Hong Kong Hedge Funds Club
Evening Reception, 7 Nov 2019
Tokyo Hedge Funds Club
Year-End Reception, 2 Dec 2019
Tokyo Hedge Funds Club
Dialogue Luncheon, 3 Dec 2019
Singapore Hedge Funds Club
Evening Reception, 25 Mar 2020
Monthly Archives: July 2016
South Korea’s National Pension Service has reportedly chosen BlackRock and Grosvenor Capital Management for its first US$1 billion hedge fund mandate.
BFAM Partners in Hong Kong has hired Jean El-Khoury and Ben Coen as portfolio managers. El-Khoury was most recently at JCT Investments and earlier at Nomura, Deutsche Bank, Morgan Stanley and JP Morgan. Coen was most recently a portfolio manager at Susquehanna International Group.
After 12 years at HSBC, most of the time spent as a fund specialist in private banking, Su-Mien Seng has left to join Standard Chartered Bank in Singapore as a fund analyst. She started her career at Schroders.
Gloria Lu (ex-China Renaissance, China Life Franklin Asset Management, BlackRock, Deutsche Bank) and Yang Diao (ex-China Renaissance, JP Morgan, Morgan Stanley, Credit Suisse) have set up Parantoux Capital in Hong Kong. The firm plans to launch an event-driven equity long/short strategy focused on China. The strategy will be managed by Lu. The firm is expected to receive regulatory approval in the coming months and launch with money from HNWIs, family offices and funds of funds.
Amy Lau has joined Privium RKR in Hong Kong as Head of Investment Services. Most recently she was an investor relations consultant at Asiya Investments and before that she was Head of Investor Services at Seres Asset Management. Earlier in her career she has worked at a few other firms, including Jayhawk Capital Management and Offshore Incorporations.
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.
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.
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.
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.
QL Asset Management has been acquired by multi-family office Carret Private. Carret’s Asian operations, headed by Kenneth Ho in Hong Kong, is understood to be considering a move into the Singapore market as well. Carret, among other things, manage an in-house macro fund.
OCP Asia, the Singapore and Hong Kong-based credit hedge fund firm set up in 2009 by Stuart Wilson and Teall Edds when they left Stark Investments, has hired Ernest Lee from Nomura as a Senior Portfolio Manager. As Head of Principal Finance Group Asia ex-Japan at Nomura, he focused on special situations, private and illiquid financings and principal investments. Earlier in his career he worked at Deutsche Bank, Credit Suisse and Salomon Smith Barney. Lee will be based in Singapore.