Kelsey Deshler has always had an appetite for travel. Her university course in Business and French involved a spell in France, and her first finance job involved a move from the Mid-West to the West Coast. “Most graduates went to work for local Fortune 500 firms but I wanted to move out of Minnesota,” she recalls. It was a boutique advisory and consulting firm called CTC, owned by US Trust, which provided the opportunity for Deshler to move to Portland, Oregon to become a junior research analyst. She was fortunate to find a helpful mentor in Kristi Hanson, who is now managing director of CTC. When US Trust was bought by Bank of America, CTC spun out via an MBO and 25 year old Deshler also made her own tracks – this time to the east coast and New York, where she spent just over four years at the General Motors pension fund, working alongside Kirsten Glantz, as well as the broader Absolute Return Strategies team. During this job Deshler went back to graduate school part-time, where she earned a Masters of Finance run jointly by NYU Stern and Hong Kong University of Science and Technology (HKUST). The degree afforded more opportunity for travel, this time to Asia. “The trips to Hong Kong and Beijing were helpful in building my understanding of the hedge fund universe in Asia where both micro and macro markets are very different,” Deshler recalls. She has fond memories of her 10 classmates on the course travelling together and doing homework on the plane. Her hectic travel schedule did not stop when she arrived at Credit Suisse (CS); indeed when THFJ visited her offices in New York City in June, she was just about to set off on a two-week trip to Asia.
Dynamism of Credit Suisse
The dynamism of the CS business attracted Deshler as it represented a new challenge. “The position at Credit Suisse provides a more commercial aspect than managing a pool of assets at a pension fund,” says Deshler, who was alerted to the job by a friend already at CS. Deshler started as a senior research analyst and was swiftly promoted to head of fundamental strategies at the beginning of 2014. In this role, she is responsible for overseeing long-short equity, event driven and distressed allocations, and sits on the investment committee comprised of each of the two research heads, the others cover relative value and tactical trading strategies with ultimate oversight from the head of Alternative Fund Solutions (AFS), Ulrich Keller in Zurich. Deshler manages a team of five, with three research analysts in New York, two in Zurich and a shared researcher based in Tokyo.
Given the size and direction of AFS, Deshler has gotten the growth story she came for. For example, dedicated and advisory mandates are growing considerably. “Larger clients want their own customized products and their adviser to follow,” explains Deshler, and CS has a long track record of offering this bespoke service for accounts starting at relatively low minimums, with some totalling $500 million or more. In some cases, advisery relationships are more like partnerships, where clients and CS attend meetings together and choose which approved funds they ultimately invest in; all three types of mandates share the same approved list of more than 100 hedge funds for all strategies. By contrast the fund of funds business is purely discretionary and, while Deshler acknowledges that the fund-of-funds business has contracted industrywide, it services smaller clients who cannot invest in hedge funds directly.
An open architecture model applies throughout. At CS’s own private bank, relationship managers can choose CS products or external offerings – they are agnostic to the name. Any investments in funds run by CS affiliates, such as York Capital Management, must pass the same due diligence process as any other fund. Each of the three AFS group heads – for investment, operations and risk – has a potential veto when a new fund is presented to the investment committee. AFS may invest on day one, but would expect preferred terms in return. CS is especially keen to take advantage of new UCITS feeders that have lower fees.
Liquid alternatives and UCITS
Liquid alternatives are a segment where Deshler is particularly upbeat on growth prospects. “Liquid alternatives are a large focus for allocators and are becoming more widely accepted by US managers,” she says. Historically, Deshler thought it was seen as almost taboo for US managers to shift from their typical quarterly dealing terms, to a daily or weekly dealing fund. That situation is changing, partly as UCITS may be a simpler route than AIFMD for marketing into Europe, and UCITS is widely respected in Asia. Moreover, plenty of UCITS are being run pari passu with the main fund, quelling fears over tracking error. For managers, UCITS are more attractive than ’40 Act funds as performance fees are more easily incorporated into a UCITS. CS is the largest provider of multi-manager UCITS funds, and Deshler finds it beneficial to have a sizeable UCITS platform. “We’ve had to convince managers to launch a UCITS, and we now have a very high quality list, geographically spread across the US, Europe and Asia. We only see it growing.”
CS gives clients greater transparency through its online web portal Open-AFS (Alternative Fund Solutions). “Clients can simply log in through a web portal and see their whole portfolio. They can access all of the research and documents on each fund, warehoused in one place,” Deshler explains. A risk aggregation engine also shows portfolio-level exposures and risk data, on top of the qualitative information about organizational matters. Risk and factor models are used for scenario and stress testing. Monthly commentaries are posted to the portal for every invested hedge fund, and are generally based on the team’s site visits. In-house thinking on strategies is shared with investors as well.
Strategy preferences in 2015
Every six months the investment committee meets to decide on strategy allocations. In June 2015 the committee was keen on Deshler’s province of fundamental strategies, such as long-short equity. CS sub-divides long-short equity into three categories: low net exposure; opportunistic exposure where managers move gross and net exposure around and are more tactical on regions, sectors and markets; and structurally long-biased managers that manage more beta. Says Deshler: “In 2015, dispersion of central bank policies is a common theme that has permeated the equity markets.” She observes that the US is approaching monetary tightening but Europe is seeing more stimulus, which has helped the MSCI Europe to power ahead of the S&P 500. Similarly, in China, there have been plenty of drivers for the rally in ‘A’ shares: monetary stimulus, the opening of the Shanghai/Hong Kong connect and anti-corruption measures. These big picture trends help to determine the types of managers CS selects for each region. Explains Deshler: “In the US, we are biased to lower net-exposed managers as the beta component of returns is diminishing. In Europe, we also prefer alpha-focused managers, but are willing to take a bit more market exposure. But in Asia, we like opportunistic managers who can take advantage of the changing market dynamics in the region.”
In her other bailiwick, event driven strategies, Deshler explains, “we do think activist investing is more interesting as a manager creates his or her own fate. We prefer investing with long-biased managers who are more event driven and special situations oriented.” Deshler is not entirely surprised by the strong performance of activist hedge funds. “The economic backdrop has been favourable with low rates and corporates with a lot of cash on their balance sheets that can be put to work.” Deshler prefers to think of many activists as “constructivist” rather than “activist,” whilst acknowledging that some activists do pursue more public and hostile campaigns. Generally, Credit Suisse has favoured the constructivists, and believes they still have more scope to create value; however, they may have too much equity beta and volatility, and too little liquidity, for some of AFS’ products.
Deshler sees more opportunities for event driven managers in European markets, while Asia tends to be more commodity sensitive, with more volatility in deal spreads. CS can be tactical and opportunistic in timing allocations to event-driven managers. For example, in 2014, Deshler’s team allocated to a merger arbitrage fund just after spreads blew out on the Shire deal break; that fund is now up 20% since the initial investments. But elsewhere in the space, Deshler is less enthusiastic. In distressed debt there are some pockets in Europe but overall CS has lower allocations to distressed and, according to Deshler, is even “neutral to negative in the US as default rates are not increasing, limiting the opportunity set to legacy positions, such as names like Lehman and TXU.”
Portfolios can be rebalanced in between the biannual meetings. Every month the investment committee meets to approve the bottom-up list of funds, and reviews all portfolios. Deshler finds her two strategy buckets can have the benefit of being lowly correlated. In 2014, for instance, March and April saw many long-short equity managers get hurt by the big rotation out of growth and momentum and into value. Healthcare, biotech and technology bore the brunt of this style rotation and as Credit Suisse did not view it as being fundamentally based, many clients took the opportunity to buy the dip and top-up on their favourite funds. By way of contrast October 2014 was the most difficult month for event-driven managers, partly around the Shire deal break, but long-short equity fared better. The combination of long-short equity and event-driven managers helped to smooth out overall returns.
Internal mobility and longevity in the Multi-Boutique model
CS operates an open-plan philosophy, with a centralized group within the bank that fosters strong integration amongst three divisions – asset management, the private bank and the investment bank – referred to as the One Bank program. The CS AFS offices are in New York, Zurich and Tokyo but Deshler and her colleagues visit plenty of other cities on a regular basis. European trips will include London, as well as off-the-run places like Oslo and Monaco, and Asian trips will tend to include Hong Kong, Singapore, Tokyo and Shanghai – with Sydney and Melbourne likely to be added to the next visit to Asia. “The global connections that Credit Suisse provides are useful for referencing managers as well as establishing new client relationships,” Deshler finds.
There is also plenty of cross fertilisation within asset management, which has divisions ranging from liquid alternative beta (LAB) indices to longer-duration strategies. Says Deshler, “our asset management head, Bob Jain, has created specialized boutiques and promotes cross fertilization between them.” CS itself has in the past been a good breeding ground for fund managers, several of whom came from its proprietary trading group. That means there’s a significant amount of intellectual capital that Deshler and her team can tap into. For instance, they will talk to executives in the securitized products and commodities teams to gauge liquidity of markets or cross reference research and other analyses. Or while CS’s lending specialities – structured lending and real estate lending – are not part of Deshler’s remit, she can still draw on their expertize to garner insights into the strategies she does follow.
One reason for staff loyalty may be internal mobility. “Some 47% of hires across the bank have come from internal channels,” says Deshler, who has hired staff from risk management. Others have made lateral moves, for instance from the leveraged finance group of the investment bank. “Our internal mobility program is a great tool for recruitment and retention,” says Deshler, who cites people from nine teams formerly in the Investment Bank that have moved into Asset Management over the past several years. These groups include the securitized products team, CS NEXT’s financial technology fund, a middle-market lending business development corporation (BDC) and a fund dedicated to middle-market lending in Mexican companies (MEXCO). Indeed, Bob Jain was the former head of equities in the Investment Bank before being tapped to lead Asset Management in 2012. This longevity is prized at CS, with Bob Jain having been with the firm for nearly 20 years. Deshler identifies good reasons why staff stay with the firm. Her own experience was that she enjoyed accelerated promotion, and has been very happy. “The bank is very supportive of diversity and growth and has a number of appealing initiatives around these topics.”
For one, the Global Citizens Programme offers staff the chance to participate in pro bono, or voluntary, opportunities and Deshler has recently “started a micro finance project to provide analytical support, assessing microfinance institutions in Asia.” The project is all part of a Women’s World Banking campaign, whereby a private equity fund takes stakes in microfinance institutions focused on women-led businesses. The firm is already active in Latin America and Africa, and is now moving into Asia. Deshler has found that the work has some similarities with her day job in terms of due diligence, but requires her to devote some evenings and weekends to it. Deshler claims “friends at other banks are very impressed by the resources Credit Suisse is putting into this. You would not find this at most large financial institutions.” As part of this assignment, Deshler will return to Asia later this year to assess potential investments for the microfinance fund.
Women in finance
Deshler has always had female mentors and leaders, first at CTC, next at GM and now at CS. Women are well represented at AFS, with approximately a 50/50 split between men/women on the AFS investment team. One way that Credit Suisse is attempting to address the overall disparity between men and women in banking is through a programme called Real Returns. This initiative aims to recruit women who left the workforce for any reason and want to return. Candidates take part in an eight-week rotation designed to identify where they would fit in best, which could be anything from asset management to trading, risk management or other roles.
Real Returns is just one example of how the corporate culture at Credit Suisse actively seeks to promote the role and advancement of women.
Kelsey Deshler was selected as one of The Hedge Fund Journal’s 50 Leading Women In Hedge Funds 2015.
• Masters of Science in Finance, New York University, Stern School of Business & Hong Kong University of Science and Technology
• Bachelor of Science, Management and French, University of Minnesota-Twin Cities
Research Head and Portfolio Manager, Alternative Fund Strategies (AFS), Credit Suisse Asset Management
• Investment Analyst, Absolute Return Strategies, General Motors Asset Management
• Hedge Fund Research Analyst, CTC Consulting, Inc.
• Microfinance Investment Due Diligence, Credit Suisse Global Citizens Program in partnership with Women’s World Banking
• NYC Marathon Mentor & Runner, Team for Kids