We interviewed Martin Wiedmann, Founding Partner and CEO of Quaesta Capital after they recently launched a fund of funds investing solely in FX hedge funds and CTAs. It currently has CHF85 million under management.
Martin, firstly, congratulations on the launch of your new product. Could you give us a brief introduction on your firm and colleagues?
Quaesta Capital AG was founded in April 2005 and is based in Pfäffikon SZ, near Zurich, in the neighbourhood of major global alternative investments providers such as MAN, RMF and LGT. In total we have 8 staff, 5 of these are based in Pfäffikon and 3 work out of Germany, where we have a sister company, Quaesta Capital GmbH, which manages a BaFin regulated multi-strategy fund of funds.
The partners of Quaesta Capital AG, Christian von Strachwitz, Thomas Suter and myself, all have extensive experience in the financial markets, including managing and controlling risk, asset management, trading, structuring and sales of foreign exchange products. These activities were undertaken while in managerial positions at major global financial institutions, such as Citigroup, UBS, Dresdner Bank and Commerzbank, and in various locations, such as Luxembourg, New York, Milan, London, Zurich and Frankfurt.
Why have you created an FX focused fund of funds?
Quaesta Capital's Foreign Exchange Multi Manager Program (FX-MMP) is the first programme which allows investments into a highly diversified FX portfolio for a large variety of investors.
FX is now broadly considered as a separate asset class. However, in many portfolios, pure FX investment products are still missing. Most investors hesitate to put their money into one single FX manager, due to concentration of risk and lack of transparency of these providers. Hence Quaesta Capital believes there is a natural demand for such an alpha product. Our FX-MMP addresses these key issues. Having been active in the global FX markets for several decades, we understand the particularities of this industry and the underlying markets in order to make sound investment decisions.
As per our research, currently there is no FX only multi-manager programme (fund of hedge funds) available. There are several managed programmes, organised by large financial institutions; these however manage only proprietary banks' capital, and are not open for investment by the public.
How does your product further diversify an alternative investment portfolio?
A typical alternative investment portfolio is made up of mainly hedge funds and private equity investments. The hedge fund investments generally invest in various sorts of strategies, mainly in the field of equity and fixed income securities. Today only a small portion is invested in FX products, mostly as part of a global macro programme, or combined with investments into fixed income strategies.
FX strategies are viewed as highly volatile. What are the risk and returns associated with this asset class?
FX as an asset class being particularly volatile is a wrong perception. FX volatilities have been well below those of other asset classes such as equity and fixed income. However, the expected risk and returns of FX depend greatly on the leverage used by the currency manager.
I understand that your investment methodology involves a proprietary technology called dipCast. Can you give us an overview?
The model's approach is based on computational intelligence; it has been researched and built by Dortmund Intelligence Project (DIP), a cooperation between the University of Dortmund and Quaesta Capital. In 2002 Dortmund Intelligence has won the technology endeavour award of the state of North-Rhine Westphalia.
The model is used for portfolio construction. It computes the optimal mix and weightings of the FX programmes in our proprietary Quaesta Capital FundRiskBase, which currently consists of around 200 FX-only hedge funds and CTAs. The model takes into consideration risk parameters such as risk, return, skewness, kurtosis, VaR and others.
How do you identify potential investments?
As part of our research process, we have built Quaesta Capital's FundRiskBase. Through our strong international network in the FX world and other sources we have identified, contacted and built up a relationship with currently around 200 managers. On an ongoing basis we monitor the performance and development of these programmes.
What do you look for when evaluating potential candidates?
Initially we are happy to include every manager on our radar-screen as part of our FundRiskBase. We have set several investment constraints such as minimum assets under management, live track record and performance figures. Of course every investment must fit into the overall portfolio allocation, using dipCast.
How many funds are you currently invested in?
The FX-MMP portfolio currently consists of 13 managers, diversified by style, region and underlying instruments traded.
Can you give us a workflow on how investment decisions are made internally?
Initially the dipCast model selects, via various portfolio simulations, a shortlist of potential FX programmes for investment. This managers form the basis for our initial due diligence process, which includes a specific FX-related due diligence questionnaire prepared by Quaesta Capital, plus conference calls. The final core group of FX managers is visited by at least two of our partners for onsite due diligence checks.
As part of this process, ongoing portfolio simulations are made with the remaining candidates on the shortlist.
What is your portfolio turnover rate?
We view ourselves as long-term investors; however, due to the nature of such a programme, we may reallocate managers partially on a monthly basis.
Which type of investor or portfolio type would benefit from investing in your fund?
The Quaesta Capital FX-MMP is suitable for a wide range of investors. Anyone looking for further diversification, hence an uncorrelated product to the traditional asset classes, should consider FX as an interesting addition and alternative to its current portfolio composition.
This can be institutional investors such as family offices, pension funds, insurances, treasury departments of banks and corporate, as well as private clients. Treasury departments, for instance, may outsource parts of their risk capital to our FX-MMP.
Lastly, do you have any marketing trips planned for 2006?
Yes, we are currently organising a road show in spring 2006. We will also actively participate in several hedge fund conferences.
+41 55 417 0050