Interview with Simon Sadler, CIO of Segantii Capital Management Ltd and Investment Advisor to the Segantii Asia-Pacific Equity Multi-Strategy Fund
The Segantii Asia-Pacific Equity Multi-Strategy Fund invests in Asia-Pacific equity markets with an emphasis on North Asia ex-Japan. The fund has a multi-strategy approach and the strategies include relative value, opportunistic events and catalyst driven long short. The fund aims to generate absolute returns by:
applying a complementary mix of trading strategies across the risk/return spectrum;
employing catalyst-driven trading strategies which apply the strengths, skills and experience of the investment team; and
tactically allocating capital and leverage between strategies.
Simon Sadler, CIO, has over 15 yearsf experience trading equities in Europe and Asia for a number of investment banks. He has served in senior equity trading and trading management roles at HSBC Securities, Deutsche Securities and Dresdner Kleinwort Wasserstein Securities in Hong Kong since 1999.
The Segantii Asia-Pacific Equity Multi-Strategy Fund was launched on 10 December 2007. It has returned 12.2% since inception to 31 July 2008. Assets under management, as at 1 August 2008, was around US$39 million.
How is your fund different from other equity-focused funds in the market? What competitive edge does your fund offer its investors?
We are a multi-strategy trading oriented fund. This is in contrast to the majority of Asian hedge funds which are more fundamentally-driven long/short equity funds. Each of our strategies has individual strengths for different parts of the market cycle, enhancing our ability to generate absolute returns. We have the advantage of being able to stay nimble and capitalise on short-term opportunities. The core to our fund is disciplined implementation which we believe is important to successfully trade the current difficult market environment.
Could you tell us about the geographical diversification of your fundfs portfolio? Which regions do you allocate to, and on what basis do you determine your exposure to each region?
The fund has a mandate which enables us to invest in Asia Pacific markets including Japan and Australia/New Zealand. To date, the fundfs primary markets have been Hong Kong, China, Korea and Taiwan. We will allocate capital to countries where we see the greatest opportunities. We do not have a pre-determined country allocation. However, we have internal country limits to minimise country concentration risks.
Being a multi-strategy equity-focused fund, what are the different investment strategies that you employ? And, what portion of your fundfs portfolio do you allocate to each of these strategies?
The fund currently employs three strategies:
This covers share-class arbitrage including Depositary Receipt (DR) arbitrage, DR premium convergence/divergence, cross-shareholdings, and multiple listings;
Trades are structured around short-term stand-alone events such as IPOs/placements, earnings releases, calendar-driven events and company specific events;
Catalyst driven long short
Stock selection is based on various share price catalysts, which have a trading orientation, coupled with fundamental research and company visits.
We tactically allocate the fundfs capital between the above three strategies based on various factors including market opportunities and volatility. The fund will generally have a bias towards relative value, which we believe will provide consistent returns from month-to-month irrespective of market direction.
What kind of qualitative and quantitative research do you perform on stocks and/or sectors, before they are added to your fundfs portfolio?
Each strategy, while complementary, has different investment processes. As a result, the qualitative and quantitative work carried out is quite different.
Our relative value strategy involves the analysis of a range of factors including spreads and investor sentiment before we execute our trades.
For the opportunistic events strategy, we run a detailed calendar of upcoming events which the investment team will conduct quantitative and fundamental research prior to implementing a position.
The catalyst driven long short strategy has a quantitative and qualitative catalyst filter which helps the investment team focus its fundamental research efforts.
What is the usual ratio of long to short positions that you have been maintaining, since your fundfs inception, in December 2007? Do you foresee any significant change in the long/short mix, in the near future?
The fund does not have a pre-determined long or short bias. We generally keep the core delta of the fund to within 10% of NAV on average. Being a trading oriented fund, our long/short mix will frequently change.
On an average how many stocks is your fund invested in, at any point in time? And what is the usual holding period that you observe for stocks in your fundfs portfolio? How often do you review, and accordingly alter (if at all), the portfolio?
The fund has around 40 positions. The holding period for each position may range from intra-day to a few months. As a trading oriented fund, we constantly review the fundfs positions.
Your fund has returned a solid 10.5% for the first half of 2008, while the Eurekahedge Long/Short Equities Hedge Fund Index shed 3.6% over the same period. Would you attribute this notable outperformance to your multi-strategy approach towards the equity markets? What other factors would you ascribe these impressive returns to?
The multi-strategy approach gives us flexibility by allowing us to apply more capital to a strategy which may have greater opportunities in a given market environment. We were pleased to see that in the year to June 2008 performance attribution, all three strategies roughly contributed to the fundfs overall performance in line with their capital allocation, suggesting that the fundfs individual strategies have performed well in a challenging market environment. As a trading fund, we aim to chip away everyday to make incremental returns that add up to something more significant by month-end. Most importantly, our disciplined trading approach has helped us through the more volatile days in the first half of 2008.
Could you tell us about the risk management practices that you observe for your fund?
Real-time risk management is crucial to a trading fund such as ours. We have a real-time risk management system with built-in risk limit monitoring. Our risk monitoring includes a series of gsofth alerts and hard limits for VAR, concentration, exposures, liquidity, leverage and losses. These limits were developed with the assistance of a third party risk management consultant who is also responsible for reporting any alerts and limits on a daily basis to both our COO, Chuak Chan (who also acts as the fundfs risk manager) and myself.
What class of investors, according to you, is your fund best suited for? What sort of time horizon and risk appetite must one have, in order to be exposed to a fair balance between risk and return, while invested in your fund?
We have a broad range of investors in the fund including high net worth individuals, family offices and fund-of-funds. We believe that our fund is suitable for investors seeking returns which have low correlation with market directionality. We are seeking to deliver absolute returns through the market cycle while managing the volatility of these returns. We believe that our fund offers a good long-term diversification opportunity for investors with a portfolio consisting of more traditional Asian equity investment strategies.
Could you give us your outlook of the global equity markets both in the near- and medium-term? Any regions/sectors that youfre particularly bullish on at this point in time?
Markets will continue to be challenging. It is unlikely that we have seen the lows for the cycle for both Asian and Global equity markets. We also expect that trading volume will continue to stagnate over the rest of this year. This scenario obviously presents an extremely challenging environment for all types of investment funds, including those in the alternative investment space. Notwithstanding this environment, we believe that we have a strong combination of strategies and a disciplined approach which will position our fund well through this and all other stages of the market cycle.