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Nick Delf is managing director of Singapore-based Maestro
Capital Management, which is advisor to the Global Maestro
Fund 1 Ltd, a Caymans based Macro fund. The fund will trade
in a highly diversified set of markets across all asset classes
and targets returns of around 20% and an annualised standard
deviation of 10%. The fund is in the final stages of initial
asset gathering and expects to launch in May.
Two of the company's directors have, between them, close
to 40 years experience in both trading and risk management
in Global Investment Banking. In addition, a third director
has close to 20 years global experience in Information Technology.
Interview with Nick Delf
- How did you determine your strategy?
We decided to look for profit opportunities across as
many asset classes and markets as possible, which both
increases the chances of success and creates diversification,
in turn, reducing risk. We also wanted a strategy that
would be successful in all manner of market conditions,
and decided to avoid arbitrage based approaches, and restrict
the strategy to directional trading only. In order to
cover as many as a 100 markets concurrently and ensure
scalability, we also needed a strategy that we could apply
equally across all markets and could be executed systematically,
without the need for a large team of analysts and optimisation.
The answer, for us, was a rules-based, automated strategy
that uses historical price action (rather that fundamental
analysis) to generate accurate entry and exit points to
markets that would be robust, relevant and successful
over time.
- How do you execute the strategy?
We concluded that the most efficient way to access a
diverse set of markets is via futures; where liquidity
is known and dealing costs are low. We decided to employ
a proprietary methodology that measures the trend observed
in prices to generate our buy and sell signals; we measure
trend strength and can thus differentiate between what
is 'noise' and what constitutes a bona-fide trend, and
can accurately determine the turning points or reversal
points in prices. This process can be refined down to
the notion that we are buyers of trend strength and sellers
of trend weakness, whether specific positions are long
or short is merely the application of the methodology.
-
How do you choose which markets to trade?
We have identified an 'investible' universe of markets
based on liquidity, access to historical data, and execution
costs. These cover all asset classes and everything from
Live Cattle to the Nikkei index future, including forex
in the OTC market. We analyse the historical trend of
these markets, and successfully our system will be trading
them. We then create a league table, and allocate assets
in accordance with this. Simply put, those markets that
present historically the strongest propensity to trend
get the largest allocations, while others may not be allocated
to at all. Clearly the amount of markets we allocate to
is dependant on AUM, but we ensure that the principle
of diversification is adhered to at all times.
- Why are you confident all this will work?
Our investment process is straightforward and intuitive.
We have applied the trading rules to real historical prices
for over 60 markets and have been able to simulate the
performance of these rules. We have used multiple data
samples going back 12 years in most cases, and in others
back to contract inception in the 1960's. We have carried
out back testing, walk-forward testing and now have an
enormous amount of analytical results built up over the
two years the trading system has been under development.
The only grey area is liquidity and thus slippage; it
is virtually impossible to accurately account for slippage
on entry/exits to markets historically in our simulations.
We have used assumptions for slippage that have been confirmed
as conservative when compared to the historically observed
slippage levels (of a systematic, diversified trend follower
managing assets over 2 billion). We have an enormous depth
of understand of how our strategy would have performed
in a diverse set of markets that have seen a significant
array of market conditions since 1990. This makes us highly
confident that the strategy will produce similar performance
in real markets.
- If we class you as a CTA, most CTAs seem to have had
a very bad March, how would you have faired?
Our returns are quite highly correlated to the CTA indices
and many of the larger managers. We have decided however
to operate our strategy at a relatively low SD (C.10%).
This means that we typically suffer smaller draw-downs
than our higher volatility peer group. We like to measure
our performance in terms of the spread between SD and
return; we expect to deliver a minimum of 10% (i.e. SD
of 10% and returns of 20 %+ annually) over time.
-
Where do you see the greatest risk to your Performance?
Execution. The trading theory has been tested to death,
with independent verification; we recognise however the
importance of managing operational risk. We have mitigated
this by having made significant investments in human and
technology resources. In order to meet these requirements
we have sold equity in the management company to raise
working capital that will cover operational expenses,
without the need to rely entirely on fees to keep the
lights on. We now have 6 high calibre staff, all with
extremely strong backgrounds in careers relevant to our
goals, and software systems designed using leading edge
technology.
- What are your immediate and longer term goals for
Maestro?
Near term, to reach $50m AUM and get onto the radar screen
of larger institutional investors. Longer term, to move
to a fully automated investment process. We believe that
we will be able to reach a point where investment instructions
can be delivered directly and electronically from our
trading system to the relevant exchanges for execution.
Reconciliation accounting and reporting is already mostly
automated between us, our brokers, and the fund's administrators.
This will help to allow us to focus on continued development
of our existing and new strategies and of course, raising
assets.
- How is the capital raising process going - any travel
plans dedicated to fundraising?
It is not easy- I'll tell you more in a couple of weeks!
We opened for investment a week ago and expect to have
the initial raising completed by the first week of May.
The key is getting the track record started, and we expect
to start the NAV clock ticking in the middle of May. I
will be travelling to Europe in June, London, Paris, Geneva,
Zurich, and to the US, NY Chicago the following month.
- How do you find Singapore as a base for a hedge fund
manager?
Good. We have been able to reach this point at a fraction
of the cost and complication associates of mine have experienced
in London for example. The regulatory environment is accommodating,
and we have access to a large and quality pool of human
resources and services. The main negative, would be the
difficulty in persuading asset allocators to make the
journey here to complete due diligence, clearly this has
been exacerbated by the current SARS situation.
Contact Details
Maestro Capital Management Pte Ltd
Singapore
65 6294 1228
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