Hedgeweek Interviews
Fund managers and the path towards net zero emissions
By Juan Cruz, Founding Partner and CIO, Cygnus Asset Management – On the path towards a net zero emissions world, some sectors will multiply their activity (multiples), others will reduce it substantially (fractions), and others will disappear (zeros). How can hedge funds and other asset managers navigate the emerging investment opportunities?
At the Paris Climate Change Summit in December 2015, 189 countries reached a binding international agreement on climate change, with the aim of “holding the increase in the global average temperature to well below 2C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5C above pre-industrial levels.”
To comply with this engagement, the European Union announced its “Green Deal” in December 2019 and approved the Climate Law in June 2021. This regulation incorporates the philosophy of the Paris Agreements and sets the objective, which is not only ambitious but also binding, of reducing the European greenhouse gas emissions by 55 per cent by 2030, from 1990 levels, and to achieve net zero emissions by 2050. While Europe has been at the forefront of regulation regarding emission reduction targets, we believe that this is a global trend, as the US, Japan or China, among the most relevant, have also announced similar targets.
The energy sector, and the electricity sector in particular, accounts for at least 75 per cent of the solution to reducing greenhouse gas emissions in Europe. There are two sets of concomitant processes here: the replacement of fossil energy generation by renewables on one hand, and electrification, particularly in the mobility sector (electric vehicle, rail), industrial processes (steel, cement, aluminium) and buildings (heat pumps, electric kitchens) on the other hand. In addition, for those sectors where electrification is not achievable, the EU is pushing to develop other technologies such as green hydrogen (ie. Generated with renewable energy), blue hydrogen (generated with gas, but capturing the CO2 emissions produced) or biofuels.
We expect the trend towards electrification to result in a sharp increase in demand in the next 30 years, which should in turn drive greater interest in the sector. This is a big change from the perception a few years back that electricity demand would languish as improvements in efficiency outpaced underlying demand growth. In fact, we now expect electricity demand to grow by circa 3 per cent per year (equivalent to tripling the level demand in the next 30 years). This, in turn, should lead to investments in electricity networks, which will increase both in size and complexity, and which will rely on digitalization for their system management.
In this regard, we can say that the energy sector, and electricity in particular, will undergo a true revolution over the next decades; a scenario which we have called ‘multiples, fractions and zeroes’.
Zeroes, because there are things that may disappear (such as vehicles with internal combustion engines or the use of coal); fractions, since some raw materials could see their demand significantly reduced (in particular oil and natural gas); and multiples given that certain activities will see their volume of activity multiplied (wind generation, photovoltaic generation, electric vehicles, battery storage, heat pumps, electrical networks).
We see two distinct periods in this ambitious, but somewhat uncertain path. The first one, to last until 2030, should be dominated by technologies that are economically viable today (solar photovoltaic, onshore and offshore wind). Longer term, from 2030 to 2050, we expect technologies that are currently in their incipient phase to gain importance, supported by public investments (green and blue hydrogen, capture of CO2, floating offshore wind). What’s more, technologies that are not currently on the EU’s main roadmap, such as small modular nuclear reactors (SMRs), could gain visibility in the next decade.
This context offers an extraordinary and long-lasting opportunity, with total investments expected around EUR1 trillion until 2050, according to estimates by Goldman Sachs. We expect the following themes to be its main beneficiaries:
• Decarbonisation - renewable energies, CO2 capture, green hydrogen, biofuels
• Electrification - electrical grids, batteries / storage, electrified transportation, industrial electrification
• Energy efficiency - in particular around renovation, insulation, and heating of buildings
• Circular economy - recycling and responsible use of natural resources
From a geographic point of view, Europe is clearly leading this process, but we expect the US to follow the same path, as suggested by the infrastructure plan of EUR1 trillion dollars over the next 10 years that the Biden administration has recently secured.
We are currently at the dawn of an energy revolution which started in Europe but is spreading globally. This energy revolution brings with it many investment opportunities.
To benefit from them, fund managers will need not only to be able to detect winners and losers, but also to identify companies that can make a virtue out of necessity and rise from their ashes. They will also need to keep in mind company valuations and market expectations. Is a pure renewables play always the best way to get exposure to the tremendous growth in the renewables sector? What do we expect electricity prices to do when renewables entirely replace gas in power generation? What is the strategic positioning of a pure generation company vs. an integrated one? What will happen to the cash generation of an oil company, if it stops investing in new field development or if it decides to focus on the development of technologies such as offshore wind power or CO2 capture rather than refining or offshore platforms?
Experience and fundamental expertise will be key to navigate the path towards net zero emissions, avoiding overheating and valuation bubbles, which tend to be the greatest risks in this type of context.
Juan Cruz is Founding Partner and CIO at Cygnus AM, an independent asset manager firm founded in 2006. He has over 25 years of experience in the management of proprietary portfolios of financial institutions and in hedge fund management, specialising in the utilities, infrastructure and renewables sector.
Like this article? Sign up to our free newsletter Author Profile Related Topics ESG & Responsible InvestingUCITS and AIFs attract EUR430bn in net new money during H1 2021
Net assets of UCITS and AIFs increased by 4.1 per cent in Q2 2021, taking total net new money in H1 2021 to EUR430 billion, according to the latest quarterly European statistics from the European Fund and Asset Management Association (EFAMA).
UCITS net assets grew by 4.5 per cent and net assets of AIFs grew by 3.4 per cent as they cross the EUR20 trillion threshold.
Net sales of UCITS amounted to EUR210 billion, and net inflows into AIFs amounted to 18 billion. During the first half of 2021, UCITS and AIFs attracted EUR430 billion in net new money.
After the record net inflows in Q1 2021 (EUR133 billion), net sales of equity funds declined, but remained historically high at EUR94 billion, due to Investor confidence in the stock market rebound.
Net sales of bond funds amounted to EUR40 billion over the quarter, compared to EUR55 billion in Q1 2021. Net inflows into multi-asset funds increased from EUR37 billion in Q1 2021 to EUR63 billion in Q2 2021.
Investors continued to reduce their net holdings of MMFs in Q2 2021, albeit at a much slower pace than in the previous quarter.
Record breaking investment by European households - European households invested EUR55 billion in investment funds through Q1 2021, a number not seen since Q2 2017. On the other hand, net acquisitions of funds by European insurers and pension funds declined to EUR18 billion, from EUR71 billion in Q4 2020.
Bernard Delbecque, Senior Director for Economics and Research, says: “Net sales of long-term UCITS, in particular equity funds, remained very strong in Q2 2021, as the successful rollout of the Covid-19 vaccination campaign and the recovery of the global economy boosted investor confidence.”
New research exposes extent of impact on UK investment firms under the FCA’s new Investment Firms’ Prudential Regime
Wheelhouse Advisors, an award-winning provider of prudential management, regulatory reporting, accounting, tax and payroll services to the financial services sector has released a new report detailing the findings of in-depth impact assessment work, undertaken with clients over the past 12 months.
The report explores each area of the Investment Firms’ Prudential Regime (IFPR), which is due to go live in January 2022, pinpointing the various implications that could be felt by different categories of investment firm and identifying the clear actions investment firms should take.
Covering key areas of the regime including capital, liquidity, reporting, remuneration, consolidation, public disclosure and the new internal capital and risk assessment process (the ICARA), the report is the result of joint working and close cooperation with Wheelhouse Advisors’ client base, that spans the investment management sector.
The results are significant in many areas. For example, without exception, clients will find reporting under the IFPR more complex, with 24 per cent finding reporting significantly more complex, and 57 per cent having to report more frequently than before.
The IFPR sets out new capital requirements, based, for the first time, on the risks an investment firm faces and poses. The new thresholds will be considerably higher for matched-principal brokers and advisor/arranger firms, classed as Exempt-CAD under the current regime, with firms facing increases ranging from 300 per cent to 2,300 per cent.
Matthew Crisp, CEO of Wheelhouse Advisors, says: “We are pleased to be able to share the results of this important and detailed work, which has been undertaken by our team of prudential specialists over the past year. We believe the findings indicate the scope and depth of the work that firms of all types will need to complete, if they are to be ready for January 2022.”
Michael Chambers, Head of Prudential at Wheelhouse Advisors, says: “The new regime is a real game changer for many firms. There are a whole range of issues facing the sector, depending on where they are starting from today. Some firms haven’t yet realised they’re in scope of the IFPR or aren’t aware that the impact of the rules could be materially. Then there are firms that have done some preliminary work and uncovered a raft of changes to be made. It may be difficult to deploy large amounts of additional capital in the relatively short timeframe between now and January 2022. For some types of firms., the results are startling, and those who have had a relatively light regulatory touch to date, will find it onerous.”
The report clearly sets out the different areas of the regime, alongside Wheelhouse Advisors’ findings across the population of firms assessed, and the level of impact each type of firm will need to address to comply with the new regime.
The report is available via the website: https://www.wheelhouse-advisors.com/ifpr-impact-assessment-report/
Like this article? Sign up to our free newsletter Related Topics Legal & Regulation UK Surveys & researchMonroe Capital expands in Asia with new Seoul office and MD appointment
Monroe Capital has expanded its platform to Asia with the appointment of Alex Kim, as Managing Director and Head of Asia. The newly opened office in Seoul, South Korea reflects Monroe’s commitment to expanding its business in Asia.
Prior to Monroe, Kim was the CEO and Managing Director of Korea and Head of Southeast Asia Institutions at Aberdeen Standard Investments. Alex has over 20 years of experience in asset management and banking, with 15 years spent in the Asia Pacific region. Prior to Aberdeen Standard Investments, Alex held roles at Russell Investments, the Royal Bank of Scotland (RBS) and Pacific Investment Management Co (PIMCO). He earned his BA in Political Science from the University of California, Irvine.
“We look forward to continued strategic growth and expansion into the Asian markets,” says Ted Koenig, President & CEO of Monroe Capital. “Over the last few years, we have seen more and more interest in the Monroe platform from Korean and Asian investors. This is a great opportunity to expand our footprint in this region.”
“We are very excited to add Alex to the Monroe Capital team,” says R Sean Duff, Managing Director & Partner of Monroe Capital. “Alex is a great addition to lead our institutional efforts as well as show our commitment to the Asian community. He brings with him many great relationships across the region.”
The firm has USD10.3 billion AUM across diversified private credit platform of 25-plus vehicles comprised of direct lending and opportunistic commingled credit funds, publicly traded and private BDCs, separately managed accounts, CLOs, and SPACs. Monroe Capital’s broad global investor base consists of public and corporate pensions, endowments and foundations, insurance companies, regional banks, family offices and high net worth individuals.
Like this article? Sign up to our free newsletter Related Topics Moves & AppointmentsBSO partners with ImpactScope to offer carbon offsetting for crypto traders
BSO, in partnership with Geneva-based ImpactScope, a social enterprise providing carbon offsetting solutions to digital asset exchanges and crypto mining companies, has become the first connectivity provider to offer clients that trade cryptocurrencies the means to calculate and offset the excess carbon emissions of their operations.
The criticism of cryptocurrencies’ energy consumption and its related carbon footprint is a major challenge for all players in the crypto space and is being addressed at both a corporate and regulatory level by mandates such as the European Union’s Sustainable Finance Disclosure Regulation (SFDR), which comes into force in January 2022. In line with these developments, investors have also been compelled in recent years to seek out additions to their portfolio that not only deliver great returns but are also more socially responsible. With ImpactScope’s unique APIs, BSO’s customers can minimise the environmental impact of their crypto transactions in real time and reduce their operational carbon footprints.
BSO’s existing client base has full access to ImpactScope’s suite of solutions and can choose from a variety of geographically diverse offsets verified by Verra and Gold Standard, the world’s leading programmes for the certification of greenhouse gas emissions reduction projects. Other services offered through the partnership include crypto-related ESG reporting and carbon auditing of corporate treasuries for institutional investors holding crypto assets.
“In light of recent reports highlighting the climate emergency we are facing, there is a sense of urgency in the industry to change for the better. By partnering with ImpactScope we are able to offer support to our clients in fighting climate change and help them make trading crypto more sustainable,” says Michael Ourabah, CEO of BSO.
Gregg Betz, Co-founder of ImpactScope, adds: “We welcome the opportunity to join together with BSO and give players in the crypto and digital assets arena the chance to meet their ESG goals; assessing and subsequently offsetting their crypto carbon footprints. The mission of ImpactScope is to help crypto stakeholders, be they exchanges, end-users, mining pools, or institutional investors, become greener, more sustainable and more aware of the environmental consequences of their actions. BSO is a great partner for us and we look forward to serving and developing the market together."
ImpactScope’s carbon offsetting solutions are now available to all BSO customers worldwide.
Broctagon Fintech Group launches WorldBook liquidity solution
Fintech solutions provider, Broctagon Fintech Group, gas launched WorldBook, a global crypto movement focused on solving key liquidity issues plaguing the industry.
WorldBook is the world’s first crypto STP (Straight-Through Processing) network with the largest aggregated liquidity pool. The initiative aims to introduce a universal standard of liquidity for digital assets, uniting both processes and technology within the crypto industry under a single framework.
Unlike the highly streamlined Forex or Securities financial markets, crypto trading is highly fragmented with significant price disparity across exchanges. This is largely because of existing market norms where exchanges operate in a silo within their orderbook, limiting their offerings and therefore prices to the participants within.
The eponymous WorldBook combines the orderbooks of all connected exchanges to create a unified orderbook that enables multilateral liquidity flow. Instead of being confined to local orderbooks which may represent less than 1 per cent of the total industry, exchanges now gain access to 85 per cent of the market. This is made possible by the NEXUS 2.0 aggregator, the driving engine that powers the WorldBook with SOR (Smart Order Routing), which allows for global price discovery and best bid and offer.
“Despite the gaining acceptance of crypto, it remains a “wild west” with no dominant technology or standard in which it operates. With the WorldBook’s price aggregation, we found that bitcoin had an average negative spread of USD10, even amongst the major exchanges. This means that with over USD15.5 trillion in trading volume over the past year, traders could have saved USD5.7 billion in spreads and this is for bitcoin alone, which is already the most efficient and liquid digital asset. The price disparity could only be worse for the thousands of altcoins across many smaller exchanges,” says Don Guo, Co-Founder and CEO, Broctagon Fintech Group highlighting the issues. “We engineered the WorldBook infrastructure taking a page from the fundamentals of FX interbank liquidity. With our experience as a regulated FX liquidity provider, we believe the Prime of Prime (PoP) model has the potential to disrupt the industry and increase crypto trading volumes by more than 400 per cent in the near future.”
The WorldBook is part of Broctagon’s commitment to propel the crypto industry towards regulatory compliance, adoption, and maturity. As Singapore looks to be a poster child for the crypto industry with its welcoming policies, the homegrown fintech company seeks to support this national agenda. Exchanges are welcome to connect to the WorldBook for free. The advantages for exchanges include an evident increase in volumes and a decrease in bid-ask spread amongst others.
For example, the BTSE exchange experienced an eight-fold increase in trading volume, surpassing 10,000 trades across six crypto pairs within the first month.
“Liquidity challenges exist for newer and established exchanges alike. The former requires extensive capital for marketing to capture enough users for a liquid order book while the latter often pay hefty fees for external market maker services to drive profitability. The WorldBook is a solution for both. With universal prices and unprecedented depth, exchanges can focus on other aspects of the business to bring further value to their clients,” says Guo.
“We congratulate Broctagon, which is one of our active members, on their launch of the WorldBook. The growth of our FinTech ecosystem is a collective effort of all members of the community, fintech and financial institutions alike,” says Shadab Taiyabi, President of Singapore FinTech Association, a cross-industry non-profit initiative recognised by the Monetary Authority of Singapore.
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Globally, crypto exchanges that are not within the top three percentile account for only less than 10 per cent of total trading volume, according to data derived from CoinGecko. With its symmetrical flow of liquidity, the WorldBook levels the playing field for newer exchanges to contend and explore new frontiers, driving growth for the entire industry at large.
“We recognise how a standardised framework for liquidity can ensure steady supply and demand for our clients. It is a pleasure to work with the WorldBook, and we shall support them as they look to introduce cohesive standards for the entire industry and elicit greater public adoption of cryptocurrency,” says Weber Woo, CEO, XT Exchange, the first digital asset social trading platform with close to half a million active monthly traders.
Beyond a liquidity network, the Worldbook is also an open initiative to forge greater collaboration amongst industry peers old and new, to create a digital asset landscape primed for multifaceted participation. Amongst its pioneering members are Huobi Group, FCA-regulated Archax, BitKub, as well as RegTech companies such as Horangi and Cypnopsis as well as Defi and blockchain firms like Hodlnaut and Bholdus amongst many others.
Digital assets fund post fourth consecutive week of inflows
Digital asset investment products saw inflows totalling USD57 million last week, posting their fourth week of inflows, according to the latest Digital Asset Fund Flows Weekly report from Coinshares.
During last week's price fall Solana's price was a stalwart, outperforming a basket of the top 10 digital assets by 34 per cent, having risen 24 per cent week-on-week. This was reflected with inflows, dwarfing any other digital asset, totalling almost USD50 million.
Bitcoin remained flat for the week with a paltry USD0.2 million of inflows, while ether saw minor outflows totalling USD6.3 million.
Like this article? Sign up to our free newsletter Related Topics Digital AssetsEmerging markets hedge funds are flourishing, new industry data shows
With hedge funds’ year-to-date returns rebounding back into double-digit territory, new industry data published on Monday shows how emerging markets managers are helping to galvanise the industry and fuel recent gains.
New research published separately by both BarclayHedge and eVestment underlines how, on a geographic basis, both emerging markets and Asia-focused hedge funds outflanked other regions to power August’s narrow return of almost 1 per cent, reversing the industry’s July slump.
BarclayHedge research shows 28 out of its overall 30 hedge fund sub-sectors scored positive performances in August, with the Emerging Markets Middle East and North Africa Index topping the table with a 3.54 per cent monthly advance.
Its Pacific Rim Equities Index meanwhile rose 3.13 per cent, while the Emerging Markets Global Equities Index gained 2.67 per cent, the EM Eastern European Equities Index added 2.33 per cent, and the EM Global Index advanced 2.08 per cent.
According to BarclayHedge numbers, the only two sub-sectors which stumbled in August were the EM Latin American Equities Index, which lost 2.33 per cent, and the EM Latin America Index, falling 1.99 per cent.
Year-to-date, BarclayHedge’s Emerging Markets Eastern European Equities Index has gained more than 22 per cent, with the Emerging Markets Eastern European Index overall up 19.30 per cent over same eight-month period.
Meanwhile, eVestment data shows hedge fund managers focused on India scored aggregated returns of 5.50 per cent last month, and are now leading the entire hedge fund pack within its database in 2021, posting year-to-date gains of more than 41 per cent.
eVestment’s stats show Africa and Middle East-focused funds have now added 17.64 per cent since the start of 2021, outflanking North America (12.96 per cent), Asia (7.98 per cent), and developed Europe (7.53 per cent) on a year-to-date basis.
Elsewhere, Japan-domiciled hedge fund firms surged 5.48 per cent during August, driving them into positive territory for the year to the tune of 2.87 per cent. Hedge funds focused on Japanese markets also posted solid gains last month at around 4 per cent.
Overall, more than two-thirds – 67.4 per cent – of all hedge fund managers notched up positive returns last month, according to eVestment’s August data, the largest such number in three months.
BarclayHedge, eVestment and Hedge Fund Research numbers each show overall industry returns for 2021 now stand at around 10 per cent, as managers rapidly close in on 2020’s overall full-year returns of 12 per cent.
“August hedge fund performance was interesting for its relative low dispersion of returns,” said Peter Laurelli, eVestment’s global head of research.
“The average of the positive return during the month was not great, 1.97 per cent, the second lowest level of 2021, but the average loss was not tremendous either at -1.79 per cent,” Laurelli said. “The differential between average gains and average losses is the narrowest in over two years, since July 2019.”
Like this article? Sign up to our free newsletter Author Profile Hugh Leask Employee title Editor, Hedgeweek Twitter Linkedin Related Topics Results & performance FundsNew asset backed blockchain cryptocurrency moves into launch phase
VIPUSD Coin, the Blockchain Cryptocurrency, backed by USD3.6 trillion worth of land, energy and other mineral assets, has moved into launch phase after selling an initial USD23 million worth of currency at a pre-launch discount token price of USD1,200 with indicated values set to hit USD12,000-plus on exchange debuts.
Started in 2021, by Veterans International Petroleum Services LLC, a permanently limited three billion VIPUSD Coin has already been mined to limit their environmental impact. Only 300 million will be released to the market and pegged to the natural reserves behind VIPUSD Coin. More assets will be added to the network to further increase the value of VIPUSD Coin over time.
VIPUSD Coin, supported by the United Nations International Human Rights Commission (UN IHRC) and other humanitarian organisations, is one of the first truly ‘asset’ backed Blockchain Cryptocurrencies designed and launched to eliminate much of the inerrant instability within the digital currency market. In addition to stability, VIPUSD Coin utilises the vast network of investors to support humanitarian causes with a portion of initial sales being donated directly to international humanitarian projects.
The partnership with humanitarian organisations such as the UN IHRC will see a portion of the sales value from the initial sale of the founders VIPUSD Coin spread between three key areas: Education, Qualification and Employment. The purpose being focussed on improving the future welfare of citizens around the world by providing them with the tools to learn, find jobs and in turn improve lives, not just for themselves but the wider community also.
Unlike many Cryptocurrencies, VIPUSD Coin has already been created as tokens on the TRON platform. This means that there will be none of the environmental impacts of coin mining associated with traditional Cryptocurrencies such as Bitcoin.
Alongside the energy reduction, VIPUSD Coin provides community landowners with a way to earn money from their land rights, without tarnishing nature with “dirty” industries, including mineral mining and oil exploration and drilling, thanks to signed agreements ensuring the reserves will not be exploited. The protection of these reserves is fundamental to the underlying value of VIPUSD Coin and the ambition to making a positive contribution to slowing climate change and global warming.
VIPUSD Coin is designed to be highly tradable using a Transaction Processing System (TPS) that can handle 2,000 transactions per second (far higher than, for example, bitcoin – 6 per second, and ether – 25 per second) with very low transaction costs and minimal buy/sell margin spread to further preserve the value of VIPUSD Coin.
The transactional network, along with the use of physical assets to back VIPUSD Coin, is intrinsic to the currency’s future functionality as a tradable currency within retail, commerce, corporate treasury models and investment portfolios.
With the aim of launching VIPUSD Coin on market-leading broker exchanges during 2021, indicated values based on the asset valuing backing VIPUSD Coin show price per token reaching a minimum of USD12,000 per VIPUSD Coin making it an ideal investment vehicle for veteran or beginner crypto investors.
Chris Brice, One of the founder Members of VIPUSD Coin says “Cryptocurrencies are making waves within the multiple business sectors around the globe but often these coins are highly speculative. VIPUSD Coin will offer a level of security within its value similar to that of a banknote, wherein physical assets need to be available to maintain its value. This not only allows us to create a bankable product for people to invest in but also create a tradable Cryptocurrency that can really work on a day-to-day level as a currency. Alongside this, VIPUSD Coin will be using its platform and network of investors and traders to support worthy causes across the globe. Working alongside the UN’s IHRC and other humanitarian organisations, we’ll be working with a collective of NGOs to support projects within education and future welfare.”
CTA returns remain sluggish following “challenging” August
CTAs and trend-following hedge fund strategies have experienced a sluggish start to September, having had a disappointing August in what Société Générale describes as a “challenging environment” for the sector.
SocGen’s main broad-based SG CTA Index – which measures the performance of a pool of 20 of the largest CTAs providing daily returns – finished August in slightly negative territory, down 0.29 per cent.
That lukewarm showing continued into September, with the benchmark notching up just 0.17 per cent since the start of the month, while year-to-date returns have reached 6.69 per cent.
SocGen suggested that sustained upward trends in stock markets – US equities indices have hit all-time highs in recent weeks – have bolstered managed futures’ long positions, but these were offset by sideways moves in bonds and commodities, which ultimately dented portfolio performance.
Just six out of 20 managers comprising the SG CTA Index registered positive returns, of which only one was a non-trend based CTA, while trend-followers which were split half-positive and half-negative, ranging from -2.0 per cent to +3.5 per cent, SocGen data shows.
Meanwhile, shorter-term CTAs faltered in August, sliding 1.33 per cent – their second worst month this year - before continuing to fall some 0.22 per cent in September. Year-to-date, the SG Short-Term Traders Index – a daily returns snapshot of CTAs and global macro managers with 10-day trading windows – remain in marginally negative territory, down -0.04 per cent.
Eight out of the 10 individual short-term CTA managers which make up the index posted negative performance in August, with only small gains from the remaining two, SocGen noted.
Meanwhile, trend-following hedge funds’ performance - as measured by the SG Trend Index, which tracks the daily net returns of a pool of 10 of the biggest trend-following managers – have fared slightly better. The benchmark has risen 0.31 per cent so far this month, which followed a monthly return for August of 0.44 per cent, bringing it to 8.84 per cent since the start of the year.
Tom Wrobel, director of capital consulting at Societe Generale Prime Services and Clearing in London, said CTAs have delivered “robust performance” so far this year and continue to gain traction with institutional investors.
“The month of August provided a slightly more challenging environment for many CTAs, but opportunities were still present across different markets and time frames, and positive performance from selected CTA managers is testament to the broad spectrum of CTA strategies which exist and their multi-asset approach,” Wrobel said.
Like this article? Sign up to our free newsletter Author Profile Hugh Leask Employee title Editor, Hedgeweek Twitter Linkedin Related Topics Results & performance FundsLatest Truss Edge software upgrade supports digital assets
ETF and hedge fund technology specialist Truss Edge has released a major new upgrade for its technology platform, which introduces a number of improvements for asset managers.
The new features have been added to provide further options within order and trade management activities, to support the interface between fund managers and administrators and to facilitate the management of digital asset portfolios.
Jay Duffy, CEO of Truss Edge, says: “Our technology is designed to be highly flexible, supported by an intrinsically modular structure. Our latest set of updates are designed to support client firms with the operational requirements they have right now. We are highly reactive to our clients, and these changes reflect the day to day requirements of fund managers.”
Dave Shastri, Head of Strategy at Truss Edge, adds: “Digital assets are here to stay and we anticipate their more widespread use within fund management. Our latest update will allow both specialist digital assets funds, including ETFs, and also those with a multi-asset approach to incorporate these into their analysis.”
As digital assets become more institutionally utilised, Truss Edge anticipates rules and norms to be established. In supporting digital currencies, the update has added a new instrument type to the application. This delivers the flexibility to ensure that Truss Edge clients are able to be timely in adopting new reporting and accounting standards as the industry evolves.
Truss Edge has improved the system’s administration reconciliation features, used to resolve any differences which might arise between a fund manager’s accounts within the Truss Edge platform and the external records maintained by their administrator. This has included better navigation tabs and newly created screens for analysing external balance sheets and income statements.
The Truss Edge application performs Order Management which is used by client fund managers to support a variety of process flows. The new release enhances the Order Limits feature which evaluates orders against configured criteria.
Fund managers now have the ability to validate orders based on net or gross consideration. The update also adds greater flexibility to grouping of orders when setting limits.
The Truss Edge Trade Editor was also enhanced to automatically create instruments for NDFs and Forwards. This is consistent with other instrument types processed in the Trade Editor.
As the system’s accounting feature has become more broadly used, the update has added some time-saving features for non-investment activity. This has extended the counterparty to GL reporting and improved the coverage of GL accounting in the Truss Edge Report Designer.
Drawbridge makes senior strategic hires
Drawbridge, a premier provider of cybersecurity software and solutions to the investment industry, has added three industry veterans to bolster its business development, strategy and operations teams.
Drawbridge continues to invest in premier talent to drive exceptional customer service, meet new client and market requirements and continue to scale the business through a period of hyper growth.
2021 has been a breakthrough year for Drawbridge. The company secured a growth equity investment from Long Ridge Equity Partners in early 2021 and named FinTech industry pioneer Scott DePetris President & Chief Operating Officer (COO) and appointed him to the Board of Directors. Drawbridge also launched a new module in its flagship technology platform designed specifically for Private Equity (PE) funds to give them a single view to monitor the complete cyber risk profiles of their portfolio companies in real-time. Throughout the year Drawbridge has continued to receive industry recognition for its innovative software, services and customer service, and was recently shortlisted for Hedgeweek’s Best Cybersecurity Provider, HFM’s Best Cyber-Security Service, Private Equity Wire’s Best Cybersecurity Provider and Alt Cedit’s Best Cybersecurity Firm.
To support its continued global growth, Drawbridge has added key strategic hires across critical areas of the business.
Art Murphy, who joins Drawbridge as Director of Business Development. Murphy brings more than fifteen years of extensive business development and technology experience to Drawbridge, where he will focus on developing new business opportunities. Prior to Drawbridge, Murphy served as Senior Vice President at BTIG. Earlier in his career, Murphy held roles as a Security Specialist at SecureWorks and several senior positions at Managed Service Providers (MSPs).
Jacob Cane brings twenty years of industry expertise to his role as Head of Strategy at Drawbridge. Cane will foster business and product development while expanding Drawbridge’s scope through new service avenues and partnerships to drive growth. Earlier in his career, Cane was founder and Managing Director of Proactive Technologies, which served Alternative Investment clients and was acquired by Abacus Group in 2019.
Adam Menkes, Global Head of Operations, brings over twenty years of consulting experience in the Alternative Investment Industry to Drawbridge. Prior to Drawbridge Menkes served as Vice President at Goldman Sachs, and earlier in his career he held roles as Director at Credit Suisse and Vice President at Morgan Stanley. He will leverage his deep customer relationships and focus on enhancing operational infrastructure to ensure Drawbridge is best positioned for continued growth.
“2021 has been a milestone year for Drawbridge as we accelerate our rapid global growth and continue investing in our people, technology and services to best prepare our clients to combat the increasingly complex threat landscape,” says Scott DePetris, President & COO of Drawbridge. “We’re proud to add this exceptional strategic talent to the Drawbridge team to continuously provide our clients with the software and services they need to ensure they have the most robust cybersecurity programs available."
Brevan Howard appoints head of crypto venture investments
Brevan Howard Asset Management LLP, a global alternative investment management platform, has appointed Colleen Sullivan, CEO and co-founder of CMT Digital, to lead the firm’s private and venture investment activities in crypto.
Additionally, Sullivan is to chair the investment committee of a new strategy which will focus on the highly compelling and disruptive technologies in this asset class. Brevan Howard is also announcing the formation of BH Digital, a new division to manage cryptocurrency and digital assets.
“Brevan Howard’s belief in the huge diversity of opportunities within the digital asset space and the significance of this to long term macro investors is the reason we are delighted to welcome Colleen to the firm,” says Aron Landy, CEO of Brevan Howard. “Colleen’s exceptional track record in making highly successful crypto venture investments will be of tremendous benefit to Brevan Howard clients and underscores the firm’s commitment to rapidly expanding its platform and offerings in cryptocurrencies and digital assets.”
The creation of BH Digital is intended to significantly expand the firm’s involvement in cryptocurrencies and digital assets. Earlier this year, Brevan Howard began investing in digital assets for its clients via the launch of a liquid token, value oriented fund. The Brevan Howard Master Fund also announced in May that it would allocate to cryptocurrencies.
Sullivan is among a number of key hires Brevan Howard is making to develop BH Digital into the leading provider of digital asset and cryptocurrency solutions for institutional investors globally. Under Sullivan’s leadership, CMT Digital specialised in crypto-asset trading and blockchain technology investments.
Like this article? Sign up to our free newsletter Related Topics Digital Assets Moves & AppointmentsMajor Japanese pension fund seeds Japan equity long-short fund
Gordian Capital has announced the multi-country launch of GSB Equity Long Short Fund managed by Geoffrey Bennett of GSB Capital, LLC in San Francisco.
The Fund invests in high concentration, high conviction large and mid- cap Japanese equities. The market neutral strategy has been employed managing separately managed accounts and has a five-year track record. Capacity in the strategy is limited to USD650 million. In an industry-first, a leading Japanese corporate pension fund is seeding the Fund via a discretionary investment mandate awarded to Gordian Capital Japan.
Bennett, the Fund’s Founder and Portfolio Manager has focused on the Japanese markets since 1992 and has been a hedge fund manager since 1999. Since 2005, he has served as the manager of GSB Capital, LLC, a Registered Investment Adviser specialising in Japanese equity markets. From 1999 to 2005, Bennett served as the principal and portfolio manager of Windham Pacific, LLC, where he also managed a pan-Asian long/short fund with a market- neutral equity strategy. From 2005 to 2008, Bennett served as Portfolio Manager for the Phoenix Japan Fund. Starting in 2009, Mr. Bennett began to manage Japanese equity long short separately managed accounts, primarily for US investors. The evolution of his trading methodology crystallised in an approach used since 2016. The same strategy, which has generated annual compound returns over 20 per cent, limited drawdowns, and a Sharpe Ratio in excess of 3.0, will be implemented for the Fund.
Before starting his career as a hedge fund manager in 1998, Bennett was employed for seven years by ING Barings Securities, where he worked as an analyst and trader. Currently based in San Francisco, Bennett has also worked in New York, Tokyo, and Hong Kong.
Bennett holds a Bachelor of Arts degree in English Literature from Kenyon College and a Masters of International Management from Thunderbird School of Global Management and is a Chartered Financial Analyst (CFA).
Bennet says: “Japan has long been an overlooked stock market and as result is a rich source of alpha opportunities. I am particularly pleased to be able to make available my investment strategy to a wide range of global institutional investors, who for many years have asked me to launch a comingled fund. Making this possible is a unique multi-jurisdiction fund solution provided by Gordian Capital that allows me to focus singularly on research, portfolio construction and trading”
As part of the Fund’s launch, GSB Japan Equity Long Short Fund will be leveraging Gordian Capital’s Fund Platform and 16 years of expertise to provide operational, regulatory, and compliance support for the Fund. Established in 2004 by capital markets professionals and alternatives industry veterans active in Asia since the 1980s, Gordian Capital is Asia’s leading institutional quality, independent fund platform specialist, currently managing USD 7 billion. Initially launching its first operating subsidiary in Singapore in 2005, the group now has a regulated presence in Singapore, Japan, and Australia, is registered with India’s SEBI (Category 1 FPI) and China’s CSRC (QFII) and both its Singapore and Tokyo operations are registered with the U.S. SEC as Registered Investment Advisers.
“We are delighted to work with Geoff and look forward to supporting him and the Fund’s growth,” says Mark Voumard, CEO of Gordian Capital Singapore Pte Ltd. “We are especially excited to be working with Geoff in a unique multi-country launch for a fund that is expected to have wide global-investor appeal.”
Alvaro Tamura, CEO of Gordian Capital Japan, a fully regulated Discretionary Investment Management license holder and registered SEC investment adviser, adds: “We are pleased to, in an industry first, have played a leading role in the launch of the new fund by arranging a seed investment from a leading Japanese pension fund.”
Gordian Capital’s Fund Platform currently offered in both Singapore and Tokyo is designed for experienced investment professionals. Gordian provides a regulated, physical, and operational fund infrastructure wherein it handles the business and operational management of each fund, allowing the investment professionals on their platform to concentrate on investing.
The Fund’s service providers include Goldman Sachs as prime broker, SS&C Fund Services as fund administrator, Ernst & Young Limited as auditor/tax advisor, with Walkers (Cayman), Day Pitney LLP (US), Anderson Mori & Tomotsune (Japan) and CNPLaw LLP (Singapore) acting as legal counsel and Ogier Global Trustee (Cayman) Limited as trustee of a feeder fund.
Like this article? Sign up to our free newsletter Related Topics Funds Launches & FundraisingCrypto hedge fund Nickel Digital’s assets soar amid bitcoin volatility
London-based crypto hedge fund Nickel Digital Asset Management has seen its assets soar some 260 per cent this year, as its range of cryptocurrency-focused strategies have generated gains throughout the sector’s rollercoaster ride.
The surge, which has brought the firm’s total AUM to more than USD250 million, has been fuelled by consistent positive returns across its four fund strategies, along with prudent risk management and a high-quality institutional team and business setup, the firm said this week.
Nickel Digital’s original flagship strategy, the Digital Asset Arbitrage Fund, now accounts for roughly a third of firm-wide AUM, having gained 12.6 per cent so far in 2021. The fund has scored some 96 per cent of positive months since inception in early 2019, with volatility of 3.5 per cent and Sharpe of 3.8.
The fully systematic market-neutral arbitrage hedge fund utilises an array of trading strategies and approaches – including basis trades, triangular arbitrage, volatility arbitrage and calendar spreads - to profit from mispricing in bitcoin and other digital currencies.
Nickel Digital – which was launched in early 2019 by ex-Goldman Sachs and JP Morgan portfolio manager Anatoly Crachilov, former Bankers Trust trader Michael Hall, and ex-Macrosynergy Partners, Toscafund and Liongate PM Alek Kloda – also manages three other digital assets-focused funds.
The Diversified Alpha Fund – a non-directional, multi-strategy, multi-manager vehicle comprising a pool of hard-to-access and capacity-constrained strategies, including high-frequency market making, statistical arbitrage, relative value, volatility arbitrage, and trend following – has gained 14.6 per cent year-to-date.
The DeFi Liquid Venture Fund, which gained more than 30 per cent during August, looks to capture the growth potential in broader digital assets infrastructure outside bitcoin, targeting opportunities in protocols and decentralised finance. The Digital Gold Institutional Fund, meanwhile, is a long-only, buy-and-hold, directional bitcoin tracker.
The firm is also preparing new launches for the fourth quarter. The family of defensive funds, including defensive bitcoin and defensive ether funds, will offer institutional-grade exposure to bitcoin and ether, and use derivatives instruments to help curb downside volatility.
“This year has seen considerable volatility in the crypto market, but a growing number of professional investors tapping into the long-term growth opportunity in digital assets market and are increasingly looking for a degree of exposure to crypto,” said Nickel Digital CEO and co-founder Anatoly Crachilov.
“This, reinforced by our track record of delivering record performance at the times of market distress in April and May, has resulted in a strong growth of AUM.”
Henry Howell, head of business development, said the AUM growth stems from a global mix of family offices, endowments and wealth managers.
“The global crypto market is now worth over USD2 trillion and growing at a rapid rate and as it becomes better regulated, has stronger infrastructure and greater innovation, professional investors will continue to increase their exposure to this market,” he added.
Like this article? Sign up to our free newsletter Author Profile Mark Kitchen Employee title News Editor Twitter Related Topics Digital Assets Results & performance FundsMulti-strategy manager Corbin Capital capitalises on shifting credit markets
Established in 1984, multi-strategy alternative investment manager and opportunistic credit investor Corbin Capital Partners today manages more than USD9 billion in assets across a broad range of commingled and bespoke portfolios.
Corbin invests across both corporate and structured credit, the latter spanning equity and mezzanine tranches of collateralised loan obligations, and residential and commercial mortgage-backed securities, among others.
“We partner and deploy capital in a lot of different ways – in CUSIP markets, both structured and corporate traded markets, including in RMBS, CMBS, in CLO equity and mezzanine,” Craig Bergstrom (pictured), Corbin’s chief investment officer, tells Hedgeweek.
About USD2.7 billion of the New York-based firm’s assets are invested across two opportunistic credit strategies, which share similar mandates and investment approaches, with one being managed to comply with US pension fund-focused ERISA standards.
Corbin boasts a significant presence in external fund investments, allocating to other firms’ credit offerings through its fund-of-funds business, as well opportunistic co-investing and direct trading capabilities.
“We spend a lot of our time, and deploy a lot of our capital, in between two competitive poles,” he explains of the firm’s credit market focus, referring to situations that are neither single company credits, nor fund investments with “high-quality, well-established credit fund managers.”
“There are situations where we are essentially a co-investor, where a manager needs completion capital for a deal that may be too large for their fund. It could be that they need a third-party price setter. It could also be warehousing assets, or lending – sometimes we’ll be a capital solution provider.”
Corbin did not have a sizeable focus on structured credit markets until 2007, as the then-tight spreads meant investing required hefty amounts of leverage to meet the firm’s 8-10 per cent return targets over a full market cycle.
“We’d entered that market in 2007, and as a result of some of the structural regulatory changes put in place in the aftermath of the 2008 Global Financial Crisis, the available returns in structured credit remained high enough that we stayed active there, even as economies and markets recovered in the mid-2010s,” Bergstrom explains.
“Generally, we’re looking for things in that sort of high-single or low double-digit return space – with private risk in the low double digits, and CUSIP assets in the high single digits. Our lowest expected return bucket today is probably leveraged loans. RMBS, CMBS, CLO mezz are in that high single-digit target return group, with CLO equity a little higher than that.”
Elsewhere, the firm also manages around USD200 million in closed-end capital, focusing purely on private credit. “We describe it as a ‘between-the-cracks’ strategy focused on smaller, less competitive niches,” Bergstrom notes.
A key area of interest within the private credit sphere is short duration opportunistic investing, which Bergstrom explains is also partly a legacy of the 2008 crash.
“A lot of credit hedge funds, because of their sort of 2008 experience and their client base, don’t have much room for private credit in their open-ended funds. The closed-end funds that are focused on private credit as a pure-play end up being very much focused on multiples of invested capital rather than IRR.
“We see shorter duration, private opportunities as much less competitive. Things that are on the one or two-year point on the private curve, even if they offer less risk and an enhanced return premium, are not of interest to a lot of private credit investors – but it’s a real focus for us on the private side.”
Bergstrom began his career on the sell-side, focused on equity derivatives with roles at Morgan Stanley and Salomon Brothers. He later switched to the buy-side, joining Boston-based money manager Grantham Mayo Van Otterloo in 1999 where he was risk manager, with a multi-asset focus in hedge fund product development, before joining Corbin Capital in 2002.
As talk turns to the prevailing market backdrop following the coronavirus-fuelled economic turmoil of the past 18 months, Bergstrom acknowledges a range of “headwinds, tailwinds, and crosswinds” confronting credit markets – but stresses that “this sort of macroeconomic prognostication we mostly leave to other investors.”
Vaccine progress has underpinned the swift economic rebound, in turn driving inflation to its highest level in over a decade. But Bergstrom points out that Corbin’s target universe tends not to be exposed to volatile long-term inflation, with the strategy historically less correlated to investment grade bonds.
“It’s hard to develop a super-strong edge on inflationary trends right now,” he continues. “There’s a reasonable case to be made that it’s transitory; there’s a reasonable case to be made that it’s structural. But we don’t see any sort of a tradable opportunity.”
Expanding on this point, Bergstrom believes the firm has a slight “luxury” in its portfolios having very little interest rate duration exposure
“Because of our focus on structured credit, those are overwhelmingly floating rate assets, and our fixed rate assets – high-yield bonds, for example, or occasional bridge loans – tend to be very high coupon and/or low dollar price and/or event driven names.
“We’re mostly floating rate, and what we don’t have that’s floating right doesn’t carry that much interest rate duration anyway – so we feel reasonably well-insulated from the prospect of higher rates.”
However, as spreads continue to be at, or close to, their all-time tights, despite significant ongoing economic uncertainty, that offers reason to continue to exercise caution, he believes.
“That says to us this is not a time to reach for yield,” Bergstrom observes.
“Fortunately, there still seems to be some residual pain and dislocation from some of the more significant disruptions last year. So the most liquid, deepest, most readily tradable credit markets – such as high yield, for example – have recovered. Other markets – where there are fewer standby participants, where there is more complexity and less liquidity – are still producing some reasonable risk-adjusted return premium.”
Despite this, Bergstrom acknowledges that, like other investors, Corbin remains exposed to severe GDP shock.
“We were reminded of this in a fairly painful way during 2020 – that is hard to diversify away from,” he remarks. “While we are in private real estate loans, private corporate loans, CLO, CMBS and RMBS and we’re diversified – if you have GDP drop 7 per cent in a quarter, you’re not diversified against that.”
However, he adds: “With the strength of recovery in riskier corporate credit, it does feel like structured credit has lagged a little bit and probably represents slightly better value. Clearly a lesson from last year is that if you think you’re getting value in structured credit you need to make sure you’re adequately compensated for effectively less liquidity and its close cousin more mark-to-market risk.”
“The bottom-line is that while a lot of things are at, or around, their all-time highs, we are still seeing enough flow to stay fully invested in things that offer what I believe are good risk-adjusted returns.”
Like this article? Sign up to our free newsletter Author Profile Hugh Leask Employee title Editor, Hedgeweek Twitter Linkedin Related Topics InvestmentsSycamore Tree Capital Partners appoints Managing Director
Sycamore Tree Capital Partners (Sycamore Tree), a specialist asset manager with private and alternative credit investment expertise, has appointed Paul Travers as a Managing Director and Portfolio Manager, effective 9 September, 2021.
In this newly created role, Travers will also join Sycamore Tree’s investment committee, alongside Mark Okada, Trey Parker, Scott Farrell and Jon Poglitsch.
Travers joins Sycamore Tree with more than 38 years of relevant industry experience. “We are delighted to welcome Paul to Sycamore Tree, where his arrival is a testament to our pursuit of strong risk-adjusted returns and capital preservation for our clients,” says Jack Yang, President.
Travers will be primarily responsible for originating and managing Sycamore Tree’s CLOs and report to Trey Parker, Chief Investment Officer, who says: “Paul’s deep expertise and relationships across syndicated loans, CLOs, and portfolio management is a great addition to our strong, existing platform as the Firm continues to scale.”
“I look forward to working closely with Mark, Jack, Trey and the team as we draw upon our experience across market cycles to build an industry-leading CLO business,” says Travers. “Sycamore Tree’s talented investment team, institutional quality infrastructure and relationship focus were all compelling factors in this decision, and position us well to serve investors.”
Prior to joining Sycamore Tree, Travers was a Loan and CLO Portfolio Manager and investment committee member at Onex Credit Partners, where he led the company’s launch and buildout of its US CLO platform, which now has more than USD9 billion of assets under management. Prior to joining Onex Credit, Travers was a Principal at DiMaio Ahmad Capital, where he similarly created, managed, and grew the firm’s CLO business to more than USD2.5 billion.
Travers’ career also includes positions as Managing Director at Credit Agricole Indosuez, where he managed the bank’s USD2.3 billion CLO/CBO business, and as Portfolio Manager and Managing Director at Merrill Lynch Asset Management, where he led portfolio management for their floating rate mutual funds, which had assets in excess of USD10 billion. Travers also previously held corporate finance positions at Bear Stearns & Co, BHF Bank and Chase Manhattan Bank.
Like this article? Sign up to our free newsletter Related Topics Moves & AppointmentseasyJet short sellers boosted as airline’s share price plummets
Hedge funds betting against easyJet saw their short positions boosted on Thursday as the low-cost airline’s share price took a sharp nosedive after it rejected a takeover bid.
AHL Partners, AQR Capital Management, Kintbury Capital, Sandbar Asset Management and Systematica Investments are among the hedge funds currently positioned short the FTSE 250-listed airline, regulatory disclosures made to the UK Financial Conduct Authority show. Position sizes range from 0.50 per cent to 0.82 per cent.
Shares in easyJet were down almost 11 per cent at 702pp at one point on Thursday morning after the firm revealed it had rejected an unsolicited bid from a competitor, identified in some media reports as Wizz Air.
In an announcement on Thursday, easyJet said the bid “fundamentally undervalued” its business, adding that the bidder has since abandoned its offer.
Instead, the airline unveiled plans to raise capital through a GBP1.2 billion (USD1.66 billion) shareholder rights issue and a new USD400 million revolving credit facility.
The low-cost carrier – which was frequently among the most heavily-shorted European airline stocks even before the Covid-19 outbreak – has seen its business hit hard during the pandemic, losing some GBP2 billion (USD2.76 billion) as flights were grounded due to travel restrictions and lockdowns.
easyJet hopes the fundraising proceeds will “facilitate and accelerate” its recovery from the impact of Covid-19 by providing resilience from downside risks, as well as “materially improve” its ability to deliver long‐term value to shareholders as the European aviation market looks to rebound from the pandemic.
In the past, easyJet has been shorted by a number of high-profile hedge funds – including Marshall Wace and Citadel – though more recently managers have moved to cut their bearish bets in the company.
Like this article? Sign up to our free newsletter Author Profile Hugh Leask Employee title Editor, Hedgeweek Twitter Linkedin Related Topics Long-short investingEuropean law firm Fieldfisher launches merger arbitrage desk
With the recent arrival of experienced antitrust and M&A lawyer Miguel Vaz, European law firm Fieldfisher is now providing a "one-stop-shop" service to a number of top tier investors and hedge funds, focused on risk-adjusted merger arbitrage investment opportunities.
"Merger arbitrage investors need to understand the antitrust and other regulatory risks that may affect the outcome of M&A deals so they can make informed investment decisions," says Vaz. "In this type of market, success is determined by identifying and assessing regulatory issues and other risk factors quickly, precisely and with access to quality information."
Fieldfisher's Merger Arbitrage team covers the full spectrum of the arbitrage legal risk, from competition/antitrust approvals to national security and other sector specific regulatory clearances.
"The team is a one-stop-shop for investors wanting to understand regulatory risks associated with M&A deals and draws on the sector expertise of Fieldfisher's network of offices and competition lawyers across Europe - including in the UK, France, Germany, Belgium, Italy, Spain – the US and Asia," says Vaz.
"Whenever needed, Fieldfisher's merger arbitrage desk also relies on a network of national experts, who are able to provide first hand regulatory, economic and political insights into key regulated sectors of activity for example energy, life sciences, technology or finance, offering a deep understanding of the regulatory landscape of each."
Overbond launches AI-driven rich-cheap fixed income model
Overbond has added a rich-cheap model to its suite of AI fixed income analytics, allowing buy-side desks around the globe to generate systematic return with a real-time, fully back-tested methodology that is part of a scalable and interoperable trading system.
We’re in a long-running environment of low-rates, tight credit spreads and low secondary-market liquidity. In this new landscape, electronic trading and the use of AI for trade automation have become the new standard and investors are increasingly turning to quant trading and AI in fixed income to increase alpha.
This increased electronification of the markets has created a large amount of useable and accessible real-time and historic trade data that can be aggregated by clients to use for analysis by cutting-edge AI tools. This new generation of AI is being used to perform sophisticated relative value analysis, including enhanced rich-cheap analysis
“Overbond has harnessed AI and the wealth of new transaction information to bring quantitative trading to buy-side desks through an enhanced rich-cheap model. This new model provides insight well beyond the traditional rich-cheap analysis and is more powerful than what can be created through spreadsheet methods or factor analysis alone,” says Vuk Magdelinic, CEO of Overbond.
Combining both static and dynamic analysis of multiple factors with AI, Overbond’s rich-cheap model provides a quantitative method for screening for mispriced fixed income securities. It’s a mean-reversion valuation model designed to pre-identify bonds as rich ‘sell’ and cheap ‘purchase’ candidates based on proprietary Overbond valuation metrics and AI non-linear optimisation.