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.
Maestro Capital Management Pte Ltd
65 6294 1228