「Interviews」カテゴリーアーカイブ

Interview: Quarz Capital’s Jan F. Mörmann on the role of activist funds in Asia

Jan F. Mörmann
Jan F. Mörmann

Quarz Capital Asia is a Singapore-based asset manager founded in 2015 by Chief Investment Officer Jan F. Mörmann. Its two main funds, Quarz Active Value and Quarz Global Opportunities, use a deep value and activist strategy focusing on small and mid-cap undervalued equities in Singapore, Hong Kong, Australia and Japan. Quarz engages directly with the boards and management teams of its target companies and aims to create value by tackling structural, capital and operational issues. Hedge Funds Club’s Stefan Nilsson talked with Jan about Quarz’s take on activism, corporate governance in Asia and portfolio concentration.

 

As an activist fund manager, you have taken a rather public approach to your investment management. Is “naming and shaming” firms and their boards and management teams the most effective way or is there also room for private discussions to get what you want as a fund manager?

Our public engagements form the tip of the iceberg of what we do in our active investing strategy. Our normal approach is to purchase substantial minority stakes in undervalued companies and discuss the execution of various value-enhancing proposals with the companies’ key stakeholders such as the management team, board of directors and key shareholders. It is only when we recognise that the management team and board of directors are not keen to promptly implement these key shareholder value improvement strategies that we go public with our engagement. The public engagements galvanise our support from the rest of the shareholders as they are made aware of the companies’ potential. It also poorly reflects on the board and management team and puts pressure on them to perform better. More than 60% of the companies we publicly engage with have been privatised or taken over with a more than 30% increase in their share price while 90% of the companies we actively engage with have improved their share prices.

 

How do you as an activist fund manager avoid the image of being seen as a confrontational trouble-maker? Does PR come into your thinking and how things look publicly or is that not a concern?

Only directors and management teams of poorly managed companies see us as “confrontational trouble-makers” as they have neither fulfilled their fiduciary duties nor acted in the best interest or benefit of their shareholders! We are exceptionally transparent with our thesis and proposals for the companies which we release publicly on our websites, in open letters and in presentations when we undertake our open engagements. This provides a good comparison to the counterarguments and excuses made by the board and management of the companies. The investment community, shareholders and media in Asia are increasingly sophisticated and understand that an activist fund manager’s main objective is in the best interest of shareholders. They have a positive view of our public engagement and are supportive of our stand to improve things.

 

How much of a role does culture play in the different views of an opportunity in the activist space? In the past, several high-profile foreign activist managers failed miserably in Japan because they seemed to have misunderstood how business is done locally and what the reactions to their moves would be.

Companies in Asia generally are managed in an overly conservative manner which results in their strong tendency to retain a substantial amount of cash, real estate assets – such as factories and offices – and minimal use of debt. They also tend to have more non-core assets and operations due to legacy reasons which further depresses margins, return on equity and returns to their investors. As such activism in Asia is quite different from Europe or the US where activist investors generally target companies that are usually poorly managed and have much weaker balance sheets. In Asia, we mainly target companies that have too high levels of assets and cash and should return the capital to their shareholders, take more leverage and work their balance sheet harder. One of the key criteria, before we build a position in a particular company, is that we discuss our plans with their existing shareholders to see if they are supportive of our actions to improve the company.

 

Is corporate governance in Asia improving or is it still a major issue in many local and regional firms?

Corporate governance in developed Asia – Singapore, Hong Kong, Australia and Japan – has improved significantly although it still generally lags the US and developed Europe. With the younger generations who are often educated in the best schools in the West taking up key management and board positions, we are positive that this will further drive the improvement in corporate governance and ESG standards of Asian firms.

 

You seem to have a relatively concentrated portfolio. As your firm grows, are you likely to include more names in your research and portfolio or will you just increase stakes and keep the number of portfolio firms small?

We will retain our current strategy of managing a relatively concentrated portfolio of 15-20 positions of “best ideas”. Our flagship fund, Quarz Active Value, has a 5-year CAGR of more than 17% p.a. net of fees. We believe that our strategy of committing significant resources into undertaking in-depth due diligence – hiring consultants and industry experts, talking to competitors, suppliers, potential acquirers – will continue to allow us to generate a significant level of alpha with a lower level of volatility for our investors. We believe in only investing in companies that we fully understand and have an exit strategy for.

Interview: Keiko Sydenham on launching a new digital platform for alternative investments

Keiko Sydenham
Keiko Sydenham

Tokyo-based Keiko Sydenham is a well-known face to many Hedge Funds Club members. She started investing in hedge funds in 2003 and has since then worked on both investments and capital raising for alternative investments. She recently resigned as Managing Director at Blackstone to launch LUCA, an online platform where accredited investors can compare, invest in, and monitor alternative investment opportunities such as private equity funds, hedge funds, venture capital and pre-IPO companies. Hedge Funds Club’s Stefan Nilsson checked in with Keiko to find out more.

 

You have just launched a fundraising business focused on Japanese investors. How is the fundraising climate in Japan at the moment when it comes to alternative investments?

I believe that the fundraising climate in alternatives is on a tailwind. It has shown steady positive growth for at least the last five years with a long-standing negative interest rate environment. Institutional LPs are fully aware of the importance of alts allocations in their portfolios. It is pretty stunning how they can switch their liquid investments into private assets. More investors invest or consider investing in 10-year closed-end funds, such as PE, VC, real estate and private credit. However, some LPs cannot make ideal allocations to alternatives due to their size and administrative complexity. LUCA wants to solve that challenge.

 

For which kind of alternative investment strategies do you currently see demand?

Demand is diverse by investor types, but LPs who look for higher return and growth are doing PE and VC. I believe more LPs are getting active in the PE and VC spaces than a few years ago. LPs who look for a stable income source are more into real assets such as core+ real estate and Infrastructure. Private credit is always in high demand for most LPs. Hedge funds are also back in popularity with the rising volatility.

 

You have opted to build the business around a digital platform. Have Japanese institutions evolved and are now taking advantage of digital solutions?

The fundraising process of alternative investment products is quite labour-intensive but has been kept as a very manual process for a long-time. The industry has been struggling with scarce resources, with no automated platforms, organised data-set or the right talent pool. We believe Covid-19 inevitably pushed digitalisation of the process forward, at least when it comes to people’s mindset. This is just the beginning, we believe. A digital platform can provide fair access to information and investment opportunities to more investors in a transparent and efficient way. And LUCA’s mission is to provide investors with that access.

 

You have spent many years working on alternative investments at big institutions such as JP Morgan and Blackstone. What made you now make the move and launch your own boutique?

Thanks to a decade of my experience at those big institutions, I understand the landscape of the investors and the whole industry. More importantly, I learned the demands and challenges for each different type or size of investor and GP. I thought with the quickly changing time of digitalisation, this is a good time for me to solve those challenges for the investors in Japan and for the GPs.

Interview: Jim Singh “Be prepared for everything to take twice as long”

Jim Singh
Jim Singh

Jim Singh has over 30 years’ global experience in finance and investment management, including 20+ years in Asia Pacific. As one of the founding members of BFAM Partners, Jim served as the firm’s COO until he retired from the firm in December 2019. He currently serves on the Hong Kong Executive Committee of AIMA (The Alternative Investment Management Association). He also serves on the Board of the 1020 Multistrategy Funds, a recent Hong Kong-based start-up. Prior to BFAM, Jim was the COO of its predecessor group, Nomura Principal Investments Asia. Jim has also held senior roles at Gottex Fund Management, Lehman Brothers and UBS in Hong Kong, Tokyo and London. Hedge Funds Club’s Stefan Nilsson had a chat with Jim about hedge fund launches and operations, corporate governance, fintech and education.

 

One big problem I still see in the Asian hedge fund industry is when talented PMs spin out from big finance houses to set up on their own and they drown because they weren’t prepared for being in charge of the business as well as portfolio management. You were the founding COO of what quickly became a major Asian hedge fund when the team spun out from a big finance house in 2012. At the time of the spinout, were you and your colleagues overwhelmed with suddenly having to run the whole business yourselves?

Yes and no. Benjamin Fuchs, founder and CIO of BFAM Partners, had set up the original Global Opportunities Group inside of Lehman Brothers Tokyo as a principal trading team in 2007. After Lehman failed, the team moved into Nomura and traded as a separate entity, Nomura Principal Investments Asia, under the Nomura Asia Holdings umbrella. So, we were well prepared for managing most aspects of the business independently, under the Nomura policy framework, and we carried all of these policies and practices with us into the new company. But I must say that after the spin-out there were times when we would look at ourselves, and come to the cold realisation that, “if we don’t do this – whatever business or policy matter – no matter how small, it simply won’t get done.” i.e. you must roll up your sleeves and get seriously busy on all aspects of the business.

 

How do you think that prospective hedge fund managers can better prepare for setting up their own businesses?

Be prepared to get your fingers dirty in every aspect of the business. Think about how things should work when you are a mature $1bn hedge fund, and prepare those things today, or a path to get there, when you are raising “friends and family” capital. It is hard to change from a “just OK” business practice to a “global best practice” if you have not focused on best practice from the beginning, and importantly the top global investors will be and should be naturally sceptical. But, if you can articulate a detailed “best practices” roadmap from the beginning, even if all of the pieces are not in place, you can gain investor confidence and you will have a strong business. Secondly, give yourselves time. Before you start you probably have a great business plan which shows you moving through several different capital raising phases until you hit “critical mass” in 12-18 months. Build an aggressive business plan, but be prepared for everything to take twice as long, particularly given Covid travel disruptions.  Use small failures and setbacks as learning opportunities to strengthen your business to make it more attractive to institutional investors.

 

In your hedge fund career, you have held several posts where you have combined being in charge of business development/IR and something else, such as operations, risk management and investments. Is it possible to properly combine such roles in today’s hedge fund industry? Or do they nowadays demand strict separation?

The founding COO should know every aspect of the business in great detail, but also have a plan to fill in gaps with competent hires early in the game. In the beginning, most of your players will need to “multi-task” to get things done. As the business matures make sure you are properly specialised in the various roles, so that the people in each role not only are highly competent in their speciality but that they also have a passion for excellence in their role. This business is very hard, and without a passion for what they are doing most people will find it hard to keep up the required level of intensity.

 

Recently, you seem to focus a lot on corporate governance and fintech. As a seasoned industry veteran, what has made you take a particular interest in these two areas?

Unfortunately, the financial markets continue to offer frequent examples of poor corporate governance leading to corporate or personal downfall. Leading institutional investors and regulators rightfully expect good governance from the stewards of capital. With respect to fintech, disruption is a natural progression for financial markets. In APAC, most fintech has been focused on the personal finance space – is there anyone you know who is happy with their large bank’s web portal, service offering, or personal banking app? I believe that institutional markets, particularly in APAC, are ripe for disruption, particularly in those markets that rely on OTC methods for price discovery, think credit markets, derivatives, etc. And when you move beyond the initial trade, think of all of the people and capital supporting the various systems of global settlement and custody. There will be various waves of disruption coming in these fields as market participants move toward immutable, distributed ledgers (blockchain technologies).

 

Let’s talk about education. You have recently completed shorter courses at INSEAD and the University of Oxford. In recent years, you have also taught on the Henley Executive Hedge Fund program. Is lifelong learning where professionals will constantly “update and upgrade” their skills throughout their careers through specialised courses the new normal?

Yes, for me, it’s “normal”. The Henley program was lots of fun because it was a way to share some of my hard-learned lessons of experience with younger talent who might consider working in, or starting, a hedge fund at some point. And I’ve been very fortunate in my career to work with a lot of very smart and talented people from whom I could learn, and who challenged me to think differently or to improve myself. The INSEAD and Oxford Saïd school programs gave me a similar opportunity to learn new things from some outstanding individuals, while at the same time putting an academic framework around the knowledge I’d gained through hard experience, or simply beliefs I held as business intuition. It was time well spent.

Interview: SingAlliance’s Angel Chia on what’s needed to cut it in the finance world

Angel Chia
Angel Chia

Angel Chia is the CEO of SingAlliance’s Hong Kong business. This month she was appointed to the advisory board of Inflection Point Intelligence (IPI), a leading financial services education company, specialising in practical, career-related programs. IPI manages the Henley Executive Hedge Fund Program and the Henley Family Office Program, offered globally by Henley Business School. Previously, she was Singapore CEO of Shenwan Hongyuan and earlier in her career Angel has worked at Shenyin Wanguo, Temujin Global Asset Management, BNP Paribas and ABN AMRO. She was educated at the University of Toronto, is a graduate of the Henley Executive Hedge Fund Program and recently completed her MBA from the University of Chicago Booth School of Business. The Hedge Funds Club’s Stefan Nilsson had a chat with Angel about education, careers and standing out from the crowd in the competitive world of finance.

 

In your current role at SingAlliance as well as in previous roles, you have successfully built and managed teams of finance professionals. What are the most important things you look for when it comes to candidates’ pedigree and skills?

I have come to appreciate that there is absolutely no single avatar for a successful finance professional. Instead, by extremely broad strokes, I see “successful business builders/owners/managers of financial institutions”, “successful business development professionals”, “successful product experts”, and “successful support functional staff.” The most important traits to a builder/owner/manager include the ability to quickly scan the business environment to understand where his business fits in the larger environment, understand the value chain, competitive mapping, and the ability to nearly constantly pivot as the environment changes. A successful business development professional thinks critically about his own value proposition and seeks to understand clients’ business dynamics and challenges in order to offer the most suitable solution to clients, which, sometimes may be “not what I’m selling at this time.” A successful product expert, for example, an investment manager, naturally excels in his domain knowledge, a solid pedigree of education or job experiences certainly helps to set up for success. However, I think a product expert needs to be mindful of his clients – business development colleagues or end investors – to truly optimise his market value. Lastly, support functional staff: operations, compliance, legal, IT, even admin, would do so much better to inquire on a fuller picture of the whole business, and understand that all of these support functions are really “in support of” the development of business.

 

You have recently completed an MBA from the University of Chicago Booth School of Business. Booth has a stellar reputation in the hedge fund and broader alternative investment industry. Is it important that people in our industry get educated at top schools in order to get the right skills and get a brand on their CV that may help them in their career?

I literally spent 11 years of my career working towards being Booth worthy. An Executive MBA program, in my opinion, unlike a full-time MBA, is less so a CV booster, but a personal elevation journey for senior executives as we contemplate on how we move from career positioning to impact creation. More specifically, I would say that an EMBA helps little with product experts, who would do much better with a finance undergraduate degree, CFA, CAIA, or simply learn diligently on the job, or for support function professionals, who would probably benefit most by taking the IPI program. The multidisciplinary nature of an EMBA, coupled with the self-selection of student calibre for top schools, benefits generalists the most by providing instant access to best business practices across industries and geographies.

 

You have recently joined the advisory board of IPI, a firm that provides executive education in the finance industry, such as hedge fund and family office courses. What made you join IPI now?

I took the IPI hedge fund program in 2018 when I was the CEO of the Singapore subsidiary of a Chinese broker-dealer, as the company was expanding its business from institutional equity sell-side business, to build up an ex-China fund of hedge funds platform. The hedge fund program was hugely informative and helpful to me as I led my team to accumulate the necessary building blocks for the new business. The instructors, who are all practitioners in the hedge fund ecosystem, provided virtually an SOP to how to run a fund company: in areas of fund set-up, risk management, systems and technology, operational flow, fund-raising, and even financial budgeting and management for both fund and fund manager levels. Given the profound benefit I have personally received via the program, I was beyond delighted to learn that IPI is rolling out a Family Office program. In my current position, I manage a Hong Kong office of an External Asset Manager, providing wealth management services to HNW and UHNW. I encounter client inquires on setting up family offices on a daily basis, as both Singapore and Hong Kong race to become the family office hub of Asia. The move towards institutionalising family offices calls for a holistic understanding of the front/mid/back-office operations, not unlike those needed for hedge funds actually. I strongly believe that IPI stands to offer a practical manual-like certification program to those looking to set up and manage family offices, and I look forward to sharing these tools in my course of advisory work with my clients.

 

In your advisory role at IPI, are there any specific things in finance and the education of the next generation you want to particularly focus on?

Since I transitioned from institutional sell-side and buy-side positions into the wealth management space, I noticed how massively divided the two segments of the markets are, in terms of the economics, execution, systems, and consequently, professional talents. I do not believe such a divide is justified or sustainable. The emergence of family offices in Asia is an impetus that propels wealth management businesses like private banks, EAMs, single and multi-family offices and IFAs to adopt many practices and standards that have been made compulsory for hedge funds. I feel strongly that my personal transitional experience goes hand-in-hand with IPI’s progression of its program offering. Facing the next generation, I expect education to be two-way. The value of education through the transfer of practical experiences on the job by senior practitioners lies in the sheer size of data: much like experienced doctors are good simply because they’ve seen much more patients. But disruptions often come from younger generations simply because “they don’t know better”, they are not cursed by the knowledge of “how things are done.” Alongside the existing IPI programs, I think an element of ongoing coaching and mentoring amongst our instructors, partners, advisors and even between students and alumni is the area I aim to focus on fostering.

 

Will we see shorter, more specific courses such as IPI’s hedge fund program grow in importance for people who want to specialise and get ahead as competition for the best job opportunities is increasing?

Yes, 100%. The pandemic has accelerated such paradigm shift, in fact, starting from the faster pace by which financial market activities, business models and instruments are changing. The traditional ecosystem of market participants is quickly being disrupted and as such, the only way to stay current and relevant is to acquire immediately applicable, always up-to-date knowledge and skill boosts as the environment evolves. Programs like IPI, being online, allows for quick updating of training content even including instructor and mentor line-ups to ensure the students and alumni always remain “plugged in” to the market developments.

Interview: Benjamin Fuchs, CEO and CIO, BFAM Partners

Benjamin Fuchs
Benjamin Fuchs

Benjamin Fuchs is the CEO and CIO of BFAM Partners in Hong Kong. BFAM is a fast-growing, dynamic, homegrown Asian focused hedge fund specialising in extracting value across the capital structure. BFAM’s strengths include credit, volatility and convertible bonds. Benjamin founded the firm in April 2012 when his team spun out from Nomura Principal Investments Asia. Benjamin started his career as a trader with Baring Securities in Japan and spent many years at Lehman Brothers in Tokyo. Hedge Funds Club’s Stefan Nilsson caught up with Benjamin to talk about how he has built BFAM, the challenges faced along the way and how BFAM is approaching the future.

 

BFAM is now in its 10th year since you launched the business. Why do you think you have succeeded in building a sizeable and sustainable home-grown Asian hedge fund business when many others have failed?

A) Institutional approach front to back. I have attempted to replicate the way banks structure their businesses – non-investment team is as important as investment team. I have more non-investment direct reports than investment team for example. B) Philosophy difference: Running a business not a fund. We are running a business that needs to generate bottom line profits. Investment ideas are just one piece. Our product is our fund. We have budgets, targets, focus on our margins, etc. Basic stuff you would think about if you ran a sandwich shop, but many funds ignore. People think if they get the right investment ideas everything else will fall in place but can’t have one without the other in the long run. C) Differentiated strategies: There are so many good funds that investors can choose from. We have constructed a mix of strategies that deliver a differentiated high-quality revenue stream. Many people that have been unsuccessful with their attempt to launch a fund, fail to recognise that they have an inferior version of an established player’s fund. It isn’t good enough to have “never lost money”.

 

What has been the biggest challenge in building BFAM?

Many challenges along the way and still many today! In the beginning, it’s hard to convince investors that you will survive and deliver. As you grow investors worry that you are getting too big. People always find something to question you about. That’s the challenge in this business. In good times you are a hero, when things slow everyone wonders if you are washed up!

 

You have built up a multi-strategy fund business with multiple PMs. Is it hard as the founding CIO to “let go” and allow new PMs to manage their books? Do you want to be involved in all the trades and ideas or can you take a step back to oversee the business?

It’s part of growing an institutional business. You can’t be involved in everything or you can’t grow and talented people won’t want to work for you.

 

Is there a war for talent in Asia that impacts how quickly you can grow and take advantage of opportunities?

There is a war for talent globally but I don’t feel that it is impacting us as we are able to grow our own talent and identify non-traditional candidates that others pass over.

 

How has the global pandemic impacted how you run BFAM and the teams? Have you managed to stay connected and focused?

No special answer here. Same impact as everyone else faces.

 

BFAM’s first decade is nearly done – what plans do you have for the firm in its second decade?

More of the same. We are always growing in this business. You are either growing or stagnating. Asia offers fantastic investing and trading opportunities. We aim to expand with Asian markets. I feel we are only really scratching the surface of what can be accomplished.

Interview: Bryan Goh, CEO and CIO, Tsao Family Office

Bryan Goh
Bryan Goh

Bryan Goh, CEO and CIO of Tsao Family Office in Singapore, has had a long career in alternative investments and finance, including stints at Oaks Family Office, First Avenue Partners, DBS Bank, Bordier and Arab Bank. He also once founded and ran a fine watches retail business. HFC’s Stefan Nilsson had a chat with Bryan about Singapore’s family office industry, Hong Kong’s push to rival Singapore and his investment outlook.

 

Following recent growth, how do you think Singapore’s family office industry will evolve from here?

I am confident that the family office industry in Singapore will grow. Singapore has a good reputation, a strong regulatory framework, a deep network of service providers from banks to administrators, advisors and legal counsel, a growing number of representative offices of traditional and alternative investment managers, a stable government with pro-business policies and a growing pool of human resources relevant to family offices. Singapore’s main strength is the balance between these sometimes conflicting factors, for example between regulation and flexibility. Family offices will find in Singapore a safe environment and a place easy to do business in.

 

Is there still a local supply of suitably qualified staff and service providers for the fast-growing Singapore family office industry?

If there wasn’t before, there is now and it’s growing and getting more competitive. The ecosystem of service providers is crucial to the growth of any one area of financial services and this ecosystem has been widening and deepening in recent years. As for staff, the safety and comfort of Singapore both attracts global talent as well as retains local talent. A decade ago, the Singapore financial industry was very much Asian focused; today it is increasingly international. The knowledge transfer which was more one way before is now two way and flourishing.

 

Hong Kong is making a big push as a family office hub. Is there real competition between Singapore and Hong Kong, or do they address different types of family offices?

Singapore benefits from balance. Close but not too close to China, sufficiently neutral to attract western and eastern, northern and southern capital and expertise. Culturally, Singapore is also more diverse and attracts investors in Asia outside China’s sphere of influence. Hong Kong benefits from a massive hinterland although China has recently struggled to take full advantage while maintaining their desired level of control. Time will tell if they find a way to make better use of Hong Kong.

 

Has the global pandemic with all its expected and unexpected market impact changed anything for you when it comes to how you evaluate asset allocation in general and specific investment opportunities?

In the decade preceding the pandemic, the tectonic plates were already in motion. What the pandemic did was accelerate and exacerbate. We see a continuation of the Balkanisation of the world economically, socially and politically. We see the substitution of all-out efficiency towards increased resilience, generally across industrial, commercial and financial areas. This will have consequences for the rate and stability of economic growth and inflation. Inequality remains a problem globally and is a source of opportunity and risk. Reversing inequality can boost growth significantly, improve the welfare of a large swathe of the population but risks raising inflation and confounding environmental objectives. Ignoring inequality would be socially and morally irresponsible as well as a wasted growth and developmental opportunity. As with all things, balance is key. Asset allocation needs to consider longer-term time frames in order to match the horizons of the global themes unfolding. Traditional financial metrics need to be extended with environmental and social factors to complete information sets for decision making. ESG may be topical now but they have been important in the past and will continue to be relevant in future whether the moniker lasts or not. We find investment opportunities by seeking to provide solution capital to fill gaps and address deficiencies. We believe that sustainable returns result when the capital enables responsible investment, development and consumption.

Interview: Kim Ivey launches Albany Capital, a new global macro fund in Sydney

Kim Ivey
Kim Ivey

Kim Ivey is one of the best-known people in the Australian alternative investment industry. Now he is embarking on a new journey with the launch of a new global macro fund. He started his finance career in 1985 and over the years his roles have included President of AIMA Australia and Founder of Vertex Capital Management and LSL Partners.

 

You have co-founded a new hedge fund firm in Sydney, Albany Capital. Tell us about it!

Albany is really an amalgam of nearly two years of planning, testing, pitching and perseverance by the three Principals – Alastair Sloan, David Gray and myself. Al has a deep background in trading interest rates, FX and derivatives. My investment background covers equities, quant and portfolio risk. And David’s expertise is in running trading systems, business operations and all the necessary counterparty arrangements. Al had been most recently managing the TAA/DAA overlay at Sunsuper for their entire A$50 billion asset pool (since 2014). So, when he approached me in early 2019 about setting up a new investment business focusing on global macro, with a large superannuation fund as a potential seeder, it sounded like a great opportunity. We immediately sounded out many of our contacts and pitched our ideas to them to validate, or not, the worthiness of our offering. With honest feedback in the affirmative, Al and I began running a large trial paper global macro portfolio for the seeder as a form of due diligence, and David and I began putting the components together for building the business infrastructure. We interacted with the seeder each week. It all went well until Covid struck in early 2020. By April 2020, with huge turmoil in the world and in markets, we lost our seeder…after eight months of due diligence, some very good returns in the trial portfolio, well over 30 written reports on ideas, strategy, trades and performance and an approved operational budget. It was a major setback for us. But we believed in ourselves, we believed we had built and tested a world-class, global macro investment process and we believed in the business plans we had refined over the previous nine months. We just needed an investor! So in mid-2020, we pitched our work to three large prime brokers to see if they thought we had something worth marketing. All three said yes! They liked what we were developing and all three offered their consulting and cap-intro teams to us. With their teams’ involvement and six months of intensive Zoom marketing to investors around the world, we found an excellent match with a New York-based investment group that liked our global macro style, our attention to risk management and our operational and governance infrastructure. Then four-five months of onboarding. So today, after two years of hard work, we’re managing a significant amount of capital, we own 100% of the business and we’re hugely motivated to put our expertise to work for our investors.

 

How did you come up with the name of the company?

The company is named after the Albany Passage which is a body of water at the tip of Cape York, our northernmost point of Australia. Much of Australia’s early trade to and from its eastern settlements was shipped to/from Asia and Europe through a northern route, the Torres Strait, between Cape York and New Guinea. As such, the Albany Passage in the Torres Strait was really Australia’s first gateway to the rest of the world. Navigating through its reefs, the strong cross-currents and the changing weather conditions, was very dangerous and required considerable skill and expertise. In many respects, the analogy of what the Albany Passage represented to Australians, the testing conditions it posed to those who travelled through its waters, struck an immediate chord with the three principals as we embarked on building an investment firm in Sydney with skilled professionals to navigate complex and sometimes volatile markets around the world.

 

It’s a global macro strategy with the team split between Sydney and London. Was it part of the plan from the start to have a set-up across two continents or is it more a result of the people involved?

I’ve always believed the “holy grail” in the alternative investment industry is finding the right combination of talented people, operating within a robust infrastructure and attracting like-minded investors. We had always earmarked an overseas office expansion for Albany based on advancing at least one of these three objectives – acquiring a talented team member, improving on our infrastructure or attracting well-matched investors. The industry is so global these days and the technology is so advanced, both in terms of communication and investment systems, that the old adage that global macro managers needed to be close to capital centres is now defunct. Jonathan Hale, our first hire, is based in London. He is an exceptional trader, well known to Al having previously worked together in two different banks. Also having him based in London improves our global coverage on our portfolio. But finding the right person was always our priority…the infrastructure improvement was a bonus.

 

You have received a respectable seeding deal that is enabling the launch. What are the hardest parts of raising day one and early capital for emerging funds?

From my experiences, the hardest parts of a business launch in this industry are the very beginning and the very end. They each bring a different set of dynamics. In the beginning, one really has a blank piece of paper that needs to be completed with reasons why this business is going to succeed. A lot of why questions need to be answered honestly about yourself, your team, your skills, your product, your performance…Many times, going through these internal analyses, the answers are not what one expects and a choice has to be made. Not proceeding is an option. But in passing this, the middle part of a launch is just constant marketing, rejection and refinement. The more pitches one does, the better, and easier, they should become. The ending of the launch is hard because one has either found the seed investor or one hasn’t. Decisions flow on from there. Negotiating with the seed investor should be approached like any other important relationship. Find out as early as possible what they expect, articulate clearly what you expect and after careful examination, determine whether these are a match or not. Honest communication at this closing part is going to avoid many problems down the line. For Albany, we had one seeder walk away from us after eight months because of Covid externalities, scores turned us down mainly based on our Australian domicile, but conversely, we turned down two seeding deals because of the expectations from these seeders were incongruent to our own. Each of these “incompletes” was very difficult at the time. How does one know who is the right seeder? I can’t answer that completely with facts and figures. Yes, the capital and economics have to meet certain hurdles. Benefits have to be mutual. But there is a trust and bond that one feels almost immediately with the right group. If that isn’t there, keep looking.

 

This is not the first time you’re setting up a fund in Australia. Has it become easier to launch funds in Australia?

Launching in this industry is always very difficult because the bar is so high. Many excellent investment firms already exist in the alternative investment space irrespective if it’s in Australia, Asia, Europe or North America. Why do investors need another investment manager to choose from? Answering the “why” question in an honest and dispassionate manner to one’s self, one’s family and to one’s colleagues is an absolute pre-requisite for launching in this insanely competitive industry. Unless one is already working at a large firm with a recognised pedigree and the principal is going to spin you out with US$100m+ in seed capital, the typical start-up manager is going to spend an inordinate amount of his/her own time and money on the launch. It will all be wasted if the offering isn’t thought through sufficiently and it will ultimately fail if the team or the product doesn’t represent a tangible point of differentiation. If the people/process/product/performance all point positive, then I’ve found that two things can help in making the launch a success. View how you want the firm to look in three years’ time and then plan backwards to the launch. Find a natural order for tasks that can be implemented in parallel with others and identify others that require more effort in a sequential build-out. It will save a ton of time. And secondly, don’t compromise on quality, don’t cut corners or settle for second best. Aim extremely high. If one can demonstrate these qualities and articulate them well, and if one’s research is correct, investors will listen. One point on professional seeders and incubators…they aren’t for everyone and vice versa, but they are excellent sounding boards for anyone looking to launch an investment business.

Interview: Monica Hsiao, CIO, Triada Capital

Monica Hsiao
Monica Hsiao

Monica Hsiao is a Hong Kong-based hedge fund manager managing an Asian credit investment strategy at her own firm Triada Capital. Hedge Funds Club’s Stefan Nilsson had a quick chat with Monica about her career path, setting up her own shop and capital raising.

 

You were a corporate lawyer, then you were a prop trader in a few investment banks before joining CQS as a PM. Was the lawyer-prop trader-portfolio manager journey part of a career plan or did it just evolve that way?

My journey from law into finance was not planned out looking forward but made sense when I connected the dots looking backwards. I enjoyed the strategic thinking required in deal-term negotiations but wanted to see how that played out in practice. Legal knowledge and having a framework of thought is helpful in so many aspects of what I do today, from diligence to the investment process.

 

You launched the Triada fund in 2015. What made you leave a big and well-known hedge fund firm to set up your own shop?

I left CQS to start my own fund because I saw that the Asia public credit market was growing at light speed and although most funds had Asia liquid credit as part of a larger multi-strat platform, I believed that the market was established enough to warrant a stan-alone fund focused on Pan-Asia long-short credit trading. Looking back, I kind of wished I had started my own fund much earlier! As much as it’s been a lot of blood, sweat and tears, I have learned a lot about myself.

 

You launched small and have managed to grow your fund size. What has been the hardest part of raising capital?

Raising capital requires a lot of patience – and luck. In many meetings, we have had to be the ambassador to push Asia credit as an asset class and pitch why public credit markets are interesting for allocators to consider. All of this first to convince people just to look at our asset class before we get into “why us”.

 

 

Interview: OpenFin’s Adam Toms on improving productivity in the financial world

Adam Toms
Adam Toms

Adam Toms is CEO of OpenFin Europe and serves as a Non-Executive Director on the board of RSRCHXchange. Prior to OpenFin, Adam served as CEO of Instinet Europe. Hedge Funds Club’s Stefan Nilsson checked in with Adam for a chat about improving productivity in the financial world, the changing nature of work and how his background in finance has helped in his current role at OpenFin.

 

Improving productivity is increasingly important for firms in the financial world, not least in recent times with a sudden and unexpected remote workforce revolution. As the global pandemic hit in 2020, how did you and your colleagues at OpenFin move to assist your clients and prospects to deal with the sudden changes in circumstances?

OpenFin has been focused on helping financial institutions increase productivity from day one. Our first product, OpenFin Container, improves developer productivity by eliminating the need for costly in-house development of a web container. Our latest product, OpenFin Workspace, which we released this year, improves end-user productivity by unifying the desktop experience and streamlining workflows. One of the reasons for the accelerated pace of adoption has definitely been the pandemic. As the global pandemic hit last year, we heard from customers that on average they had half as many monitors in their home environments, which made our screen management capabilities all the more important. Many of our customers were also occasionally going to the office and switching between home and office setups, which is another area that our Workspace product solves by allowing end-users to work from anywhere. In addition, Workspace’s Notification Center was designed from the start to help teams streamline and manage activities using a single interface. With teams being so distributed, it’s imperative that communication and collaboration are supported to fill the gap that geographic distribution has forced upon teams. Notification Center is one of the Workspace components that clients are most excited about – and have rapidly adopted – because it centralises activity management as well as supports collaboration with minimal code required. We also added integrations to some of the best and most popular chat integrations including Symphony, Slack and Teams to support collaboration and communication. When you pair these two elements of Workspace – Notifications and integrations – it makes for an incredibly useful solution for our clients.

 

Why is Workspace relevant right now?

Workspace is relevant today because it gives firms in the financial industry the ability to solve three issues that are becoming increasingly prevalent today: First, the nature of work is changing. Employees are no longer tethered to desks, devices or zip codes. This shift in how and where we work demands new systems that are secure, flexible and easy to use. Second, focused work is under assault – especially in the financial industry, where end-users contend with friction caused by a growing tech stack. According to some estimates, the average end-user actively uses 36 applications to do their work throughout a day. More often than not, these applications do not “talk” to one another, i.e. data does not flow between them. The multitude of applications, screens and windows and the lack of data flow all disrupt the flow of work, forcing users to multi-task with some estimates putting the number of times an end-user switches applications at 1,100 or more! This constant context switching, coupled with persistent distractions like alerts and notifications, all leads to fragmented work and repetitive tasks that only serve to degrade the employee experience and reduce productivity. And this leads to the third and final reason: Expectations of technology are evolving. Today, 50% of the workforce has grown up connected, collaborative and mobile. These end-users are accustomed to and expect technology at work to work just like it does on their smartphones, tablets and laptops and that’s probably why 95% of employees believe finding information at work should be as easy as Googling it, and why 88% of employees say technology is an important part of the employee experience.

 

How does Workspace fit into OpenFin’s broader vision?

Workspace represents an important new phase for OpenFin. Historically, the OpenFin OS has been invisible, providing the underlying framework that enables web apps to run as first-class citizens on the desktop. The reality is that most of the end-users at the 2,400 buy-side and sell-side firms using OpenFin don’t realise that we power apps on their desktop! Now, with Workspace, we are starting to become more visible with visual components that also deliver powerful workflow automation designed to support and enhance end-users’ day-to-day work experience. Key components of the interface include a digital assistant for app and workspace discovery with integrated search, a browser built for work to power productivity, a rich notification center and a customisable content store. The new offering provides a turnkey solution, eliminating the need for costly development and standardising the workspace across the industry, which has always been what OpenFin is all about. In addition to solving all the aforementioned issues, Workspace gives customers the ability to tap into a rich ecosystem of resources and applications powered by a thriving community of partners without having to do all the technical heavy lifting themselves, which is really a new level of our central mission to create a truly open system for the financial services industry.

 

OpenFin is often talked about as an industry solution. What does that mean?

When we set out on our mission, we set out to solve more than a technology issue – we wanted to solve a problem for the entire industry, namely creation and deployment of engaging modern web apps that could deliver a powerful user experience with application interoperability which in turn would enable an open and collaborative ecosystem. The initial response and rapid adoption by large, global banks – the top 23 of 25 of whom use OpenFin today – most certainly validates the idea that we are an industry solution. Indeed, here in Asia ten of the largest players HQ’d in the region have adopted OpenFin for their digital workspace and interoperability strategy. Industry backing is also evidenced by our strategic investors who include Barclays, CME Group, HSBC, J.P. Morgan, Standard Chartered and Wells Fargo. The last point I’ll mention is that in addition to our customers and investors, our ecosystem has exploded with more than 3,500 applications running on OpenFin, clear evidence that there is not only interest but deepening engagement from all quarters of the industry.

 

Prior to joining OpenFin in 2017, you worked at Instinet, Nomura, Lehman Brothers and Barclays. How helpful has your background as a senior leader in capital markets at securities firms helped you better understand client needs in your current role?

Throughout my career, I’ve been lucky enough to be involved with a lot of first-to-market initiatives and innovation at the cutting edge of technological developments in the capital markets space ranging from the launch of the first ETF in Europe for the iShares brand, through to the launch of the first bank MTF in Europe. Each of these launches fundamentally changed how these markets worked and within electronic trading specifically, we were always pushing boundaries from new algorithms to analytics. As part of my involvement with launch and innovation strategy, I had to think about driving end-user adoption, and this hands-on experience along with my deep understanding of front-to-back processes has allowed me to bring a client-centric mindset to the table at OpenFin where we are changing the way the industry works – a mission that relies on end-user adoption cultured by an intimate understanding of the internal workings and dynamics within the capital markets division of securities firms. This allows me and the rest of the team at OpenFin who also have a large amount of capital markets experience to help clients successfully execute their digital transformation strategies.

 

What made you decide to move from the brokerage business to join a fintech firm?

I enjoyed a 20+ year career in banking with many great experiences including achieving record market share and profitability as the leader at my last company. I felt compelled to share my experience and expertise to help early-stage and high growth companies in the fintech space. I’d been an active investor and advisor to early-stage companies for some time and when the OpenFin role came up I felt like it was the perfect opportunity for me to bring relevant experience to a dynamic firm with great founders who had a very compelling vision for changing the way we work in the industry. Three and a half years on and I can say I not only made the right decision but also, we as a company feel honoured and proud that the industry has placed their trust in us to deliver on this important transformation agenda.

 

About OpenFin

OpenFin is the operating system for enterprise productivity, enabling app distribution, workspace management and workflow automation. Used by 90% of global financial institutions, OpenFin deploys more than 3,500 desktop applications to more than 2,400 buy-side and sell-side firms. OpenFin investors include Bain Capital Ventures, Barclays, CME Ventures, DRW Venture Capital, HSBC, J.P. Morgan, NYCA Partners, Pivot Investment Partners, Standard Chartered and Wells Fargo Strategic Capital among others. The company is based in New York with offices in London and a presence in Hong Kong. To learn more, please contact sales@openfin.co

Interview: Noviscient’s Scott Treloar on the rumoured death of risk management

Scott Treloar
Scott Treloar

The Archegos family office fiasco, Greensill Capital’s collapse and several other recent incidents have revealed what seems to be some serious risk management issues in the wider finance industry. Hedge Funds Club boss Stefan Nilsson checked in with Scott Treloar to get some views on what’s going on. Scott is the Founder and CIO of Noviscient in Singapore. He has lectured on portfolio risk management at Henley Business School and was Chief Risk Officer at Vulpes Investment Management. He co-founded the hedge fund Novalis Capital and his career has also included stints at Deutsche Bank, Committed Capital and Macquarie Bank.

 

What has happened to how counterparty risk is viewed recently? The Archegos fiasco caught out many blue-chip brokers resulting in billions of dollars in losses. Is it greed that makes some professionals, who should know better, accept too much risk?

I don’t think it is greed. Many people in finance are greedy, and greed is an essential requirement of capitalism. Instead, I would suggest the fundamental problem is, as for almost all financial disasters, the poor structuring of incentives. In the case of Credit Suisse, they earned fees from the Archegos relationship the prior year of $17.5 million and made losses of $5.4 billion. So, that seems badly structured. More interesting is the game-theoretic aspect of the situation. The Archegos family office was running leveraged and opaque total return swaps with multiple prime brokers, where the brokers were not aware of each other’s positions. This meant they were working off imperfect information and were vulnerable to competitive actions in the event of adverse market movements. However, suppose a broker has better information by being headquartered in the time zone where the trading happens. And suppose it has asymmetric decision speed, say via more aggressive internal risk management processes. Then trading with Archegos in this imperfect information setting could make sense for this broker but not for others. For example, GS and MS versus CS and Nomura respectively.

 

This time it was big brokers who got caught in what looks like poor risk management with regards to a family office client. What about hedge funds? Do you think that hedge funds here in Asia are potentially riskier than previously thought due to poor risk management assessments by counterparties?

There will always be groups with high risk tolerance that want to bet big. The brokers clearly did not handle this well. The family office lost all its money. This has largely kept the harm to the entities that made the poor decisions. Brokers are responding by reducing the leverage available to their trading counterparties. I don’t think this necessarily translates to more risk for Asian hedge funds. However, it does suggest that investors in hedge funds ought to want timely and transparent information about their investments from their investment manager.

 

How can the industry improve and establish a solid reputation for risk management? Is there a structural problem?

This comes down to investment managers using technology to give their investors transparency as well as the ability to act. It is the investors’ money, after all. The current practice of hedge funds providing a factsheet a week or so after the end of the month with a snapshot of the fund’s exposures is too late and informationally insufficient. The industry should be heading towards what we offer at Noviscient. We give investors exposure to a portfolio of emerging manager trading strategies while allowing investors to see daily performance and risk metrics through an online portal and a mobile app. This means they know what they are exposed to and can take actions in a timely manner.

 

What, in your opinion, are the biggest risks faced by investors today?

I think a significant problem with the investment management industry is the continual focus on trying to get the highest returns. This approach risks ending in disaster for investors for a couple of reasons. Firstly, it leads to performance chasing which often has poor outcomes as the last period’s high performing managers tend to revert back to the mean. Secondly, the risk that comes with these high returns is often imperfectly considered when making the investment. More fundamentally, we think chasing after high returns is the wrong target. The industry should be adopting a goal-based investing framework that seeks to give investors a high likelihood of achieving their important goals over time, whether that is a comfortable retirement or putting children into education.