back from the traditional model and spent time talking to managers and looked at the issues that were either barriers to launch or critical challenges. What kept them up at night? What makes the first year so difficult for these managers? Firstly, we found out that managers needed to time the launch of their fund so that they could have a more predictable first year track record. Taking a long-short manager for example, typically, he would want to launch near the bottom of the market or just slightly past the inflection point. We’ve seen managers take up to nine months to launch their product and this very well means the difference between an outstanding first year and an abysmal one. Point in case, are some of the China-focused managers who started the process in September 2014 and didn’t get their product up until mid-June 2015. They were forced to forfeit the entire boom of the first half of 2015 and are having a hard time raising capital, well under budget. The second major finding is more obvious – the AUM threshold. Standalone funds don’t really break-even until you’re at least $20 million. So we got together with some great partners and we put together the Sunrise SPC platform that has all the bells and whistles of a solid structure that we would want if we were to put OPIM’s name on it. And since we’ve invested in it ourselves and prebuilt all the agreements, all the middle and back office support included, clients can just plug in and start investing. It also means we can reduce the launch time of a fund from three-five months to just six weeks. Not only can funds launch on time and maximise their track record, but they can break even with only $6 million.


What’s different about OP Investment Management compared to many other fund platforms?

Structurally, we’re part of a much larger investment group; so we’re not suddenly going to disappear overnight. From an investor perspective, this is a key concern. In terms of experience, we’ve also walked a mile in your shoes, and we approach every fund as a business. If you look at the history of Oriental Patron and what we’ve done to help companies grow, you’ll see that entrepreneurship is in our blood. Secondly, we take risk very seriously. We build policies to firewall every manager from each other like tenants in an office building. Rules are put in place to ensure the safety of all. It’s more than just a cubicle and phone line, it’s about taking a good look at the fund’s positioning and marketing and giving managers the insight to help them avoid costly mistakes they’d otherwise make if they were on their own.


What type of fund managers are you working with and what type of managers are you looking to add?

We don’t have a check list pre-requisite, but generally we really like to work with like-minded people. They can come from the buy or sell-side, or in some cases even non-financial background but with a phenomenal trading strategy. One thing everyone has in common is a deep respect for risk. We can’t work with managers who treat their counterparties as just vendors. Under one regulatory framework, we’re all in the same boat, but it also means that we’re operating as a team. At OPIM, everyone onboard understands two things: 1) that this is a regulated business where everyone plays by the rules, which in itself is a fortification; and 2) we’re building enterprise value together.

Alvin Fan, OPIM

Alvin Fan, OPIM


In your opinion, what makes a great portfolio manager? What kind of skills and background are preferred?

A strong toolkit in managing risks is vital of course, but mental stamina, especially with managers who are on their own, having the emotional endurance is very important. Things happen on and off the books that can rattle even the most seasoned investors and I think it’s important to have the steel to keep moving forward. Whether it be sudden drawdowns, cash flow or life problems, the manager needs to have both vision and discipline, non-monetary resources he’ll be investing into the business for at least three years.  I’m not saying that a bigger team is better, because it’s not. Sometimes having too many cooks in the kitchen ruins enterprise value and destroys relationships. What we remind single managers coming aboard is that they literally go from a team of one to a team of 20 overnight.


What are your thoughts about China’s emerging hedge fund industry? Can managers in mainland China succeed in becoming more institutional quality managers?

After the fallout from the 2015 crashes, China is undergoing a profound change in regulation, even going to far as to seek consultation and best practices with foreign regulators like the UK and the SFC. They’re shaking things up, adding legal requirements, fitness and proper tests, all the elements we’re used to here in Hong Kong. AMAC’s an SRO but it’s pretty clear you can’t run a scalable business without their badge. Changes to interfaces between quants and the exchange last year were tremendous and it’s definitely hobbled some of the looser teams. What’s interesting is how this is really benefiting quality managers. A year ago, you couldn’t tell the difference between the pretenders and the craftsmen. They were generating the same return under the same loose regulatory frame work. We just came back from a four day roadshow in Shanghai, and we’ve discovered that the ones who’ve survived 2015 are doing immensely well onshore. A lot of them tend to have some back ground on Wall Street or in a more developed market, in their previous incarnation as a portfolio manager or even an analyst. They might have come back to PRC a few years ago to start building a career in China’s nascent industry. Suddenly, using Buffett’s metaphor, the tide goes out, and you can see who’s been swimming naked. The investors see this too and they pile into the quality products. We’re seeing this trend especially in the quants – these teams had outstanding performance year on year, but this year, they’re raising assets faster than ever.


If you hadn’t been working in the fund management business, what would you have been doing?

Gosh, I don’t know. I’m hugely influenced by my father’s generation – banking, property and venture capital. Sounds very Hong Kong, doesn’t it? Even though I’m a huge tech geek, I’d probably float into one of those spaces. Looking back, I’ve always been more passionate about the business than the portfolio side. In my previous life in private equity, my peers and I used to always share our “business envy”, that as financiers, we’d always wonder what it’d be like to be on the investee side – building a brand or innovation. Now, we I get the best of both worlds. We get to work with amazingly talented managers who are very smart with incredible visions. At the same time, I love walking clients through the building process; it’s the best part of what we do. The thrill of the startup is palpable every day we come to work. I don’t know. I’m a great singer. Maybe a rock star… Or an Uber driver?

(May 2016)

Solutions for big and small hedge funds operating in a complex world

Sally Crane, Linedata

Sally Crane

Sally Crane

HFC’s Stefan Nilsson decided to have a chat with Linedata’s Asian Managing Director Sally Crane about her work in the complex and fast-changing financial markets and why Asia is not for the faint-hearted.


What is your background and what brought you to Asia and the hedge fund industry?

After graduating with a degree in Financial Services from Sheffield Hallam University I moved to London to begin my first job in the city – working in the market data and software space. Within two years I had an opportunity to join FactSet to open up their Hong Kong office. I jumped at the chance and moved to Hong Kong for two years – 18 years later I am still here. My first 14 years In Hong Kong at Factset served me well in understanding Asia and the institutional and alternative markets – then four years ago I chose to specialise in hedge funds by moving across to Linedata.


Can you tell us about what Linedata is offering Asian hedge funds?

Linedata is a company that had grown by acquisition and it has many different products servicing the asset management segments of front, middle and back office. The hedge fund product is called Linedata Global Hedge and it offers an integrated and flexible platform including trading and order management, portfolio management and middle office, investor accounting, pre and post compliance, and risk and reporting. The system is modular meaning you can add functionality as your business requires. We also offer the service elements of hosting, managed services, consulting and support. We recognise that the financial markets are growing in complexity and changing faster than ever so our response is to be experts in the areas we cover. Those Linedata experts act as an extension of our clients’ internal teams and we pride ourselves on our exceptional client service. We also continually invest in our suite of systems and services enabling us to support our clients’ growth.


What do you see as the biggest challenges for fund managers operating in Asia today?

Asia is large and diverse representing many countries, both developed and emerging. So for those trading across these multiple markets, that represents a challenge in itself. Each market has its own set of regulations as well as the fact hedge funds need to adhere to regulations from their investors’ domicile. So the regulation burden is immense. There is also a different approach to trading and the use of derivatives in each market as well as the fact that the markets in Asia are much more volatile and change rapidly. You could say that Asia is not for the faint-hearted…


One of the issues in the Asian hedge fund industry is the relatively small size of assets managed by a typical Asian fund manager. Are you able to serve smaller start-ups as well as multi-billion dollar managers?

Linedata Global Hedge can serve small startups with under US$50m and offers them the operational efficiency to allow them to grow into billion dollar funds, of which we have many. Each year we sign both small startups and those who have either outgrown their current system or wish to move off an internal system, so they can refocus on generating alpha by leaving the technology piece to us. Linedata Global Hedge is a very robust platform that is customisable and flexible and offers the choices of either being hosted by Linedata or deployed to the client’s infrastructure.


We have seen a number of asset management-related frauds in Asia in recent years. Subsequently many investors are now spending more time on operational due diligence and scrutinising funds and their service providers. Has this had any impact on Linedata’s business in Asia? Do you check potential clients more thoroughly now than you used to?

Many of our new clients are referrals from either existing clients, prime brokers, fund admins or even existing users moving on. When we start working with a new client, we spend a lot of time helping them answer many questions that their investors are asking. So we are very much involved in helping them design processes, creating audit trails etc. to help them give investors the right amount of transparency.


What do you think the future looks like for the hedge fund industry in Asia?

There is definitely demand from investors for Asian strategies and Asian based managers. We have seen a healthy flow of startups which doesn’t look to be diminishing. Historically most of the money has come from Europe, now we are seeing more US money. As the market in China matures and becomes more accessible it will be source of future opportunity for hedge fund managers in the region.


If you hadn’t been working in financial services, what would you have been doing for a living?

I never really had a back-up plan, I knew I wanted to work in financial services, so I studied for it, saw an opportunity in Asia and jumped straight in….

(Oct 2015)

Disrupting the fund management industry

Richard Waddington, Sherpa Funds Technology


Richard Waddington

Richard Waddington

Disruptive technologies can be fun, especially when they shake up the investment management industry. HFC’s Stefan Nilsson decided to have a chat with Richard Waddington in Singapore who recently launched the disruptive technology service Optimal Risk Sizing.


What is your background and what brought you to Asia and the hedge fund industry?

I studied physics and engineering at Cambridge and was then swept into the world of derivatives trading along with many of my peers. It was very fashionable in the early 1990s. After the usual London and New York spells trading various complex option books at Bankers Trust, I moved to Tokyo in 1999, having enjoyed my few business trips to Japan and wanting to do something different. There, I set up a derivatives modelling business, primarily interest rate options. I didn’t really know much about programming, in fact my first business expense was the book “Programming for Dummies”! However, after my studies and time at Bankers Trust, I was very much at the forefront of the mathematics and really understood the business logic. To my mind that’s a much rarer skill-set than programming. The business was good but very hard to grow as I couldn’t hire foreigners, and there was little expertise available at that time in Japan. Strangely, when I returned to London a few years later, I met a guy in a bar who, once he knew my name, immediately asked if I was the Waddington who came up with the pricing software he used in Tokyo. That was reaffirming! After Japan, I returned to London to work for my old boss from Bankers Trust who was then running FICC at Barclays. By 2006 I had a global trading role and was back in Asia, and have been in Singapore ever since.


How did Sherpa evolve from being a fund manager to also being a tech provider to other funds?

When we set up Sherpa Funds, first as a G7 FX trading fund, my primary interest was in the mathematics and process rather than the markets. So whilst my business partners at Sherpa did the asset selections, I was always looking at improving the process – most importantly how to convert the asset selection decisions of a PM into the best possible portfolio for the client. My experience told me that this was the step that many people struggle with. And after about a year of research and much pondering and experimentation, I came up with a solution that has now grown into ORS. I initially presented this, in a very rudimentary package (back to my non-programming skills!) to a large long-only fund manager, who bought into the concept and went on to use it as the corner-stone for a pitch for a large government pension mandate. They won the pitch, and so I had my first client. The ORS product had proved itself as a differentiator in the managers’ hunt for AUM.


Can you tell us about what your Optimal Risk Sizing solution can offer fund managers?

The first client that I just mentioned used ORS to raise AUM. They were able to show that the fund would be managed according to the investors’ best interest, using ex-ante active sizing methodology to manage both market risk and trading style, rather than the usual VAR or other ex-post reactive risk measure. This is a big differentiator. More importantly ORS’ main benefit lies in improving returns. By optimally sizing the assets in a portfolio, over time you improve returns. Indeed, when we test ORS on real trading data, the performances are always improved, some quite radically. This is not to say that PMs are doing a bad job, but that their asset selection skills are not being optimally expressed in the portfolios that they build. So a PM has to be a good asset selector, otherwise the portfolio will do badly. But once the assets are selected, it is a very difficult task to create a correctly balanced portfolio: one that is consistent with the goals set out, either by the investor or in the PPM, and one that, over the long term, maximizes the value of those asset selection decisions. The PM’s calls are central to everything, the ORS tool allows those calls to generate the best returns, given the portfolio’s stated goals.


What do you see as the biggest challenges for fund managers operating in Asia today?

Clearly the industry is reacting to increased regulatory and cost pressures by consolidating. That’s nothing new of course. If you look at any established industry, you can see that same pattern. But fund managers who wish to remain independent have to do something different. There is always room for boutique producers in even the most developed markets, but they have to be offering something truly different.


One of the issues in the Asian hedge fund industry is the relatively small size of assets managed by a typical Asian fund manager. Do you have cost-effective solutions for both small and big funds?

ORS is a subscription service, delivered over the web with zero IT overhead straight into the PM’s working environment. In other words, you pay for what you need, and subscription fees can be tailored to AUM. The full suite of functions, such as optimizing a portfolio with factor constraints, or pre-emptive reporting of variance-to-benchmark at an asset level, are only suitable for the larger funds. Even in their case, the monthly fee is much less than what they would typically pay for research.


Partly due to a number of asset management-related frauds in Asia in recent years, many investors are now spending more time on operational due diligence and scrutinising funds and their service providers. Has this had any impact on your business?

Sherpa Funds Technology is all about improving the returns of our client funds’ trading rather than the infrastructure of the fund. In that sense we help fund managers demonstrate good process when executing investment strategies. While this does not directly relate to the normal definition of “criminal” fraud, ORS does help prevent mandate creep and over-zealous risk taking, which are just as harmful to the investor.


What do you think the future looks like for the hedge fund industry in Asia?

The Industry is very segmented, so I’m not sure that I have any general observation that fits all the funds out there. I would say that in order to survive the ongoing consolidation, funds are going to have to embrace methods of working that challenge their established procedures, and where help is available, be open to assessing the cost-benefits of using that help. Now there’s is nothing very earth shattering about those statements, they are as applicable to healthcare as to hedge funds, and to the 1980s as today, and as a service provider with an innovative product, I am very much interested in seeing clients challenge the status quo. But none of that changes the fact that it is the truth.


If you hadn’t been working in financial services, what would you have been doing for a living?

At Sherpa Funds Technology, I am returning to my roots as a scientist and engineer: experimenting, developing ideas and building solutions. I am sure I would have always been involved in science in one way or another. Failing that I would have been a mountain guide or skier, but that’s one for the fantasy double-life!

(Aug 2015)