30 Oct 2013 Carl Dunning-Gribble, Head of Sales & Marketing, Syquant Capital – Helium Performance
Head of Investor Relations in Syquant Capital, Carl has 25 years of experience in the field of business marketing and product marketing management and structured products.
LUXHEDGE : What is the background to your company and funds?
CARL DUNNING-GRIBBLE: Syquant Capital is an independent asset manager accredited by the French regulator AMF, founded by Olivier Leymarie and Henri Jeantet in 2005. The two founders wished to combine their skills acquired during their 20 years’ experience in capital markets with the aim to create value for investors on a long term basis. Within the Helium range of funds, fund managers focus on diversified arbitrage strategies in equity markets with the following priorities: capital protection, absolute performance uncorrelated to equity market trends and an exclusive use of liquid assets and underlying securities.
LH: We will focus today on your fund Helium Performance that was launched recently, in May 2013. Could you have a few words about it?
CDG: Our new fund Helium Performance shares a similar philosophy than our historical funds Helium Fund and Helium Opportunities, launched respectively in October 2005 and October 2009. Helium Opportunities and Helium Fund are managed pari passu and both funds are looking for a long-term perspective with funds delivering an absolute, positive and regular single digit performance and uncorrelated with the market. Both are within the “low vol” category with a volatility of less than 2%! Risk Control and capital preservation constitute a pivotal part of all our funds including the recently launched Helium Performance.
Helium Performance has certain common features (equity arbitrage strategies) but also has some characteristics of its own (a “trend following” individual stock selection model). While Helium Fund and Helium Opportunity are very defensive, unleveraged and beta neutral on average, Helium Performance is conducted in a more aggressive way.
LH: Could you detail this “more aggressive” approach?
CDG: Helium Performance is an equity absolute performance fund with a double digit return target in equity bull markets and a single digit return target in bear markets. To achieve this objective, two thirds of our portfolio is represented by our arbitrage strategies: merger arbitrage, event-driven, dividend arbitrage and statistical long-term mean reversion. The leverage factor among those arbitrage strategies is to be kept between x1 and x2 and the strategies do not have any significant market bias. The remaining third of our portfolio is allocated to our systematic trend following stock selection strategy that has a flexible and only positive market bias. This strategy is based on a model developed by Xavier Morin and Olivier Leymarie, implemented within the Syquant Capital’s IT system called PMS. We think that this specific model will help us benefiting from bull markets while the market neutral strategies will protect our capital during bear markets. For this fund, we aim for an average yearly return of 10% with an average volatility of 5%, leading to a Sharpe ratio above 1.5%.
LH: Could you describe your investment process and how you construct your portfolio?
CDG: For discretionary strategies (Merger Arbitrage, Event-Driven, Dividend Arbitrage), we use a “bottom-up approach”. A deep analysis is conducted to find new opportunities. We then assess the risk/return ratio of the deal before deciding its allocation within our fund. Each individual deal represents on average 0.5% of the fund Net Asset Value, but the maximum position size may exceed 5%. For the Trend Following strategy, as we explained before, the weightings are automatically determined by the model we implemented in PMS.
LH: How do you manage risk within your fund?
CDG: The Risk Management Framework is determined by the Risk Committee and is based on a worst case scenario approach combined with dedicated limits to constraint specific risk factors exposures. It operates on the following levels: Global Portfolio Limits set, Specific Limits set, Stop Loss policy. We use PMS, our IT system providing us with real time monitoring. This tool produces a daily detailed risk report production, a weekly risk report and a daily P&L calculation and NAV estimation. The positions and results are verified by the external administrator. In addition, we try to limit the liquidity risk by investing into very liquid underlying securities (70% of our total assets can be liquidated within one day, and 100% of our assets can be liquidated within 3 days).
LH: What levels of gross and net exposure do you expect for this fund?
CDG: As indicated earlier the global leverage (see gross exposure) of the fund is set to be flexible and a function of the combined opportunity set within all the different strategies. As a result, the gross exposure represents on average 150% of the Fund’s NAV and an average net exposure of 25% (Gross exposure could reach a maximum of 300% while net exposure will not exceed 70%).
LH: The size of your fund is EUR 60M. Do you intend to expand in terms of fund raising from now on? Are the investment team members personally invested in the Fund?
CDG: Yes, as with all the Helium funds, Helium Performance was seeded by the Syquant Capital partners and staff (approx. 8% of the current AUM). The Helium Performance fund should raise interest from institutional investors and private bankers who are looking for absolute performance funds with a small long bias.
LH: The fund has a “risk on / risk off” approach. Could you elaborate?
CDG: The “risk on / risk off” approach is more specific to the “trend following stock selection strategy” (on average 1/3 of the risk weighting). The stock selection strategy is based on a quantitative model whereby the model detects “positive trends” on individual stocks (universe of 1000 stocks). In case of a “trigger” the model will take a long position on the individual stock (never a “short” position) and will add both alpha and beta (maximum beta cap: 50% of NAV). The “risk on / risk off” approach will implement a “beta” overlay if the equity markets (S&P 500 and/or Stoxx600) displays an uncertain or negative trend. Hence in uncertain market trends the “stock selection” portfolio will be partially or fully beta hedged. When the “stock selection” portfolio model is fully beta hedged, the aim is to extract pure alpha.
LH: Would you have a few words about your past performance? Your fund delivered 3.26% since its inception in May 2013 including in September & October respectively 1.30% and 1.38%. Which strategies are contributing to these results?
CDG: Since launch of the fund the contribution by the different arbitrage strategies have been positive and regular albeit somewhat below the historic average. The reason lies essentially in the lacklustre environment for merger arbitrage opportunities in Europe (see below). Significant contributions (both positive and negative) have come from the “trend following stock selection” portfolio. In September this strategy contributed 0.90% (total performance: 1.30%) and in October 0.97% (total performance: 1.38%). These two months showed strong positive trends in a significant number of stocks – the “sweet spot” for this strategy. The May to August period was an interesting test for this strategy. The market had no less than 4 market reversals (on average one a month) and the strategy switched from “risk on” to “risk off” and back to “risk on” etc.- the “weak spot” for this strategy. As an illustration the strategy had the following performance contribution (with the relevant equity index performance) : May -0.18% (-1.35%), June -0.73% (-3.16%), July +0.88% (+5.11%) and August -0.50% (-1.73%). Combining uncorrelated strategies within the portfolio helps to smooth the performance and achieve the global goal of absolute performance.
LH: Where are you most active from a geographical and sectorial standpoint?
CDG: Regarding the geographical aspect, we have a clear focus on Europe and North America. We especially expect for the coming months a strong contribution from the merger arbitrage and event driven strategies in the US and Canada as corporate activity remains sustained. The European merger arbitrage and event driven are still disappointing as European corporates are still displaying a “hold off” attitude to mergers, external growth etc. Economists and broker research are very encouraging for 2014 for this segment as the macroeconomic environment offers a better visibility and with a certain lag should lead to a “catch up” in corporate events in Europe. Positive pointers also come from reasonable equity valuations, low interest rates and significant cash balances on the corporate balance sheets. For the dividend arbitrage strategy (Europe), the focus is the 2015 dividends on the 50 stocks within the Eurostoxx50. The trend following stock selection strategy is less predictable, but the pursuit of the accommodating monetary policy by central banks and a gradual recovery of the European economy should be conducive for positive trends for individual stocks.
LH: As concluding remarks, where do you see the differentiating factors for the Helium Performance fund?
CDG: At the “cross roads” of the long bias funds (positive stock trends trigger “long” positions in the stock selection strategy adding some “smart” beta) and the “pure” beta neutral strategies within the equity arbitrage strategies, this fund allows the portfolio manager to navigate through very different types of waters:
- ”bear markets” should allow the fund to deliver low single digit returns through the regular performance of arbitrage strategies,
- in strong “bull markets” both the arbitrage strategy and the stock selection strategy (adding alpha and beta) will give the fund the potential to achieve the mid teens and capture a big part of the “bullishness” of the economy and the markets
- in relative terms, the fund will deliver its best risk adjusted returns during markets which are giving steady and prolonged stock specific trends (without spectacular bull trends on the indices) and a large diversity in corporate activity.
If we synthesize the economic research and broker reports being published, the consensus view for 2014 is pointing at the third scenario.