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Best Nordic Fund of Hedge Funds 2017

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Stockholm (HedgeNordic) – The NHX Fund of Funds index contains 23 funds, which made near-flat returns in 2017. This fell short of the NHX Composite 3.5% return. All three winning funds have made significant active shifts in their strategy allocations over the past year.

The first ranked winner was Brummer Multi- Strategy (BMS), which returned 6.4% to investors in SEK in 2017, its best year in absolute terms since 2013. This was welcome after its worst ever year, in 2016. Co-manager, Mikael Spångberg, is particularly pleased with the returns in 2017 “because the alpha contribution was so high: the third best year in the 15 year history of BMS”. Specifically, Spångberg homes in on the three months of June, July and August, when European equities lost 5%, while BMS made 2%.

Equity long/short and equity market neutral managers generated the larger part of profits, and “we increased these allocations because stock dispersion was at multi-year highs, increasing potential for active stock-pickers (Bodenholm, Black and White, and Manticore) to add alpha” says Spångberg. Brummer Multi-Strategy also underweighted allocations to primarily CTAs and systematic macro (Lynx and Florin Court) because the macro climate of unwinding QE was not judged as best for these strategies. Brummer Multi- Strategy maintained the weight in macro/fixed income fund Nektar as the fund typically does well in stressed markets. Also the weighting was high to the credit fund Observatory. (Though Bodenholm does some event driven trades, BMS currently has no pure event driven manager).

BMS is keeping the faith with CTAs. Lynx is in its deepest ever drawdown, but Spångberg argues that CTA’s may have a strong contribution in certain markets such as a high inflation scenario. Meanwhile, Florin Court is extracting returns from more exotic and esoteric markets.

Brummer & Partners has equity stakes in the management companies of BMS investee funds, but BMS only has exposure to  some of the funds. Brummer & Partners listen to pitches from 100 or more managers seeking seed capital each year. BMS pays its managers 1 and 20 but charges no second layer of fees.

In second place, AIM Credit Strategies returned 3.16% in 2017 (or 5.51% excluding an illiquid legacy investment, which has been side-pocketed).

AIM Credit Strategies is one of three funds of funds run by Helsinki-headquartered AIFM, AIM Capital Oy. Since inception in May 2009, AIM Credit Strategies has allocated to credit managers who seek to profit from market segmentation and temporary dislocations.

“Most recently, AIM has been invested in areas including structured credit, distressed opportunities, specialty finance, trade finance and catastrophe reinsurance (where AIM runs a separate insurance linked securities fund). In 2017, the highest return contributions came from managers of structured credit strategies, who enjoyed the tailwind of tightening credit spreads. For example, the fund had allocations to managers active in European CLOs, which was a very good asset class to be invested in. Another positive contribution came from distressed opportunities, which benefited from the continued recoveries in Argentina and in the legacy U.S. RMBS market” says Chairman, Juha Jarvi .

Yet there may be challenges on the horizon – and the portfolio is being rotated accordingly. “But there were also managers in the portfolio who showed signs that it may become difficult to maintain good returns, without succumbing to increased risk-taking, as the credit cycle is approaching an end. Therefore, a main theme for manager selection in 2018 is to gradually reduce directionally exposed managers and to replace them with more suitable opportunities for current circumstances. However, it should be borne in mind how difficult it may be for any credit strategy to maintain consistent performance when markets are approaching an inflection point. For that reason, AIM has now been focusing on funds pursuing liquid strategies, especially those with a niche or otherwise innovative approach” says Jarvi.

AIM’s client base includes Nordic institutional investors like pension funds, endowments and insurance companies.

The third spot was taken by CARAM Systematic Alpha, which delivered a positive return of 4.12% in 2017. “This is a Swedish Krona return, and would have been higher in the USD share classes of underlying funds; the cost of hedging USD share classes back to SEK is now over 2%” explains CEO, Simon Reinius. The institutional share class charges fixed fees of just 0.4% (of which 0.2% is management fees and 0.2% administrative fees) and a 10% performance fee above SEK risk free rates (with a floor of zero).

In 2017, most of the returns came from five equity market neutal funds (BlackRock European hedge fund, Old Mutual ARBEA, Contour Manticore, ABC Arbitrage, and Capeview Azri) that are no longer part of the portfolio. By early 2018, CARAM had shifted the strategic allocation to five CTAs and systematic macro funds: a low cost pure trend follower (GSA), an alternative markets trend follower (Systematica), a more diversified quantitative strategy (Winton), and two systematic macro funds (IPM and ADG). “We think these funds are more likely to perform well in a recession or high volatility environment, and are a useful portfolio diversifier” says portfolio manager, Martin Alm.

Optimised Portfolio Management (OPM) has SEK 400 million in the Systematic Alpha fund of funds, and another SEK 1.6 billion in other liquid fund of funds, (and alternative products that allocate to less liquid strategies including real estate and private equity). OPM is a boutique in the family of CARAM, which runs EUR 23 billion.

CARAM is a fan of the Nordic Hedge awards. Says portfolio manager Martin Alm: “the Nordic hedge fund space is very different from the Italian, French or Spanish hedge fund industries, which are not so different from one another. In 2008 Nordic hedge funds behaved very differently. The Nordic Hedge Award are the only distictive prize focused solely on the Nordic region”.

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Kamran Ghalitschi
Kamran Ghalitschi
Kamran has been working in the financial industry since 1994 and has specialized on client relations and marketing. Having worked with retail clients in asset management and brokerage the first ten years of his career for major European banks, he joined a CTA / Managed Futures fund with 1,5 Billion USD under management where he was responsible for sales, client relations and operations in the BeNeLux and Nordic countries. Kamran joined a multi-family office managing their own fund of hedgefunds with 400 million USD AuM in 2009. Kamran has worked and lived in Vienna, Frankfurt, Amsterdam and Stockholm. Born in 1974, Kamran today again lives in Vienna, Austria.

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