30 Jun 2016 Thomas de Saint-Seine, CEO & Senior Fund Manager, RAM
Thomas de Saint-Seine is CEO and Senior Fund Manager at RAM Active Investments. Thomas is a founding partner of RAM, which specialises in high-alpha systematic equities.
LuxHedge: Could you describe RAM for us?
Thomas de Saint-Seine: We are a privately-owned asset manager, headquartered in Geneva. We are an active specialist and alternative asset manager looking to deliver high risk-adjusted returns, diversification benefits, and liquid products and solutions to our investors. Given the current low-yield environment, our long/short approach has gained strong interest from across Europe, where investors seek both genuine alpha without being at the market’s mercy and an alternative source of yield.
We are focused on long-term perspectives, looking to capitalize on the inefficiencies that exist in global markets. Our team consists of 37 employees across four offices in Geneva, Zurich, London and Luxembourg, with assets under management currently standing at $4.1bn.
LH: Could you please inform us on the main characteristics of your fund RAM Long/Short European Equities?
TS: We use a systematic proprietary model that selects stocks based on fundamental and behavioral factors. Nothing else. This process is entirely systematic, with no discretionary inputs allowed. The objective is to generate meaningful returns of 8-12% with a volatility budget of between 6-8% over a full market cycle. We aim to be beta neutral which is achieved through neutralizing the long exposure through short positions in index futures as well as from individual lines of short stock-picking strategies. We generate what we consider as “pure alpha”, with no help from the underlying market.
LH: What is your investment approach?
TS: Our philosophy is underpinned by the very same that is used across all of our systematic equity offerings.
We are not aiming to re-invent the wheel, merely improve it. We have built a quantitative investment methodology which looks to capture persistent inefficiencies across pan-European equities. Our systematic engine, which sits at the heart of this investment philosophy, takes an optimal blend of what we consider the most Value, Momentum and Defensive stocks. Our proprietary research indicates that these three lowly-correlated engines behave differently depending on where we are in the current economic cycle. Our research is expressed in the form of these three separate and distinct engines, each attempting to capture and exploit a specific inefficiency.
LH: Could you explain how you select your investments both on the long and short side?
TS: We apply a purely systematic fundamental stock picking engine to a universe of over 1,500 European stocks. On the long side, we screen stocks against our three “engines”; Value, Defensive and Momentum. On the short side there are a further three stock picking strategies. Once we’ve constructed both our long and short books, exposure to market beta is removed using index futures.
We’ve designed both the long and short books to be alpha generative, each looking at differing fundamental and behavioral factors. The engines are carefully designed to capture specific traits in a stock, i.e. from high-quality balance sheets to strong profitability on the long side or companies with negative momentum, destroying cash flow on the short side. This selection is the fruit of more than 10 years of proprietary research, typically originating from an academic break-through.
LH: How does your initial universe evolve into your final portfolio?
TS: We initially screen our universe by applying quantitative filters to ensure that only stocks with adequate liquidity profiles and capitalisations are included. It’s important to emphasis we are pure fundamental bottom-up stock selectors here. Our systematic nature allows us to screen the entire universe, a demonstrable advantage relative to the dominant discretionary managers who rely on an analyst’s coverage.
On the long side 400 stocks make it through to the final portfolio, with around 250 in our short book with little stock-specific risk. Our all-cap approach is intensively monitored with liquidity risk being taken into account at both the very start of the investment process (filters on capitalization and Average Daily Volume) and after the selection, for the execution of orders.
LH: An important part of your process is the risk and impact optimisation? Could you give us some additional insight?
TS: They are two essential sides of the same coin. Our optimisation process simply allocates weight on a stock by stock basis, aiming to maximize the alpha in our long book, adjusted by variance risk and market impact.
This model includes volatility and liquidity metrics (measured over the last few weeks of trading) which helps scale down positions with eventual liquidity impact. This is an important part of our investment process.
Our state of the art rebalancing technique helps to ensure that the portfolio has the required level of alpha at each stage of the process, and is vital in generating alpha for the Fund, acting as a learning mechanism, where the portfolio is able to adjust depending on the new information its being fed.
LH: Could you comment on the performance of the fund since inception in December 2011?
TS: It’s been very satisfying so far: we’ve managed to deliver an annualized return of 8.0% since inception*. 2015 was particularly good for us, we produced a return of 14.5%, while also managing to keep our risk levels under control, with an annualized volatility of 7.8%** despite the prevailing market conditions. Overall, we exhibit a very low correlation with the European markets (0.07) and a Beta close to zero over a market cycle. Our conservative approach during times of economic downturns (technical or fundamental) has been a key driver of our returns, as well as our alpha being generated across the long and short book.
*Class I Eur as at 30 June 2016.
**Since inception (15.12.2011)
LH: What are the risk guidelines you implemented within the fund?
TS: Our pure bottom-up approach helps us to create a highly diversified portfolio across pan-European markets with absolutely no inherent bias towards countries or sectors.
We set strict and highly transparent portfolio constraints. The net max exposure to a single country or sector is more or less 25% and the net max exposure to a single stock is 3%. Additionally, our investors also benefit from the UCITS regulatory framework, especially in terms of counterparty, concentration or coverage risks. The Fund’s overall leverage is relatively low, and well below both our peers and the limits set by the UCITs regulations. We aim to maintain leverage within the Fund at around 120/130 on the long book, and around 100 on the short, with an overall average leverage of 220/230, well within the UCITs guidelines.
LH: Does the portfolio exhibit any particular sectorial bias?
TS: We are well diversified in term of sectors, and we aim to avoid any excessive bias here. One element we like to remind our investor is our bias towards high-quality, low-beta and low volatility names within our long book. One of our primary advantages here is that the models are capable of capturing inefficiencies irrespective of where they may be.
LH: What are your views for 2016?
TS: We typically refrain from providing market predictions. We expect volatility to remain in European and indeed global markets. Nevertheless, we think market conditions should improve for stock pickers after the Brexit’s digestion by markets, following a first half dominated by fear and monetary policies. We believe that a beta neutral long/short approach with no market timing, like ours, makes sense in this current market environment.
LH: Can you tell us about your latest activities beyond the fund?
TS: Since our founding, RAM has grown steadily on the back of our award winning equity and fixed income fund range. Maintaining focus on our business development strategy is a component of our ongoing success. As such, we have deepened our pan-European distribution with the establishment of RAM Active Investments (UK) Ltd in London as an FCA authorized sales and marketing office.
Coinciding with our efforts is an update of RAM’s visual identity and client support websites, creating a more impactful and recognizable brand as our business develops its reach to a broader audience. Central to our strength in investment management is our commitment to a team-based, active and disciplined portfolio strategy. We are confident that our continued focus on investment outperformance combined with these new initiatives will provide a strong platform to support our investor base going forward.
LH: Thank you very much, Thomas.