Monthly Archives: June 2021

Kim Ivey

Kim Ivey is one of the best-known people in the Australian alternative investment industry. Now he is embarking on a new journey with the launch of a new global macro fund. He started his finance career in 1985 and over the years his roles have included President of AIMA Australia and Founder of Vertex Capital Management and LSL Partners.

You have co-founded a new hedge fund firm in Sydney, Albany Capital. Tell us about it!

Albany is really an amalgam of nearly two years of planning, testing, pitching and perseverance by the three Principals – Alastair Sloan, David Gray and myself. Al has a deep background in trading interest rates, FX and derivatives. My investment background covers equities, quant and portfolio risk. And David’s expertise is in running trading systems, business operations and all the necessary counterparty arrangements. Al had been most recently managing the TAA/DAA overlay at Sunsuper for their entire A$50 billion asset pool (since 2014). So, when he approached me in early 2019 about setting up a new investment business focusing on global macro, with a large superannuation fund as a potential seeder, it sounded like a great opportunity. We immediately sounded out many of our contacts and pitched our ideas to them to validate, or not, the worthiness of our offering. With honest feedback in the affirmative, Al and I began running a large trial paper global macro portfolio for the seeder as a form of due diligence, and David and I began putting the components together for building the business infrastructure. We interacted with the seeder each week. It all went well until Covid struck in early 2020. By April 2020, with huge turmoil in the world and in markets, we lost our seeder…after eight months of due diligence, some very good returns in the trial portfolio, well over 30 written reports on ideas, strategy, trades and performance and an approved operational budget. It was a major setback for us. But we believed in ourselves, we believed we had built and tested a world-class, global macro investment process and we believed in the business plans we had refined over the previous nine months. We just needed an investor! So in mid-2020, we pitched our work to three large prime brokers to see if they thought we had something worth marketing. All three said yes! They liked what we were developing and all three offered their consulting and cap-intro teams to us. With their teams’ involvement and six months of intensive Zoom marketing to investors around the world, we found an excellent match with a New York-based investment group that liked our global macro style, our attention to risk management and our operational and governance infrastructure. Then four-five months of onboarding. So today, after two years of hard work, we’re managing a significant amount of capital, we own 100% of the business and we’re hugely motivated to put our expertise to work for our investors.

How did you come up with the name of the company?

The company is named after the Albany Passage which is a body of water at the tip of Cape York, our northernmost point of Australia. Much of Australia’s early trade to and from its eastern settlements was shipped to/from Asia and Europe through a northern route, the Torres Strait, between Cape York and New Guinea. As such, the Albany Passage in the Torres Strait was really Australia’s first gateway to the rest of the world. Navigating through its reefs, the strong cross-currents and the changing weather conditions, was very dangerous and required considerable skill and expertise. In many respects, the analogy of what the Albany Passage represented to Australians, the testing conditions it posed to those who travelled through its waters, struck an immediate chord with the three principals as we embarked on building an investment firm in Sydney with skilled professionals to navigate complex and sometimes volatile markets around the world.

It’s a global macro strategy with the team split between Sydney and London. Was it part of the plan from the start to have a set-up across two continents or is it more a result of the people involved?

I’ve always believed the “holy grail” in the alternative investment industry is finding the right combination of talented people, operating within a robust infrastructure and attracting like-minded investors. We had always earmarked an overseas office expansion for Albany based on advancing at least one of these three objectives – acquiring a talented team member, improving on our infrastructure or attracting well-matched investors. The industry is so global these days and the technology is so advanced, both in terms of communication and investment systems, that the old adage that global macro managers needed to be close to capital centres is now defunct. Jonathan Hale, our first hire, is based in London. He is an exceptional trader, well known to Al having previously worked together in two different banks. Also having him based in London improves our global coverage on our portfolio. But finding the right person was always our priority…the infrastructure improvement was a bonus.

You have received a respectable seeding deal that is enabling the launch. What are the hardest parts of raising day one and early capital for emerging funds?

From my experiences, the hardest parts of a business launch in this industry are the very beginning and the very end. They each bring a different set of dynamics. In the beginning, one really has a blank piece of paper that needs to be completed with reasons why this business is going to succeed. A lot of why questions need to be answered honestly about yourself, your team, your skills, your product, your performance…Many times, going through these internal analyses, the answers are not what one expects and a choice has to be made. Not proceeding is an option. But in passing this, the middle part of a launch is just constant marketing, rejection and refinement. The more pitches one does, the better, and easier, they should become. The ending of the launch is hard because one has either found the seed investor or one hasn’t. Decisions flow on from there. Negotiating with the seed investor should be approached like any other important relationship. Find out as early as possible what they expect, articulate clearly what you expect and after careful examination, determine whether these are a match or not. Honest communication at this closing part is going to avoid many problems down the line. For Albany, we had one seeder walk away from us after eight months because of Covid externalities, scores turned us down mainly based on our Australian domicile, but conversely, we turned down two seeding deals because of the expectations from these seeders were incongruent to our own. Each of these “incompletes” was very difficult at the time. How does one know who is the right seeder? I can’t answer that completely with facts and figures. Yes, the capital and economics have to meet certain hurdles. Benefits have to be mutual. But there is a trust and bond that one feels almost immediately with the right group. If that isn’t there, keep looking.

This is not the first time you’re setting up a fund in Australia. Has it become easier to launch funds in Australia?

Launching in this industry is always very difficult because the bar is so high. Many excellent investment firms already exist in the alternative investment space irrespective if it’s in Australia, Asia, Europe or North America. Why do investors need another investment manager to choose from? Answering the “why” question in an honest and dispassionate manner to one’s self, one’s family and to one’s colleagues is an absolute pre-requisite for launching in this insanely competitive industry. Unless one is already working at a large firm with a recognised pedigree and the principal is going to spin you out with US$100m+ in seed capital, the typical start-up manager is going to spend an inordinate amount of his/her own time and money on the launch. It will all be wasted if the offering isn’t thought through sufficiently and it will ultimately fail if the team or the product doesn’t represent a tangible point of differentiation. If the people/process/product/performance all point positive, then I’ve found that two things can help in making the launch a success. View how you want the firm to look in three years’ time and then plan backwards to the launch. Find a natural order for tasks that can be implemented in parallel with others and identify others that require more effort in a sequential build-out. It will save a ton of time. And secondly, don’t compromise on quality, don’t cut corners or settle for second best. Aim extremely high. If one can demonstrate these qualities and articulate them well, and if one’s research is correct, investors will listen. One point on professional seeders and incubators…they aren’t for everyone and vice versa, but they are excellent sounding boards for anyone looking to launch an investment business.

Monica Hsiao

Monica Hsiao is a Hong Kong-based hedge fund manager managing an Asian credit investment strategy at her own firm Triada Capital. Hedge Funds Club’s Stefan Nilsson had a quick chat with Monica about her career path, setting up her own shop and capital raising.

You were a corporate lawyer, then you were a prop trader in a few investment banks before joining CQS as a PM. Was the lawyer-prop trader-portfolio manager journey part of a career plan or did it just evolve that way?

My journey from law into finance was not planned out looking forward but made sense when I connected the dots looking backwards. I enjoyed the strategic thinking required in deal-term negotiations but wanted to see how that played out in practice. Legal knowledge and having a framework of thought is helpful in so many aspects of what I do today, from diligence to the investment process.

You launched the Triada fund in 2015. What made you leave a big and well-known hedge fund firm to set up your own shop?

I left CQS to start my own fund because I saw that the Asia public credit market was growing at light speed and although most funds had Asia liquid credit as part of a larger multi-strat platform, I believed that the market was established enough to warrant a stan-alone fund focused on Pan-Asia long-short credit trading. Looking back, I kind of wished I had started my own fund much earlier! As much as it’s been a lot of blood, sweat and tears, I have learned a lot about myself.

You launched small and have managed to grow your fund size. What has been the hardest part of raising capital?

Raising capital requires a lot of patience – and luck. In many meetings, we have had to be the ambassador to push Asia credit as an asset class and pitch why public credit markets are interesting for allocators to consider. All of this first to convince people just to look at our asset class before we get into “why us”.

Adam Toms

Adam Toms is CEO of OpenFin Europe and serves as a Non-Executive Director on the board of RSRCHXchange. Prior to OpenFin, Adam served as CEO of Instinet Europe. Hedge Funds Club’s Stefan Nilsson checked in with Adam for a chat about improving productivity in the financial world, the changing nature of work and how his background in finance has helped in his current role at OpenFin.

Improving productivity is increasingly important for firms in the financial world, not least in recent times with a sudden and unexpected remote workforce revolution. As the global pandemic hit in 2020, how did you and your colleagues at OpenFin move to assist your clients and prospects to deal with the sudden changes in circumstances?

OpenFin has been focused on helping financial institutions increase productivity from day one. Our first product, OpenFin Container, improves developer productivity by eliminating the need for costly in-house development of a web container. Our latest product, OpenFin Workspace, which we released this year, improves end-user productivity by unifying the desktop experience and streamlining workflows. One of the reasons for the accelerated pace of adoption has definitely been the pandemic. As the global pandemic hit last year, we heard from customers that on average they had half as many monitors in their home environments, which made our screen management capabilities all the more important. Many of our customers were also occasionally going to the office and switching between home and office setups, which is another area that our Workspace product solves by allowing end-users to work from anywhere. In addition, Workspace’s Notification Center was designed from the start to help teams streamline and manage activities using a single interface. With teams being so distributed, it’s imperative that communication and collaboration are supported to fill the gap that geographic distribution has forced upon teams. Notification Center is one of the Workspace components that clients are most excited about – and have rapidly adopted – because it centralises activity management as well as supports collaboration with minimal code required. We also added integrations to some of the best and most popular chat integrations including Symphony, Slack and Teams to support collaboration and communication. When you pair these two elements of Workspace – Notifications and integrations – it makes for an incredibly useful solution for our clients.

Why is Workspace relevant right now?

Workspace is relevant today because it gives firms in the financial industry the ability to solve three issues that are becoming increasingly prevalent today: First, the nature of work is changing. Employees are no longer tethered to desks, devices or zip codes. This shift in how and where we work demands new systems that are secure, flexible and easy to use. Second, focused work is under assault – especially in the financial industry, where end-users contend with friction caused by a growing tech stack. According to some estimates, the average end-user actively uses 36 applications to do their work throughout a day. More often than not, these applications do not “talk” to one another, i.e. data does not flow between them. The multitude of applications, screens and windows and the lack of data flow all disrupt the flow of work, forcing users to multi-task with some estimates putting the number of times an end-user switches applications at 1,100 or more! This constant context switching, coupled with persistent distractions like alerts and notifications, all leads to fragmented work and repetitive tasks that only serve to degrade the employee experience and reduce productivity. And this leads to the third and final reason: Expectations of technology are evolving. Today, 50% of the workforce has grown up connected, collaborative and mobile. These end-users are accustomed to and expect technology at work to work just like it does on their smartphones, tablets and laptops and that’s probably why 95% of employees believe finding information at work should be as easy as Googling it, and why 88% of employees say technology is an important part of the employee experience.

How does Workspace fit into OpenFin’s broader vision?

Workspace represents an important new phase for OpenFin. Historically, the OpenFin OS has been invisible, providing the underlying framework that enables web apps to run as first-class citizens on the desktop. The reality is that most of the end-users at the 2,400 buy-side and sell-side firms using OpenFin don’t realise that we power apps on their desktop! Now, with Workspace, we are starting to become more visible with visual components that also deliver powerful workflow automation designed to support and enhance end-users’ day-to-day work experience. Key components of the interface include a digital assistant for app and workspace discovery with integrated search, a browser built for work to power productivity, a rich notification center and a customisable content store. The new offering provides a turnkey solution, eliminating the need for costly development and standardising the workspace across the industry, which has always been what OpenFin is all about. In addition to solving all the aforementioned issues, Workspace gives customers the ability to tap into a rich ecosystem of resources and applications powered by a thriving community of partners without having to do all the technical heavy lifting themselves, which is really a new level of our central mission to create a truly open system for the financial services industry.

OpenFin is often talked about as an industry solution. What does that mean?

When we set out on our mission, we set out to solve more than a technology issue – we wanted to solve a problem for the entire industry, namely creation and deployment of engaging modern web apps that could deliver a powerful user experience with application interoperability which in turn would enable an open and collaborative ecosystem. The initial response and rapid adoption by large, global banks – the top 23 of 25 of whom use OpenFin today – most certainly validates the idea that we are an industry solution. Indeed, here in Asia ten of the largest players HQ’d in the region have adopted OpenFin for their digital workspace and interoperability strategy. Industry backing is also evidenced by our strategic investors who include Barclays, CME Group, HSBC, J.P. Morgan, Standard Chartered and Wells Fargo. The last point I’ll mention is that in addition to our customers and investors, our ecosystem has exploded with more than 3,500 applications running on OpenFin, clear evidence that there is not only interest but deepening engagement from all quarters of the industry.

Prior to joining OpenFin in 2017, you worked at Instinet, Nomura, Lehman Brothers and Barclays. How helpful has your background as a senior leader in capital markets at securities firms helped you better understand client needs in your current role?

Throughout my career, I’ve been lucky enough to be involved with a lot of first-to-market initiatives and innovation at the cutting edge of technological developments in the capital markets space ranging from the launch of the first ETF in Europe for the iShares brand, through to the launch of the first bank MTF in Europe. Each of these launches fundamentally changed how these markets worked and within electronic trading specifically, we were always pushing boundaries from new algorithms to analytics. As part of my involvement with launch and innovation strategy, I had to think about driving end-user adoption, and this hands-on experience along with my deep understanding of front-to-back processes has allowed me to bring a client-centric mindset to the table at OpenFin where we are changing the way the industry works – a mission that relies on end-user adoption cultured by an intimate understanding of the internal workings and dynamics within the capital markets division of securities firms. This allows me and the rest of the team at OpenFin who also have a large amount of capital markets experience to help clients successfully execute their digital transformation strategies.

What made you decide to move from the brokerage business to join a fintech firm?

I enjoyed a 20+ year career in banking with many great experiences including achieving record market share and profitability as the leader at my last company. I felt compelled to share my experience and expertise to help early-stage and high growth companies in the fintech space. I’d been an active investor and advisor to early-stage companies for some time and when the OpenFin role came up I felt like it was the perfect opportunity for me to bring relevant experience to a dynamic firm with great founders who had a very compelling vision for changing the way we work in the industry. Three and a half years on and I can say I not only made the right decision but also, we as a company feel honoured and proud that the industry has placed their trust in us to deliver on this important transformation agenda.

About OpenFin

OpenFin is the operating system for enterprise productivity, enabling app distribution, workspace management and workflow automation. Used by 90% of global financial institutions, OpenFin deploys more than 3,500 desktop applications to more than 2,400 buy-side and sell-side firms. OpenFin investors include Bain Capital Ventures, Barclays, CME Ventures, DRW Venture Capital, HSBC, J.P. Morgan, NYCA Partners, Pivot Investment Partners, Standard Chartered and Wells Fargo Strategic Capital among others. The company is based in New York with offices in London and a presence in Hong Kong. To learn more, please contact sales@openfin.co

Scott Treloar

The Archegos family office fiasco, Greensill Capital’s collapse and several other recent incidents have revealed what seems to be some serious risk management issues in the wider finance industry. Hedge Funds Club boss Stefan Nilsson checked in with Scott Treloar to get some views on what’s going on. Scott is the Founder and CIO of Noviscient in Singapore. He has lectured on portfolio risk management at Henley Business School and was Chief Risk Officer at Vulpes Investment Management. He co-founded the hedge fund Novalis Capital and his career has also included stints at Deutsche Bank, Committed Capital and Macquarie Bank.

What has happened to how counterparty risk is viewed recently? The Archegos fiasco caught out many blue-chip brokers resulting in billions of dollars in losses. Is it greed that makes some professionals, who should know better, accept too much risk?

I don’t think it is greed. Many people in finance are greedy, and greed is an essential requirement of capitalism. Instead, I would suggest the fundamental problem is, as for almost all financial disasters, the poor structuring of incentives. In the case of Credit Suisse, they earned fees from the Archegos relationship the prior year of $17.5 million and made losses of $5.4 billion. So, that seems badly structured. More interesting is the game-theoretic aspect of the situation. The Archegos family office was running leveraged and opaque total return swaps with multiple prime brokers, where the brokers were not aware of each other’s positions. This meant they were working off imperfect information and were vulnerable to competitive actions in the event of adverse market movements. However, suppose a broker has better information by being headquartered in the time zone where the trading happens. And suppose it has asymmetric decision speed, say via more aggressive internal risk management processes. Then trading with Archegos in this imperfect information setting could make sense for this broker but not for others. For example, GS and MS versus CS and Nomura respectively.

This time it was big brokers who got caught in what looks like poor risk management with regards to a family office client. What about hedge funds? Do you think that hedge funds here in Asia are potentially riskier than previously thought due to poor risk management assessments by counterparties?

There will always be groups with high risk tolerance that want to bet big. The brokers clearly did not handle this well. The family office lost all its money. This has largely kept the harm to the entities that made the poor decisions. Brokers are responding by reducing the leverage available to their trading counterparties. I don’t think this necessarily translates to more risk for Asian hedge funds. However, it does suggest that investors in hedge funds ought to want timely and transparent information about their investments from their investment manager.

How can the industry improve and establish a solid reputation for risk management? Is there a structural problem?

This comes down to investment managers using technology to give their investors transparency as well as the ability to act. It is the investors’ money, after all. The current practice of hedge funds providing a factsheet a week or so after the end of the month with a snapshot of the fund’s exposures is too late and informationally insufficient. The industry should be heading towards what we offer at Noviscient. We give investors exposure to a portfolio of emerging manager trading strategies while allowing investors to see daily performance and risk metrics through an online portal and a mobile app. This means they know what they are exposed to and can take actions in a timely manner.

What, in your opinion, are the biggest risks faced by investors today?

I think a significant problem with the investment management industry is the continual focus on trying to get the highest returns. This approach risks ending in disaster for investors for a couple of reasons. Firstly, it leads to performance chasing which often has poor outcomes as the last period’s high performing managers tend to revert back to the mean. Secondly, the risk that comes with these high returns is often imperfectly considered when making the investment. More fundamentally, we think chasing after high returns is the wrong target. The industry should be adopting a goal-based investing framework that seeks to give investors a high likelihood of achieving their important goals over time, whether that is a comfortable retirement or putting children into education.