Hedgeweek Interviews
Industry veteran Martin Sandquist’s novel Antiloop strategy blends quant and discretionary trading
Co-founded by former Lynx Asset Management portfolio manager Martin Sandquist, Stockholm-based investment management firm Antiloop brings together discretionary and quantitative trading in a multi-strategy fund that spans commodities, equities, global macro and emerging markets.
Along with Anna Svahn, Antiloop’s co-founder, CEO and portfolio manager (pictured above, with Sandquist), and portfolio manager Karl-Mikael Syding, Sandquist runs the firm’s flagship fund, Antiloop Hedge, which spans four investment approaches – Tactical Asset Allocation, Global Macro, Long/short Equity, and Short-Term Trading.
The firm was established in 2019, and is set to formally launch Antiloop Hedge in the fourth quarter this year, with both Sandquist and Svahn upbeat on the range of opportunities emerging out of current commodities and inflation trends.
“The strategies themselves are fairly straightforward – global macro and long/short equity are very common strategies. But the way we manage them in the strategy is quite unique – a fairly unique machine learning element is introduced in the pattern recognition to enhance accuracy,” Sandquist tells Hedgeweek.
“The tactical asset allocation strategies are mainly long-only, focused towards commodities, emerging markets, and other assets that are not correlated to western stock markets.”
A hybrid approach
Sandquist co-founded Swedish systematic hedge fund Lynx in 1999 along with Jonas Bengtsson and Svante Bergström. He departed the long-running firm in 2015 to focus on managing his own money within a family office structure, before co-founding Antiloop with Svahn.
“Having done the systematic approach, I felt I wanted to try something new - so I retired to manage my own money,” the hedge fund industry veteran recalls of the firm’s origins.
He later met Svahn in 2016, with whom he shared similar ideas regarding central banks and macroeconomics.
“I had built this tactical asset allocation trading model, looking at countercyclical markets, where I was allocating between soft commodities, the S&P 500, and gold,” says Svahn, who before co-launching Antiloop had managed discretionary portfolios for high-net worth individuals trading her proprietary Cygnus asset allocation strategy.
“I saw people shorting the stock market and losing a lot of money – I felt maybe instead of shorting one market, you could be long other markets,” she says of her investment style.
After pitching the idea to Sandquist over lunch in 2017, the pair co-established Antiloop, bringing together a range of markets and asset classes, using both quant and discretionary trading techniques, into one vehicle.
“I have a background in the quant world but have always wanted to try a more hybrid approach using discretionary analysis as well,” Sandquist observes.
“When I was at Lynx, some people thought we were crazy for letting the computers make all the decisions. Now it’s almost the opposite – the pendulum has swung the other way. But I’ve always felt there are merits to both approaches.”
Each of Antiloop Hedge’s four approaches consists of two investment strategies each, making a total of eight strategies in the fund altogether.
Tactical Asset Allocation is made up of an emerging markets and a developed markets strategy; Global Macro consists of a discretionary and a systematic strategy; Long/Short Equity is split between technical and fundamental strategies; and Short-Term Trading boasts a short-term futures and a short-term equities strategy.
Sandquist manages around 50 per cent of the risk within the firm, and is responsible for Antiloop’s Global Macro portfolios, Tactical Asset Allocation Emerging Markets, and Long/Short Equity Technical. Anna Svahn oversees the Tactical Asset Allocation Developed Markets strategy, and portfolio manager Karl-Mikael Syding manages the Long/Short Equity Fundamental portfolio.
“The fund is composed of eight strategies, but they’re eight strategies that all work very well together and hedge against each other very well,” explains Svahn. “The goal of the fund is to have a low correlation to the stock market, but it is also designed so that the eight strategies have a very low correlation to each other.”
‘Bumpy ride’
While Antiloop has a global macro focus, blending discretionary and quant investing across an assortment of assets and markets including equities, futures and commodities, its sizable focus on commodities is what ultimately sets it apart from other funds, especially in the Nordics, notes Svahn.
Despite the broader trend of rising commodities prices over the course of this year, the pair acknowledge the challenge of ongoing volatility within those markets.
“That’s the way commodity cycles are – they are much harder to trade than bull markets in stocks or bonds,” says Sandquist. “But that’s also something where we feel we can offer added value as an asset manager in the next few years. This bull market in commodities is just starting to take off now, but it’s going to be a very bumpy ride along the way. We have seen, for example, lumber prices go up extremely high and then collapse. Hopefully we can manoeuvre this period very well.”
Svahn adds: “If I had to describe us in a single sentence, it would be that we hedge against inflation through commodities. Commodities markets are volatile – there are short-term price signals and more longer-term cycles that impact the prices. But it’s important to realise that although commodities are often bundled together in one category, in reality lot of them are uncorrelated to each other. My biggest focus is agriculture and soft commodities, but I’m also looking into precious metals and aluminium and uranium.”
Market mispricing
Building on this point, both Sandquist and Svahn believe that while stocks and bonds have been at the core of investors’ portfolios over the past decade-plus, the markedly different oncoming inflationary regime will require more ‘inflationary-protection’ assets, such as commodities.
“The whole narrative now is that the central banks have the tools which means if inflation gets out of control, they can just raise rates and everything will be fine. That’s total nonsense,” Sandquist observes. “I think people are totally underestimating central bank’s ability to control this inflation genie that they’ve let out of the bottle.”
He adds: “This has caused enormous mispricing in markets, mainly in terms of precious metals, gold, silver, and other commodities, as well as mining stocks, for example, which are massively underpriced at the moment.
“When this perception starts to change, and people realise that central bankers are boxed into a corner and can never tame this inflation without collapsing the system because it’s so leveraged with debt now, that will be big trend for years going forward.”
Gold has also been a key area of focus, with the sector markedly underperforming over course of the pandemic.
“Our tactical asset allocation strategies are biased towards precious metals and gold. I think gold is in a secular bull market, but for more than a year now gold has been in a bear market or a correction, which is not great for those strategies,” adds Sandquist. “But this is a very good time to launch the fund – I think we will see new highs in the price of gold pretty soon.”
Antiloop currently has USD50 million in committed capital from Sandquist and two other entrepreneurial allocators over the past few years. The strategy is primed to roll out during the fourth quarter, with a return target of between 10-20 percent per year.
“Since we expect inflation to play a pretty big part in the macro environment going forward, I think you have to generate returns that are above 10 per cent to be meaningful, and to compensate for this inflation that’s being created now,” he explains.
“But we don't want to be as high as typical CTAs which have around 15 percent volatility. So we want to be slightly below that, but slightly above the average multi-strategy today.”
He adds: “If we are right about what’s coming, I think the stock market is not going to be as great as the past 10 years, and it’s going to be better to be invested in commodities.”
Like this article? Sign up to our free newsletter Author Profile Hugh Leask Employee title Editor, Hedgeweek Twitter Linkedin Related Topics Funds Investments Long-short investing Investing in Hedge FundsAlameda Research appoints co-CEOs
Alameda Research (Alameda), a global cryptocurrency quantitative trading firm and liquidity provider, has appointed Caroline Ellison and Sam Trabucco as co-CEOs.
As co-CEOs, Ellison and Trabucco together will oversee all operations at Alameda while also collaborating to execute on the strategy the organisation. The pair will focus on managing the trading desk as well as overseeing both internal and back-office operations. They will also look to expand the Company’s capabilities through the continued development of best-in-class technology and within the traditional finance sector through potential business development.
Ellison joined Alameda as a trader in March of 2018. Prior to joining the Company, she worked at Jane Steet on the equities desk where she met Alameda founder and CEO of FTX Trading Limited, Sam Bankman-Fried. The two worked closely together building out Alameda’s trading floor and back-office operations into a 25-person team. Ms. Ellison is a graduate of Stanford University, where she received a Bachelor of Science in Mathematics.
Ellison says: “In many ways, Alameda is a first of its kind. I’m not only excited to be part of such a dynamic team, but also to have an opportunity to lead this firm into the future alongside Trabucco. While I am proud of the strides we have made, I look forward to our continued growth and the expansion of our business, both within the crypto market as well as potentially into new asset classes as the global market structure continues to evolve.”
Trabucco joined Alameda in 2019 as a trader before being appointed to Co-CEO. Prior to joining Alameda, he worked as a trader for Susquehanna International Group on their bond ETF desk. Trabucco graduated from MIT in 2015 where he gained a Bachelor of Science degree in Mathematics and Computer Science.
Trabucco adds: “We have seen Alameda evolve over the past few years as the crypto market has become increasingly intertwined with traditional finance. I believe we are experiencing an inflection point for the industry, one which will see further institutional adoption and acceptance of the asset class in the years to come. I am excited to take on the role of Co-CEO alongside Caroline, where together we will look to further establish Alameda’s presence atop the quant trading space by maintaining our standard of excellence and continuing to bring together some of the world’s most brilliant minds to our team.”
Like this article? Sign up to our free newsletter Author Profile Related Topics Moves & AppointmentsBitcoin investment products dominate with inflows of USD225m in last week
Digital asset investment products saw inflows totalling USD226 million, bringing the current eight-week run of inflows to USD638 million, according to the latest Digital Assets Fund Flows Weekly Report from CoinShares.
Bitcoin saw inflows totalling USD225 million, comprising a significant majority of the total. CoinShares believes the turnaround in sentiment towards bitcoin is due to constructive statements from SEC chair Gary Gensler, potentially allowing a bitcoin ETF in the US.
Ether saw minor outflows totalling USD14 million and continues to lose market share to bitcoin, having fallen 1 per cent to 24 per cent of AuM over the last week alone.
Solana (USD12.5m) and Cardano (USD3m) are continuing to see inflows, suggesting the focus hasn’t entirely switched to bitcoin.
Like this article? Sign up to our free newsletter Author Profile Related Topics Digital Assets Surveys & researchExabel and LinkUp partner to launch alternative data insights platform
Exabel, a data and analytics platform for investment teams, is partnering with LinkUp to deliver a new insights platform for LinkUp’s investment clients.
The LinkUp Data Insights Platform will give portfolio managers additional insights based on LinkUp’s job listings data. The platform delivers user-friendly dashboards, visualisations and KPI monitoring capabilities. This assists investors in idea generation by spotting trend shifts in LinkUp’s jobs data.
Partnering with Exabel gives alternative data vendors an extra presentation and monitoring layer that investors value, utilising Exabel's unique Al analytics, financial modelling and data science platform. The LinkUp Data Insights Platform forms part of Exabel’s growing partnership program.
LinkUp indexes millions of job listings directly from employer websites daily. By only collecting data directly from employers, LinkUp eliminates the ‘noise’ that pollutes other jobs datasets leaving the labor market data highly accurate and powerful in its clarity. From its archive of over 165 million job postings, LinkUp has developed a wide range of data products and services that offer unparalleled predictive power into the current and future job market.
Neil Chapman, CEO of Exabel, comments: “We are thrilled to be partnering with LinkUp on this new insights platform. LinkUp’s job listings data affords investors a powerful insight into the decisions being taken within boardrooms - one of alternative data’s most compelling capabilities. We are proud to be working with the best in class in this vital section of the alternative data market. Today most investors want to use alternative data, but many find the cost and complexity of modelling data in-house a prohibitive burden. Exabel allows active managers to benefit from alternative data immediately to supplement fundamental strategies.
“We are looking forward to working with LinkUp to create actionable insights on its data. Dashboards, intelligent screening KPI prediction models and company drill down tools are among the many features our easy-to-use SaaS platform can deliver.”
Toby Dayton, CEO of LinkUp, comments: “The LinkUp Data Insights Platform makes exploring and using our data easier for many existing clients and opens our data up to new market segments. Exabel’s platform adds tools for investigating the data and testing strategies that have previously required substantial client development expertise and time. The Insights Platform allows users to focus on investment strategy immediately. Exabel has helped us make the potential of LinkUp’s data more apparent and improved the value proposition by shrinking deployment times. We think users are going to love being able to dive into the data immediately with a powerful toolset that gives them a new vantage point on forward-looking corporate hiring plans."
Like this article? Sign up to our free newsletter Author Profile Related Topics Services Research & AnalyticsOver 1,800 firms agree to leverage US institutional trade matching capabilities in DTCC's CTM
The Depository Trust & Clearing Corporation (DTCC), the premier post-trade market infrastructure for the global financial services industry, has announced that the community leveraging DTCC’s Central Trade Manager (CTM) service for US domestic trade matching has grown to over 1,800 firms, as organisations further consolidate global post-trade flows on a single platform.
With this adoption, 99 per cent of US trade flow volumes on the legacy DTCC OASYS service have migrated or are in the process of migrating to CTM.
CTM, DTCC’s platform for the central matching of cross-border and domestic transactions, automates the trade confirmation process across multiple asset classes, including equities, fixed income, repurchase agreements (repos) and listed options. The service enables users to take advantage of configurable matching rules, enrichment from DTCC’s ALERT database of 11.5 million standing settlement and account instructions, SWIFT messaging and, for US trades, direct integration with DTC settlement. As a result of this automation, firms are now able to manage their entire post-trade matching process on a single best practice solution, across asset classes and jurisdictions, and benefit from an average 95 per cent same day matching rate.
Adopting a single global central matching platform further supports US efforts to accelerate the settlement cycle. CTM’s Match to Instruct (M2I) workflow automatically triggers trade affirmation and delivery to DTC for settlement when a trade match between an Investment Manager and Executing Broker occurs, eliminating the need for either party to take further action. Clients using this workflow achieve a near 100 per cent affirmation rate by 9PM on trade date, demonstrating that the adoption of the CTM M2I workflow is a critical enabler to achieving T+1 settlement. This automation can also reduce certain post-trade processing costs for cash securities at large broker-dealer firms by 20-25 per cent, according to DTCC’s recent survey of nine of the world’s leading broker-dealer firms.
Additionally, the higher affirmation rates achieved with the CTM central matching service results in a reduction of trade exceptions (ie Don’t Know, or DK transactions), fails and financing charges. DTCC analysis has shown that unaffirmed trades are 54 times more likely to result in a trade not being authorised by the counterparty in the DTC trade settlement process than affirmed trades.
“It is exciting and rewarding to see the industry embrace CTM as the highly-efficient single global platform for trade matching,” says Matthew Stauffer, Managing Director, Head of Institutional Trade Processing at DTCC, and President & CEO of DTCC ITP LLC. “The benefits of migrating the US volume from the legacy OASYS service to CTM are being realised based upon the exceptional match rates and reductions in downstream settlement exceptions.”
Lendable to launch USD100m emerging markets fintech fund with impact and DFI investors
Lendable, an emerging market fintech credit provider, is targeting a ground-breaking USD100 million closed-ended fund focused on emerging and frontier market fintech investments.
Launched in Nairobi in 2015 by Daniel Goldfarb and Dylan Fried, Lendable’s goal is to get 100 million people access to crucial financial services. This will unlock consistent access to food, clean water, electricity, shelter, education and income.
Today, there are approximately 1.7 billion without access to financial markets.
The Lendable MSME Fintech Credit Fund (the Fund) is designed to unlock access to financial services for over 150,000 Micro, Small and Medium Enterprises (MSME’s), providing investors with high impact exposure to important markets and the potential of high uncorrelated returns.
This Fund provides credit to African and Asian fintech companies, who in turn offer fair credit facilities to MSMEs. These same MSMEs are the engines of wealth creation, financial inclusion, and economic growth in these regions, yet historically have had limited access to fair credit and financial services.
Backed by leading impact and development financial institution (DFI) investors, the Fund today has soft closed a USD49 million investment from DFC, EMIIF (DFAT), Calvert Impact Capital, Ceniarth, BIO, FMO and FSD Africa (FSDAi). Another USD20 million is on track to close in the fourth quarter and the fund is expected to hard close above USD100 million in 2022. This is a five-year blended finance closed-ended Luxembourg Reserved Alternative Investment Fund (RAIF), with FSDAi and EMIIF providing the first loss capital tranche.
Combining West Coast technology with Emerging Market needs, Lendable’s proprietary Risk Engine analyses live borrower data from its investee fintech CRMs, opening-up an unparalleled level of granularity across the entire loan book. It is this level of transparency, both on an individual loan and portfolio basis, that enhances loan underwriting and allows for more effective and efficient risk management. This technology has already proven its predictive power, by accurately forecasting the impact of adverse weather, election unrest, Covid-19 lockdowns, and other local events.
The Lendable MSME Fintech Credit Fund is Lendable’s fourth fund and with the soft close takes the Firm’s overall committed capital to over USD200 million. Since inception (October 2016) to 31 August 2021, Lendable has delivered an annualised net return of 14.32 per cent to investors.
“We have had an amazing response to this Fund and have brought on board an impressive slate of leading impact investors and DFIs who back our approach,” says Daniel Goldfarb, co-Founder of Lendable. “Through our fintech investments, we are providing essential working capital for MSMEs that enables off-grid customers to buy energy products and opens the door to innovative digital banking services to consumers. It is about making a high impact difference.”
Chris Wéhbe, CEO of Lendable adds, “We are incredibly proud of our track record in delivering genuine impact and consistent high returns. With our additional fund raising we can grow our committed capital, which will allow us to expand our reach into new markets, where we have a targeted pipeline of investment opportunities.”
Marnix Monsfort, Director Financial Institutions, FMO, adds: “Emerging market fintech investment has a direct and highly important impact on regional development. Sadly, all too often, quality firms struggle to scale due to a lack of adequate, tailored capital. FMO is excited to partner with Lendable as its proposition directly addresses this issue by bringing new capital to the table combined with their strong record of delivering competitive risk-adjusted returns for investors.”
Algene Sajery, Vice President of the Office of External Affairs and Head of Global Gender Equity Investments, DFC, says: “Our investment in the Fintech Credit Fund will help catalyze the next wave of commercial investment into emerging market fintech companies. Development finance institutions like DFC can play an outsized role in attracting different types of capital with different risk appetites to the sector. By supporting transformative fintech companies, DFC and our partners can achieve greater impact while expanding access to finance for underserved communities – particularly women – in emerging economies.”
Like this article? Sign up to our free newsletter Author Profile Related Topics Funds Launches & FundraisingHedge funds eye “potent” anti-viral Covid-19 drug molnupiravir
The development of molnupiravir, a “potent” oral anti-viral Covid-19 treatment, could help boost flagging consumer stocks reliant on the global economic reopening, as healthcare-focused hedge funds look to rebound following recent losses.
US multinational pharmaceutical manufacturer Merck’s new drug – which is designed to help reduce Covid-19 symptoms for people with Covid-risk factors including age, obesity, and diabetes – offers “great potential” to fully re-open the global economy, Man Group noted in market commentary on Tuesday.
The London-listed global hedge fund giant’s ‘Views From The Floor’ note observed how the Goldman Sachs US Global Health Risk equities basket, which lagged the S&P 500 for much of 2021, has risen on the back of encouraging trials of molnupirarvir.
The Health Risk equities basket – which includes airlines, tour operators and hospitality names including such as Royal Caribbean, Expedia, Delta Airlines, and Nordstrom – relies on the post-pandemic economic reopening, which has stalled in recent months after powering 2020’s stock market rebound.
“At USD700 per course, it is not cheap, but is far cheaper than the cost of hospital treatment,” Man analysts said of Merck’s new drug. They pointed to forthcoming licensing agreements which should ease potential supply bottlenecks, and noted that Pfizer, Shionogi and Gilead also have oral treatments in development.
“Because it specifically targets those patients who are most at risk, the drug is likely to lessen the political cost of re-opening, leaving the level of infections unchanged but massively reducing hospitalisations and deaths,” the note, authored by Man GLG analyst James Terrar, and Ed Cole, Man GLG, managing director, discretionary investments, said.
“All in all, we are not surprised that the health risk basket has jumped on the news – molnupirarvir might just provide a final return to normal life.”
Meanwhile, Henrik Rhenman, founding partner and chief investment officer at healthcare-focused equity hedge fund Rhenman & Partners, said molnupirarvir seems “very potent”, noting that the treatment decreases hospitalisations by 50 per cent and is being delivered to Singapore, despite it yet to be approved by the US Food & Drug Administration.
“That’s a vote of confidence,” Rhenman said in his firm’s monthly webcast update. “It seems like a really good treatment – we believe this new treatment will be on the market in just a few months.”
The Stockholm-based firm’s flagship Rhenman Healthcare Equity Long/Short Fund lost 4.6 per cent in its euro share class in September, but it remains up 7 per cent year-to-date.
All four of its sub-sectors – pharmaceuticals, biotechnology, medical technology and services – contributed negatively during September, as developed market equities broadly were down for the month. The fund’s best-performing position was Acceleron Pharma, whose share price was boosted on the back of Merck’s USD11.5 billion acquisition.
Overall, healthcare-focused hedge funds lost around 1 per cent on average during September, according to new Hedge Fund Research data. The drop leaves their year-to-date returns at 1.93 per cent, well behind HFR’s broader equity hedge fund benchmark, which has gained 11.46 per cent for the year.
Like this article? Sign up to our free newsletter Author Profile Hugh Leask Employee title Editor, Hedgeweek Twitter Linkedin Related Topics Coronavirus Healthcare & Life Sciences Investments Investing in Hedge FundsUMB Fund Services launches automated OCR subscription and tender processing for registered closed-end funds
UMB Fund Services (UMBFS), a subsidiary of UMB Financial Corporation UMBF), has launched an automated optical character recognition (OCR) processing programme.
The technology enables faster, more accurate processing of handwritten subscription and tender documents by replacing manual reviews with OCR software and bot technology, turning what previously amounted to hundreds of hours of manual processing into a 24-hour automated service.
The programme creates a standard process for all client documents, whether received in paper, email, fax or data files, allowing UMBFS to handle high volume, short period spikes for tenders or product closings – a critical solution that has historically been a challenge for service providers.
“The launch of our OCR processing program is the latest commitment by UMB Fund Services to invest in technology that enhances our client service,” says Mike Huisman, senior vice president, director of transfer agency, UMB Fund Services. “OCR processing supports UMB Fund Services’ sustained growth and further sets us ahead of other processors in the registered closed-end space.”
OCR processing is currently being implemented for every existing UMBFS client and is available to all new clients as part of the onboarding process.
This announcement follows UMBFS’ recent selection by Alternative Fund Advisors to provide transfer agency, fund accounting, tax reporting and fund administration on its AFA Multi-Manager Credit Fund. UMBFS has also recently been named administrator for Hamilton Lane’s registered and private funds, as well as Bow River’s Evergreen Fund following its conversion from a private equity to a registered closed-end interval fund.
Like this article? Sign up to our free newsletter Author Profile Related Topics Technology & SoftwareParameta Solutions launches post-trade analytics platform Trading Analytics
Parameta Solutions, the flagship brand of TP ICAP’s Data & Analytics division, has launched a global post-trade analytics platform, Trading Analytics.
The new offering meets increasing demand for trading cost analysis and best execution in bonds enabling both sell and buy-side firms to monitor, measure, document, and improve achieved execution prices. The platform currently covers corporate, agency, government, and supranational bonds, with plans to expand into further asset classes in the future.
The new Trading Analytics platform enables trading desks, compliance officers and portfolio managers to upload their historic transaction data to a web portal, and then, using ThoughtSpot's intuitive and flexible visualisation tools, the platform is able to provide a no-code front end capability for clients to schedule the delivery of trading analysis, which is based on Parameta Solutions’ aggregated market data. This data includes proprietary evaluated pricing, as well as trade, quote, and indicative pricing directly from both Tullett Prebon and ICAP brokerages. This breadth of coverage means that Parameta Solutions is able to enrich the data to create valuable and truly independent insights.
To ensure transparency, Parameta Solutions provides clients with the methodology used to generate data that feeds into the Analytics Platform. Observable pricing is available to be reported to meet regulatory requirements under MiFID II and other related legislation. The transparency fields also support reporting obligations for regulations such as IFRS 13, ASC 820, Prudential Valuation and FRTB.
“To date, trade cost analysis has been largely confined to equities and other exchange-traded instruments, where centralised tapes make it easy to access the necessary data. That is changing – with regulations like MiFID II requiring best execution for fixed income, and the necessary technology now being widely accepted. Our Trading Analytics platform reflects that change,” says Ovie Koloko, Global Head of Product Management at Parameta Solutions. “As the leading provider of OTC market data globally, we are ideally placed to meet the market needs to deliver powerful trade analytics for more diverse asset classes. What’s more, our clients get the confidence that comes from knowing the underlying data is independent, robust, and transparent.”
Like this article? Sign up to our free newsletter Author Profile Related Topics Technology & Software Services Research & AnalyticsCopper.co appoint former UK Chancellor as Senior Adviser
Former Chancellor of the Exchequer, Lord (Philip) Hammond of Runnymede, has joined Copper.co, a London-based provider of digital asset custody and trading infrastructure, as a Senior Adviser. He takes up this role with immediate effect.
Hammond will provide strategic advice to the Copper team as the company expands globally. Copper announced the launch of its US East Coast office in August 2021 with plans to launch in Asia already underway. Significant global growth follows the completion of an extended USD75 million funding round in June 2021, led by investor Alan Howard, and venture capital firms Dawn Capital and Target Global.
Hammond will focus on promoting the UK as a global leader in digital asset technology. Copper’s latest funding round and strong growth throughout the last 18 months evidences a growing appetite from institutional investors for digital assets. This early work in connecting traditional finance with distributed ledger technology (DLT) lays the groundwork for the eventual transition for all assets, both real and financial, onto a DLT-based system.
A member of the British Conservative Party and a Life Peer, Hammond is one of only three people to have served continuously in the UK cabinet from 2010 to 2019, serving under Prime Ministers David Cameron and Theresa May. He served as Chancellor of the Exchequer from 2016 to 2019, Foreign Secretary from 2014 to 2016, and Defence Secretary from 2011 to 2014.
Dmitry Tokarev, Chief Executive Officer, Copper,says: “We are delighted to welcome Lord Hammond to the Copper team. Over the last 18 months, Copper has grown exponentially, now serving over 400 institutional clients. We would like to drive growth in our client base within a regulatory framework which will allow us to thrive globally from our London headquarters. With Lord Hammond’s expertise adding to the strength of our team, we look forward to growing Copper and further enhancing the UK’s digital asset technology offering.”
Hammond says: “Copper is a true pioneer of digital asset investment technology, innovating the highest standards of security and trading for financial institutions.
“But the really exciting opportunity lies in the application of this technology to revolutionise the way financial services are delivered. If we can bring together the best of Britain - entrepreneurs, industry, government, and regulators - to create and enable a blockchain-based ecosystem for financial services, we will secure the UK’s global leadership in this field for decades ahead.
“I am looking forward to working with Dmitry and the team at Copper as we pursue this ambition to change and grow a new global digital economy, from right here in the centre of London.”
Like this article? Sign up to our free newsletter Author Profile Related Topics Moves & AppointmentsBallinger & Co appoints new Partner
Foreign exchange risk management and payments specialist Ballinger & Co (Ballinger) has appointed Ashley Wardle as a Partner in the firm’s sales team.
Prior to joining Ballinger, Wardle was Head of Desk at Monex Europe for over thirteen years with a portfolio that included Magic Circle law firms, asset managers, global charities, private banks, international brands, and multinational corporate clients.
Ballinger is a specialist, independent provider of innovative foreign exchange risk management and Treasury services to corporate and institutional clients with large and complex FX requirements.
Wardle’s appointment follows a period of significant growth for Ballinger. In the past year, Ballinger’s team has quintupled in size. The company’s recent closure of another successful funding round has also been pivotal in its significant expansion of talent, strategic partnerships and offering, as well as in its growing roster of corporate and institutional clients.
Wardle says: “I am thrilled to join Ballinger and its prodigious team as they continue to provide innovative solutions to the challenges of an evolving market. I am looking forward to contributing to their resourceful approach to solving complex challenges for clients, whether that be a biotech start-up or blue-chip multinational. We have a promising period ahead of us and the business is well-equipped to continue its rapid expansion and provide an unparalleled service for clients.”
Commenting on Ashley Wardle’s appointment, Tom Dudderidge, CEO of Ballinger & Co, says: “We are delighted to welcome Ashely to the team at Ballinger. His distinguished track record is testament to his outstanding talent. As some of the industry’s most gifted professionals continue to gravitate towards the firm, we are becoming a truly competitive force in the market. We have a proven ability to service clients with complex requirements and execute large transactions on their behalf. Ashley and the team are a natural fit and will work to identify situations where we can add value, articulate this to clients, and deliver our services to the highest possible standards.”
BCS Global Markets appoints Chief Risk Officer for BCS UK
BCS Global Markets (BCS GM), the investment banking services division of Russia’s largest independent broker, has appointed Julien Mareschal as a new Chief Risk Officer at BCS UK.
Based in London, Mareschal's primary role is to further develop and lead a robust and comprehensive risk management framework for the firm’s operations. He will also oversee risk management across multiple business lines and across BCS GM’s entire suite of investment banking solutions. Mareschal will report to BCS GM co-CEO Maxim Safonov, and Marina Atavadzhieva, Global Head of Risk, BCS GM.
Mareschal has over 20 years’ experience in financial risk management. Most recently he was Head of Risk Management London for Mediobanca where he was responsible for the risk management of the firm’s London capital market activities and alternative asset management. In this role, he developed and implemented the Group’s risk frameworks and policies, including structured transaction, securitisations, arbitrage derivatives pricing of illiquid instruments, and collateral policy.
Prior to this, Julien spent four years at the BNP-Paribas in London as a Senior Risk Manager in the Transaction and Securitisation team, responsible for new transactions, securitisation credit and market risk framework. Previously he was Head of Structured Credit Trading at Heritage Capital UK LTD, where he spearheaded the development of structured credit brokerage. Mareschal also previously held the position of Head of ABS, MBS, CMBS and CLO Trading at Commerzbank London.
Maksim Safonov, co-CEO at BCS Global Markets, says: “Risk management is fundamental to BCS GM’s culture of accountability and transparency, and we are pleased to welcome someone of Julien’s proven ability and experience to our growing international business.
“We believe that Julien’s expertise and track record in building and overseeing world-class risk management systems and infrastructure, coupled with his extensive knowledge of our industry, will be a vital cog in helping to take BCS GM to the next level in our growth trajectory.”
BCS maintains a dominant trading position on the Moscow Exchange, with more than 25 per cent of the market share in Equities, Derivatives and FX.
Bosonic adds to advisory board
Bosonic Digital (Bosonic), a real-time and custodian agnostic clearing and settlement platform for digital assets, has added three Senior Advisors to its advisory board and made seven additions to its staff, bringing its team to 35, a 500 per cent growth rate year-to-date.
The strategic hires across technology, product and business development, and sales are in place to support and scale up the growth trajectory for Bosonic due to increased demand for the critical infrastructure it provides to eliminate crypto counterparty credit and settlement risk.
“As we begin to engage in our largest capital raise to date, our bolstered team and advisory board puts us in a strong position to continue to disrupt the status quo and improve the experience for institutional participants in digital assets,” says Tony Kiehn, President.
Three former State Street Executives join Mike Lempres, veteran strategist and board director, as Senior Advisors. Lempres currently Chairs board roles at Silvergate Bank and Revolut USA, as well as sits on the board at Coinbase Custody Trust and Bitstamp USA. He was formerly an Executive in Residence at a16z, the venture capital arm of Andreessen Horowitz dedicated to crypto investments. Prior to a16z, he was Chief Legal and Risk Officer at Coinbase.
Sean Gilman, Co-Founder of HC Tech, one of the largest global non-bank market makers and former CTO of State Street Currenex joins the Advisory Board, alongside Richard Farrell, Former Global Head of Sales at State Street and currently Managing Partner at a FinTech advisory boutique. Chad Parris, former CTO at State Street Currenex who now invests in and advises high growth FinTech companies, rounds out the Advisory team.
“The strategic counsel that our new Senior Advisors bring is essential to our plans and positioning as we continue to enter into strategic ventures and attract new partners to execute on our next phase of growth,” says Rosario Ingargiola, CEO. “Bringing individuals with such pedigree on board is testament to their belief in our prospects and the critical role we play in building a sustainable crypto markets infrastructure.”
In addition to deepening its Advisory Board, Bosonic has added seven team members across key facets of its business; including technology, to strengthen its proprietary technology stack and patent pending software. Former Senior Software Engineer at Cantor Fitzgerald and Citadel Ted Elkington joins as a Senior Engineer to the high frequency trading (HFT) team. Gaston Catta joins as Principal Engineer, DevOps and Systems bringing experience from General Atlantic, State Street and Teladoc. Leonardo Cardoso rounds out the technology hires as a Senior Software Engineer, also bringing HFT software and infrastructure credentials to the team, most recently at Kapital Trading. Messrs. Elkington, Catta and Cardoso report into CEO Ingargiola who oversees a team of 25 technologists and engineers.
Bosonic also named the following Senior Directors to its growing team: Uri Lerman in Project and Product Management, Joe Tuccio in Business Development and Jesse Bruno in Sales, bringing complementary skillsets to foster better client service and offerings and increase the breadth and depth of Bosonic’s global client base which includes custodians, exchanges, brokerages, and market-makers.
Lerman, a former Managing Director at State Street Currenex was most recently a Broker Segment Manager at oneZero. Tuccio was most recently Global Head of Institutional FX at LPS Partners with prior roles as Managing Director at Nukkleus and Director at Noble Bank. Bruno was formerly a Director at Integral and Vice President at State Street Currenex. Messrs Lerman, Tuccio and Bruno report into Ingargiola.
French systematic hedge fund Quantology withstands September equities slide
French systematic long/short equity hedge fund Quantology Capital Management’s flagship fund ended last month in positive territory, with the market neutral strategy withstanding the sharp stock market reversal during September.
The Quantology Absolute Return strategy, a long/short quant hedge fund which trades Nasdaq and NYSE-listed stocks, generated a 0.5 per cent gain over the course of September, outflanking the Nasdaq-100 Total Return Index, which dived some 5.7 per cent.
Among the computer-based strategy’s best performing long bets were Australian software company Atlassian, and Datadog, the New York-based software-as-a-service data analytics platform provider. Solid gains were also provided by Grid Dynamics, an engineering IT services name, as well as west coast-based Beauty Health.
Meanwhile, short positions in Fastly and Zoom also paid off, with the quant fund generating alpha as these names lagged in September.
“The portfolio held up well in a shaky month, taking advantage of a high dispersion within equities,” the firm said in a strategy update.
The fund – which uses a number of market-agnostic, algorithm-based processes to generate returns from behavioural finance indicators, share price trends, and other stock signals within companies’ quarterly earnings data – is now roughly flat for the year. September’s rise was the 11th month out of 14 since inception that the strategy made gains as the S&P 500 fell, Quantology noted.
Last month, the firm announced it has hired Frans Harts as partner and head of sales. Harts, who was previously partner and head of sales and marketing at French quantitative investment manager KeyQuant, earlier held client services and business development roles at Winton Capital Management and JP Morgan Asset Management in London and New York.
Like this article? Sign up to our free newsletter Author Profile Related Topics Funds Long-short investing Markets Investing in Hedge FundsKKR announces CEO succession
KKR & Co (KKR) has appointed Joe Bae and Scott Nuttall as Co-Chief Executive Officers, while Co-Founders Henry Kravis and George Roberts will remain actively involved as Executive Co-Chairmen of KKR’s Board of Directors.
The leadership transition is effective immediately.
“Whether reflecting on the business, our mission or the team that undertakes it, we are proud of what we have built to support companies and serve our clients over the last four and a half decades. Joe and Scott—over the last 25 years—have played a significant role in that endeavour and in shaping the firm, its culture, and our market leading businesses into what they are today. As Co-Presidents and Co-Chief Operating Officers, they have worked collaboratively and cemented a strong leadership team that has taken the firm to new heights,” say Kravis and Roberts. “We could not be more excited about this moment in time. There is such a huge need for private capital to support businesses, and KKR still has so much potential even 45 years later. We are looking forward to all that lies ahead and to working with Joe and Scott to fulfill our mission of fortifying companies and helping secure the retirements and livelihoods of the hundreds of millions of people around the world who depend on our support and investment expertise.”
Co-founded in 1976 by first cousins George Roberts and Henry Kravis together with Jerome Kohlberg, KKR has evolved from a US-focused private equity firm to a global financial services enterprise that invests across many alternative asset classes in addition to private equity, including leveraged and alternative credit, infrastructure, real estate, growth equity, impact, core, and energy. The firm also has a capital markets business, a retirement and life insurance business through Global Atlantic, and hedge fund partnerships, including with Marshall Wace.
Joe Bae and Scott Nuttall are the firm’s second pair of Co-Chief Executive Officers. Bae and Nuttall both joined KKR in 1996 and have served as Co-Presidents and Co-Chief Operating Officers of KKR since July 2017. Since then, KKR has seen significant growth in operating performance, with assets under management, book value, total distributable earnings doubling and KKR’s stock price tripling along with strong and differentiated investment performance on behalf of KKR’s fund investors.
Bae and Nuttall say: “We have spent virtually our entire careers at KKR because Henry and George are visionaries who not only shaped the business world but created a really special firm. We are fortunate to have learned from and been mentored and inspired by two of the world’s most innovative investors of all time. We could not be more proud of the firm’s mission and the people who undertake it and we look forward to working alongside Henry and George in the years ahead. As a team, we are deeply honoured to be stewards of the capital of our clients and shareholders and, with our Partners, to lead the talented team of employees who collaborate to deliver for them every single day.”
Joseph Bae joined KKR in 1996. Prior to his appointment as Co-Chief Executive Officer, he served as Co-President and Co-Chief Operating Officer and has been a member of the board of directors of KKR & Co Inc, since July 2017. Bae has held numerous leadership roles at KKR. He was the architect of KKR’s expansion in Asia, building one of the largest and most successful platforms in the market. In addition to his role developing KKR’s Asia-Pacific platform, he has presided over business building in the firm’s private markets businesses, which included leading or serving on all of the investment committees and implementing the firm’s modern thematic investment approach.
Bae serves on the firm’s Inclusion and Diversity Council. He is active in a number of non-profit educational and cultural institutions, including co-founding and serving on the board of The Asian American Foundation, serving as a member of Harvard University’s Global Advisory Council and serving as a member of the Board and Executive Committee of Lincoln Center.
Scott Nuttall joined KKR in 1996. Prior to his appointment as Co-Chief Executive Officer, he served as Co-President and Co-Chief Operating Officer and has been a member of the board of directors since July 2017. Nuttall has held numerous leadership roles at KKR. He was the architect of the firm’s major strategic development initiatives, including leading KKR's public listing, developing the firm’s balance sheet strategy, overseeing the development of KKR’s public markets businesses in the credit and hedge fund space as well as the creation of the firm’s capital markets, capital raising and insurance businesses.
Nuttall serves on KKR’s Balance Sheet Committee and the firm’s Inclusion and Diversity Council. He is currently a member of the board of directors of Fiserv, Inc. Mr. Nuttall has served on the boards of various non-profit institutions with a particular focus on education, most recently as Co-Chairman of Teach for America - New York.
Concurrent with the elevation of Bae and Nuttall, KKR is announcing a series of transformative structural and governance changes.
First, in a transaction expected to be completed in 2022, KKR will combine with KKR Holdings, which is an entity through which certain current and former employees hold interests in KKR. In this transaction, which is subject to the receipt of requisite regulatory approvals, unitholders of KKR Holdings LP will receive one share of KKR common stock for each unit they hold in KKR Holdings LP as well as their pro rata share of an additional 8.5 million shares of KKR common stock. In addition, KKR will eliminate its Series II preferred stock and terminate its tax receivable agreement with respect to units of KKR Holdings LP that are not previously exchanged.
Second, on 31 December, 2026, subject to exceptions that would accelerate this date, KKR will eliminate its controlling Series I preferred stock and also acquire control of KKR Associates Holdings LP. Currently, holders of common stock are entitled to vote on a one vote per share basis with respect to certain corporate actions including, among others, a sale of all or substantially all of our assets or amendments to the certificate of incorporation, which adversely change the rights or preferences of our common stock. Holders of common stock do not vote on other matters, including with respect to the election of directors, who are currently elected by the Series I preferred stockholder. Following the elimination of the Series I preferred stock, all common stock will vote on a one vote per share basis on all matters customarily presented to common stockholders, including with respect to the election of directors.
These reorganisation transactions are expected to increase the rights of our common stockholders, further align the interests of the current and future leadership of KKR with common stockholders, enhance corporate governance at KKR, and simplify KKR’s corporate structure.
Like this article? Sign up to our free newsletter Author Profile Related Topics Moves & AppointmentsCredit-focused manager Selwood broadens focus with new equity long/short hedge fund strategy
Alternative credit-focused firm Selwood Asset Management has hired former Verrazzano Capital manager Karim Moussalem to launch a new equity long/short strategy.
Moussalem, who was a co-founder and portfolio manager at Verrazzano, joins as chief investment officer for equities at Selwood, and will pair up with ex-Verrazzano colleague Kevin Guillot who will be a portfolio manager on the strategy.
The new fund will launch on global asset management seeder Investcorp-Tages’ UCITS platform later this quarter. Investcorp-Tages was a seed investor in London-based Selwood when it launched in 2015, and continues to invest in other Selwood-managed funds.
The equity long/short fund will be a separate and standalone offering from Selwood’s existing credit strategy, according to a person familiar with the matter. Neither Selwood CIO and founder Sofiane Gharred nor the firm’s core credit team will be involved in the management of the new equity-focused strategy.
Instead, the new fund will utilise spare capacity on Selwood’s business operating platform, allowing Moussalem to focus squarely on equity investing.
Meanwhile, Selwood – which today manages more than USD2.4 billion in assets – will maintain its core focus on market neutral credit opportunities in Europe and North America.
The new strategy broadens Selwood’s business model, and follows the opening of Selwood’s Paris office in 2020 to run long-only credit mandates.
Before Verrazzano Capital, Moussalem – who has more than 20 years of equity trading experience – spent a decade at Goldman Sachs, where he was latterly co-head of Europe Delta One trading. More recently, he had been a managing director at Deutsche Bank.
The Investcorp-Tages multi-manager joint venture was launched in May 2020 by Investcorp and Tages Capital, with a view to building a global absolute return platform. The global multi-manager firm provides customised portfolios, seeding and other investment products for institutional investors worldwide, spanning pension and sovereign wealth funds, foundations, endowments, family offices, insurance companies and other financial institutions.
Like this article? Sign up to our free newsletter Author Profile Related Topics Launches & Fundraising Long-short investing Moves & AppointmentsFormer State Street and BNY Mellon exec joins FundGuard as President
FundGuard, an AI-powered investment management and asset servicing enterprise SaaS platform, continues its accelerated growth program with the appointment of John Lehner as President.
Lehner, who previously served as Global Head of State Street’s Investment Manager Services and CEO of BNY Mellon Technology Solutions, is responsible for driving the firm’s go-to-market strategy and client-facing activities including broader expansion globally, onboarding and servicing new clients, establishing new client relationships and working closely with product teams to build and roll out product strategy and marketing.
FundGuard helps asset managers and fund administrators to manage mutual funds, ETFs, hedge funds, insurance products, and pension funds.
Lior Yogev, FundGuard CEO and Co-Founder, says: “FundGuard was created on the basis that the industry is ripe for disruption with legacy market infrastructure in investment management simply insufficient for today’s needs. John brings deep experience working with multiple technologies and operating models that have been transformative within the industry. As FundGuard continues to grow, his knowledge, skills and relationships will facilitate how we interact with clients and the wider industry to drive meaningful change.”
Lehner has over 30 years experience in the investment management technology and asset servicing industry across technology, data and services, successfully building and transforming global businesses. He joins FundGuard from State Street where he was most recently Global Head of the Asset Management and Insurance Segments, Investment Manager Services and a member of the Management Committee, instrumental in State Street’s shift to the provision of technology-enabled services. Prior to that he was CEO of BNY Mellon Technology Solutions, Chairman of Eagle Investment Systems and a member of the Operating Committee.
Lehner says: “Joining FundGuard is an exciting opportunity to drive industry-wide transformation and help clients solve long-standing problems, address their total cost of ownership and future proof their operating models, particularly around digitisation, security and scalability. FundGuard has the right technology, at the right time, to address the increasing risks the industry faces as a result of out-of-date services and processes that weren’t designed to manage the speed and volume of data clients need today, or to meet institutional clients’ requirements for new assets, and real-time insights.”
Like this article? Sign up to our free newsletter Author Profile Related Topics Moves & AppointmentsOptions secures VMware Cloud Provider Principal Partner status
Options, a provider of cloud-enabled managed services to the global Capital Markets, has achieved the prestigious VMware Cloud Provider Principal Partner status.
This achievement demonstrates Options’ commitment to providing a modern, Multi-Cloud platform complete with VMware Cloud capabilities, including deployment, integration, and cost-optimisation. The partnership with VMware allows Options to seamlessly integrate with the public cloud, enabling the orchestration of client Multi-Cloud environments with ease. Options has dedicated significant resources to achieving this accolade, with employees attaining over 30 VMware certifications to ensure an industry-leading experience which will benefit their clients.
Options’ President and CEO, Danny Moore, says: “The receipt of VMware Cloud Provider Principal Partner status uniquely positions Options as the only provider dedicated to the Financial Services space that also holds SOC1, SOC2, and SOC3 accreditation. This, in addition to achieving our third Microsoft Gold Competency, proves Options truly is a leading cloud service provider in the Financial Services industry.”
Today’s news marks the latest in a series of announcements for Options, including their expansion to Canada with the opening of a Toronto Office, a win at TradingTech Insights USA Awards in the Best Managed Services Solution for Market Data category and a partnership with Packets2Disk to provide Market-Leading Network Analytics to clients.
In 2019, Options received investment from Boston-based Private Equity Firm, Abry Partners. This investment has enabled Options to accelerate its growth strategy and develop its technology platform whilst expanding its reach in key financial centres globally.
Like this article? Sign up to our free newsletter Author Profile Related Topics Technology & Software Trading & ExecutionCrypto prime broker SFOX adds Wall Street trading vets to team
SFOX, a digital asset prime broker focused on helping hedge funds embrace and expand crypto trading, has added two former Wall Street trading veterans, Eddy Sfeir and Daniella Gekhtman, to its senior sales team of institutional investors.
“A new frontier is upon us and the traditional firms are unrelentingly getting involved. Bridging the gap between the digital world and traditional finance is the number one priority as we welcome this second tranche of institutional entrants to crypto,” says Shawn Egger, Global Head of Execution Services & Sales at SFOX. “Eddy and Daniella’s collective trading expertise brings tremendous value to the SFOX sales and trading team as institutional participants ultimately want to be serviced by like-minded traders that understand institutional risk.”
Sfeir and Gekhtman both join SFOX as SVPs of Digital Assets where they will assist with the global expansion of business development. Most recently, Sfeir was Head of Options Trading for Latin America at Credit Suisse and prior to that, he spent over a decade as VP and Director of the FX Options Trading desk with Deutsche Bank. Gekhtman was previously a Senior Interest Rates Trader and Vice President at US Investment bank, Jefferies.
SFOX recently unveiled the first cryptocurrency trading product built specifically for hedge funds and asset managers that will provide capabilities previously only accessible by the market’s largest firms. In one platform, SFOX delivers best price execution through deep global liquidity, advanced order types and execution algorithms, treasury management, and detailed trade analytics with flexible settlement ensures fund managers can capitalise on every opportunity presented in the market.
Like this article? Sign up to our free newsletter Author Profile Related Topics Digital Assets Moves & AppointmentsTackling the challenge of ESG investing in alternative credit
ESG analysis is more difficult in private debt but can uncover aspects often overlooked in traditional analysis. Less liquid and transparent, they hold some challenges for investors pursuing environmental, social and governance goals.
However, if anything, it is important to evaluate ESG criteria in this part of the market to improve the sustainability profile of portfolios, uncover risks and spot potential opportunities.
At NN Investment Partners (NN IP), responsible investing is a key part of investment decision-making, not just for meeting regulatory requirements but even more so to make the right long-term investment decisions. This applies as much to alternative credit as it does to equities or bonds. While equities and bonds can be sold if they become too risky, in private debt there are limited possibilities to withdraw from a loan. As such, thorough analysis needs to be done ahead of committing capital.
Equally, as the EU’s sustainable finance efforts build momentum, asset managers and borrowers are likely to face tougher questions about their ESG criteria. The investment case and regulatory case for the inclusion of robust ESG analysis in this part of the market has never been stronger.
Alternative credit or private debt includes investments outside of traditional, well-defined public markets such as corporate bonds and equities. They include assets like student housing and bridges to trade finance and asset-backed securities.
“It is often more difficult to evaluate ESG criteria in private debt than in public debt, because of lacking data availability and quality,” adds Senior Responsible Investment Specialist Petra Stassen, who works closely with the Alternative Credit team. “But effective ESG analysis can be a big help for investors to improve the sustainability profile of their investments, find risks and spot potential opportunities.”
Also, there is no one-size fits all approach. The asset class is disparate and ESG risk factors will be unique to each sector and borrower. While floods may be a material risk for the agricultural sector, they are likely to have less impact on IT companies. Nevertheless, in spite of its complexities, a full-fledged due-diligence process on ESG principles needs to be a vital element of loan underwriting, followed by active ownership and close engagement.
NN IP addresses these challenges through well-established proprietary research and scoring. Financing is done through a variety of channels: lending directly, participating in new loans or buying them in the secondary market and whether it’s infrastructure or project finance, commercial real estate, residential mortgages, corporate loans or trade finance, the bank, tenant and other counterparties need to meet clear ESG criteria. ESG needs to be integrated into the investment process from origination to repayment, with criteria on when to invest, how to monitor investments and what to do when investments don’t perform. NN IP has developed ESG scorecards for each asset class based on its materiality framework and the EU Taxonomy.
At NN IP, the loans granted will be asset or purposed-based, and some finance crucial parts of the economy. Before investing, it is vital to understand how the money will be used in the next 10 or 20 years. The central role of ESG criteria in decision-making helps uncover aspects that are often overlooked in traditional financial analysis.
Ulla Fetzer, Client Portfolio Manager at NN Investment Partners, says: “We are long term lenders and monitor our investments closely. If something goes materially wrong from an ESG angle, we will discuss with the borrower how to mitigate the consequences and will ultimately suspend the relationship if there is no progress or no commitments on the ESG front. If a long-term, illiquid investment needs to be sold because of the borrower’s ESG or reputational issues, then it would be at a discount and may result in a hefty trading loss. Because a sale will raise the refinancing risk for that counterparty, increasingly both parties agree on ESG KPI’s (key performance indicators) before a loan is signed.
“A good example is mortgages – where one should not only look at the carbon footprint but also consider what potential effects of climate change mean. And adjust your stress tests to include climate change; this can make flooding an obvious risk for example.”
The EU’s sustainable finance efforts will boost transparency and data availability, also in alternative credit: Europe increasingly defines sustainable investing and aims to fix the lack of standardisation which was holding some investors back. It brings more transparency and less greenwashing to private debt markets, from investors to asset managers to investee companies. However, it is also likely to bring more scrutiny on the efforts of asset managers to incorporate ESG criteria.
Stassen adds that regulation could also lead to a more homogeneous categorisation of investment strategies: “Investors who are less versed in responsible investing tend to follow the crowd. We have been using an internal categorisation for responsible investing for years – distinguishing between ESG-integrated, sustainable and impact investment strategies. The way we’ve been approaching this is in line with SFDR’s line of thinking. The private debt sector has come a long way, but we are only at the beginning. A full-fledged due-diligence process on ESG principles should be a vital element of loan underwriting. Followed by active ownership and close engagement.”
The EU’s sustainable finance efforts will without a doubt boost transparency and data availability. This will make it easier to find opportunities and avoid risk when investing in private debt. But both experts agree that ESG integration in private debt markets will be a challenge in the near future.
Fetzer concludes: “Integration of ESG factors is just not straightforward enough for the diverse alternative credit universe yet, so we continuously explore new ways of further integrating ESG in our investment process. That can be through engaging with lenders, investors or regulators. We want to make sure alternative credit lives up to its promise: attractive yields and stable long-term cash-flows, even during market downturns.”
Like this article? Sign up to our free newsletter Author Profile Related Topics ESG & Responsible Investing