Profile

Advent Capital Management Marks 20 Years

Advent Capital was founded in 1996 by Tracy V. Maitland, who had previously been a director in the convertible securities department of Merrill Lynch (now BAML). Today Advent runs just over $9 billion with some strategies exclusively focused on convertibles, while others allocate across the capital structure. The asset manager has steadily diversified into three synergistic business areas: it manages roughly $7 billion in long-only funds, primarily investing in convertibles (with some straight high yield debt); over $1 billion in three closed-end funds listed on the NYSE, and approximately $400 million in alternatives, including absolute return funds, hedge funds and liquid alternatives.

Of 60 staff, mainly in New York and London, 25 are investment professionals, whose original corporate research is the core Advent competence running through all business areas. “The analyst team cover sectors, sub-sectors and geographies. They use both sides of the brain in analysing income statements and balance sheets,” says Advent COO, Kris Haber. Joined-up thinking means that the team spans the whole capital structure, including straight debt, convertibles and equity. The synergy among the business sleeves is garnered by the applicability of this research to any of Advent’s existing investment strategies and vehicles, or indeed the new ones being rolled out. “By understanding the various components across the capital structure, you are more knowledgeable about relative value, and long and short opportunities that exist,” Haber says.

Algebris Macro Credit Fund (UCITS)

Investors seeking exposure to fixed income and credit can select from a wide variety of strategies and vehicles, ranging from passive index-tracking products, such as ETFs, to benchmark-conscious long-only funds, absolute return funds, total return funds, hedge funds, structured credit vehicles and even private equity funds.

Algebris manager Alberto Gallo argues that “a relatively unconstrained approach, with flexibility to express macro views and invest long or short across a wide range of liquid rates and credit asset classes, is essential for the macroeconomic and financial market landscape of early 2017 where government bonds offering very low or negative yields are clearly a source of huge negative convexity.”

Indeed, Gallo’s UCITS fund, which has so far raised $400 million, is up 5% since inception in July 2016 and has already profited from a core 2016 theme of shorting government bonds, before rotating to reflation trades this year. He thinks that a traditional, long-only, benchmark-constrained strategy (that can only over-or under-weight sectors or securities) would be a straitjacket. Such semi-active strategies, subject to tight tracking error constraints, have been dubbed “closet trackers” and face competition from passive tracker products, such as ETFs, which Gallo views as “cheaper, but vulnerable to herd behaviour and low returns.” Therefore he envisages that “only low-cost or genuinely active strategies with many degrees of freedom over asset allocation and security selection will survive.” Performance to date, versus peers identified by Algebris, is shown in Fig.1.

CTA Kaiser: 19 Years of Evolution

Kaiser, which has offices in Melbourne and London, returned 10.28% for its Kaiser Global Diversified Program’s Class A in 2016, a year when the average CTA was slightly down (the SG CTA index ended 2.86% lower). This disconnect is not unusual: the programme has a low correlation with the BarclayHedge BTOP50 index, with an average historical correlation of 0.3.

“We trade over different time frames, which provides a sound reason for our low correlation,” explains founder Tony Kaiser. The programme’s median holding period is three days, hence the SG Short Term Traders Index – up 0.31% in 2016 – is is another benchmark, which could complement broader CTA indices that can include long-term, medium-term and short-term technical CTAs, not to mention some systematic and quant macro funds that use fundamental data. Indeed, Kaiser’s peer group CTAs are sometimes defined as other short-term traders, such as Amplitude, Boronia (also headquartered in Australia), Crabel, R.G. Niederhoeffer and QuantMetrics.

This does not imply that Kaiser has a similar return pattern to these managers, however. Correlations within the short-term trader universe are lower than the coefficients between medium- and long-term CTAs. As well as ploughing their own return profiles, short-term traders tend to pursue differentiated approaches, in terms of philosophy, process, execution techniques and risk management. Here we outline some of Kaiser’s distinguishing features.

Andurand Sees Further Energy Recovery

Andurand’s 6.8% return in December 2016 took full year returns up to 22.1%. The fund is now up 110% since its inception in February 2013 for new investors (or 127% for those in a legacy share class that carried over the high watermark from Pierre Andurand’s former fund, BlueGold). Meanwhile the oil price, measured by the S&P Crude Total Return Index, has declined 66% over the same period. Pierre Andurand’s cumulative performance of more than 3,600% since he started trading, greatly outperforms the comparable S&P Crude Oil Total Return Index, which returned -79% in the same period. Andurand featured in The Hedge Fund Journal’s biennial “Tomorrow’s Titans” survey back in 2010, sponsored by EY.

Tactical trading and technicals
Though Andurand did put on a range of energy market relative value trades in 2016 (which largely account for gross exposure above 200%), and can, but did not, trade metals and currencies, it was directional calls on the oil price that accounted for nearly all profits last year. This is typical of the career of a man who has participated in all of the big moves in oil prices. A history of Andurand’s directional calls since 2004 is illustrated in Fig.1. He estimates that he has, on average, captured around 70% of each move.

MGG: Niche Direct Lending

MGG Investment Group (MGG) was co-founded in 2014 by CIO and CEO Kevin Griffin, and President Greg Racz, with seed capital of $200 million from an affiliate of McCourt Global Capital (MG Capital), which is part of the McCourt Group that dates back to 1893. MGG opened to external capital in April 2016 and has so far taken in $600 million of equity. Some of its vehicles use leverage on top and capital managed is now roughly $1 billion, with more total capital deployed in MGG deals as some involve co-investments. MGG structures and invests in bilateral loans that command a significant yield premium over the loan indices, while arguably being less risky than some other loans, based on various metrics. Griffin has an impressive pedigree: since he started taking on full responsibility for originating loans in 2007, he has not lost money on any deal.

Private lending has seen huge growth over the past decade, with assets rising globally from $156 billion in December 2006 to $523 billion in June 2015, according to Preqin. But MGG’s founders and staff chose to specialise in direct lending long before it became a fashionable strategy, attracting ‘tourists’ from multiple hedge funds and private equity, and other asset managers that pursue a range of strategies. The firm is distinguished by a focus on specific market segments and deal structures. MGG lends to the middle market, especially the less competitive lower middle market firms, defined as having EBITDA between $10 million and $40 million, and revenues of at least $50 million. MGG advances between $10 million and $75 million per borrower, and tends to focus on complex or special situations that deter other lenders.

Campbell and Company: Corporate Maturity

In 2013 we profiled Campbell & Company, a then 41 year-young firm, as it embarked into a new era. The leadership baton had been recently passed with two new co-leaders at the helm, and as one of the most tenured CTAs, it had caught a new wave of investor attention as research and product initiatives began to set the course for the emergence of Campbell as a leading innovator in the CTA industry.

Four years later, as the firm begins its 45th year, Campbell remains on the path of progression by being among the most active quantitative managers in terms of product innovation spanning hedge funds, quantitative equities and liquid alternatives (’40 Act and UCITS). We touch on all of these, but a 360 degree perspective on the firm shows that changes already in effect - and others in motion - are much broader and deeper than rolling out new strategies and distribution channels.

Mike Harris and Will Andrews, who have worked together at Campbell for 17 years and led the firm for the past five, indicate that a successful evolution is about much more than product launches. They’ve set out a multi-layered strategy with four broad themes focused on transformative growth: succession planning; client outreach and education; culture and talent; and product evolution. In each of these areas, tangible results are clearly visible.

Theta Capital celebrates 15th anniversary

Since 2001, Theta Capital Management has exclusively focused on hedge fund manager selection. Launching in September 2001 might have been a baptism of fire for some investment strategies but the month demonstrated the resilience of hedge funds relative to conventional asset classes, reflects Theta Capital director, Tijo van Marle. Theta started with friends and family capital invested via segregated accounts, but since 2010 has offered investors two ways to invest alongside renowned hedge fund managers that boast some of the longest and strongest track records.

Theta caters for the full spectrum of investors from the largest institutions to high net worth individuals – including some founders of leading private equity firms in Europe - and retail investors. Larger investors are still offered bespoke individual accounts, housed on Northern Trust’s custody platform, while investors of almost any size can gain exposure to Theta’s favourite hedge funds (most of which are normally closed to investment) through a daily dealing, exchange-listed vehicle.  

The perils of performance chasing
Though investors can benefit from the ability to trade the Legends fund of funds daily, and even intra-daily, Theta advocates much longer average holding periods for hedge fund investing: “investors should think in terms of a ten-year horizon,” says Portfolio Manager, Ruud Smets. If high frequency trading and ETFs may be fashionable, Theta has taken a Warren Buffet approach and historically held onto hedge funds for multi-year periods. Indeed, some holdings have been owned from the very start back in 2001, illustrating the long term relationships that Theta has forged with many luminaries of the industry.

State Street Raises Fintech Game

A multi-year trend of consolidation has been seen in asset service provision post-crisis, with at least 25 mergers: some amongst administrators and others between them and different service providers, such as technology firms. State Street has been in the vanguard of this trend, acquiring Goldman Sachs Administration Services (GSAS) and Morgan Stanley Real Estate Investing’s (MSREI) fund servicing operations, both in 2012. State Street was recently one of the only SIFI (Systemically Important Financial Institution) banks to make another purchase, when its asset management division, State Street Global Advisers (SSGA), added $100 billion of assets through acquiring GE Asset Management in March 2016.

As a smaller number of top tier players are essentially now competing for the same giant institutional clients, State Street’s Executive Vice President and Global Head of Alternative Asset Managers Solutions, Maria Cantillon, does expect the wave of corporate combinations to slow down. Cantillon, who was selected for The Hedge Fund Journal and EY’s 50 Leading Women In Hedge Funds survey, therefore sees asset service providers shifting the focus to differentiating their offering – and State Street asserts that harnessing technology will be its defining quality.

Lyxor Launches Kingdon Global Long/Short Equity

The latest addition to Lyxor’s UCITS platform, which won The Hedge Fund Journal’s 2016 award for ‘the Leading UCITS Hedge Fund Platform’ is Lyxor/Kingdon Global Long/Short Equity Fund. This is the 10th fund to be on-boarded, and asset growth to $2.4 billion since it started three years ago makes Lyxor one of the fastest growing UCITS platforms, according to Andrew Cocks, Head of Third Party Distribution at Lyxor Asset Management. Notwithstanding the speed of the ramp up, Lyxor is highly selective, only adding three or four funds per year on average, and quality is prioritised over quantity. For example, earlier this year, THFJ profiled the Lyxor Tiedemann merger arbitrage and event strategy UCITS.

Kingdon plugs an important gap in the growing suite of strategies: “Lyxor now has a fundamental global equity long/short fund with a wide geographic spread and variable directional bias,” says Cocks. Kingdon’s 30+ year track record has the type of institutional pedigree and longevity that Lyxor – which launched its first managed account back in 1998 – seeks. “We are seeing real client demand for this strategy, which has annualised at 13.7% since the inception of its offshore fund in March 1986 and provided downside protection,” says Cocks. Kingdon aims for attractive risk-adjusted returns through the cycle, and rolling three-year returns have been positive 97% of the time.

THEAM

THEAM’s award-winning funds are based primarily on its distinctive interpretation and application of academic research, and its proprietary research, into areas including anomalies around behavioural finance. THEAM belongs to one of Europe’s largest asset managers, BNP Paribas Investment Partners (BNPP IP), which manages over €530 billion, across around 20 groups with structures ranging from internal units to autonomous groups and partly or wholly owned subsidiaries, including THEAM, which manages around €38 billion. THEAM pursues predominantly systematic and quantitative, model-driven, investing, including indices and ETFs (branded as BNP Paribas Easy), multi-strategy quantitative approaches, factor-based investing, and ‘smart beta’.

THEAM’s alpha engines can be applied to long only, absolute return or hedge fund return objectives, in formats including UCITS funds, ETFs and structured products including some that can offer varying degrees of capital protection. THEAM’s asset split is roughly €15 billion in indices, €15 billion in model-driven and €8 billion in structured products. THEAM invests in all liquid asset classes: equities, fixed income, currencies, commodities and associated derivatives including volatility instruments.

THEAM was formed in 2011 as a merger between the Harewood Corporate and Investment Banking (CIB) business, which developed quantitative strategies in an investment banking environment, and the SIGMA (structured, indexed and multi-alpha generation) products unit. Explains THEAM CEO and CIO, Denis Panel, “Harewood had emphasised options, asymmetric strategies and faster trading strategies while SIGMA had focused on more traditional quantitative models such as value and low volatility. With no overlap between the two it made sense to combine all teams.”

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