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Two Years, Two Extremes for Brummer

Report: Systematic Strategies

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Stockholm (HedgeNordic) – After recording its second-best annual performance on record in 2020, Brummer Multi-Strategy edged down 2.2 percent in 2021 to register its only third down year – albeit worst annual performance – in its 20-year history. The team running the multi-strategy hedge fund of Brummer & Partners has made structural improvements to reposition Brummer Multi-Strategy for “likely higher volatility and a larger degree of uncertainty in the macro environment.”

“While 2020 was our best year in terms of performance over a risk-free rate, 2021 turned out to be the worst year.”

“The performance of 2021 was very disappointing,” says Markus Wiklund (pictured), who replaced Mikael Spångberg as the CEO of Brummer Multi-Strategy (BMS) in late 2021. “While 2020 was our best year in terms of performance over a risk-free rate, 2021 turned out to be the worst year,” he elaborates. “On the other hand, if we look at the two extreme years in conjunction, we can see that the average annual return during these two years was about the same as the historical average for BMS.”

Brummer Multi-Strategy is a multi-strategy fund that maintains a portfolio of independent strategies managed by different hedge fund teams under the umbrella of Brummer & Partners. Long/short equity strategies, which accounted for the largest portion of Brummer Multi-Strategy’s portfolio at the end of 2021, had the highest contribution to the fund’s return in 2020 but experienced a more difficult environment last year. “Last year, in general, was a challenging alpha environment for our long/short equity strategies,” comments portfolio manager Kerim Celebi.

“Last year, in general, was a challenging alpha environment for our long/short equity strategies.”

“We saw massive inflows to global equities last year that exceeded the accumulated inflows over the last 20 years or so, with a majority of those flows being passive,” says Celebi, who was appointed as one of the fund’s portfolio managers last year from his prior role as Head of Research. “This was a very challenging market dynamic for our stock pickers, at least in the short term,” he reasons. “But that should hopefully improve the opportunity set in the more medium to long-term.” The shorting environment, particularly in the technology sector in the US, “was also very challenging, especially during the first half of the year, with various short squeezes triggered by retail traders.”

“On the positive side last year, the systematic trend-following strategy focusing on alternative markets had a very strong year.”

“On the positive side last year, the systematic trend-following strategy focusing on alternative markets had a very strong year,” Celebi mentions the strategy that contributed most to performance last year. “They were up almost 30 percent, with the gains mainly driven by strong upward trends in power markets and commodities.”

Portfolio Changes

Portfolio Manager Kerim Celebi

The team running Brummer Multi-Strategy has also made some changes at the portfolio level throughout 2021 and going into 2022. “It is important to highlight some of the structural improvements we have made to BMS portfolio characteristics, which are important going forward in a context of likely higher volatility and a larger degree of uncertainty in the macro environment,” says Celebi.

First off, the team onboarded two new market-neutral sector specialists in the long/short equity space. “We have improved diversification on the equity side of our portfolio by improving the breadth of our sector expertise, and also the geographical diversification,” he elaborates. “The portfolio today has an even higher degree of idiosyncratic risk and should likely be less affected by sector and factor rotations going forward.”

“The portfolio today has an even higher degree of idiosyncratic risk and should likely be less affected by sector and factor rotations going forward.”

“The portfolio is also slightly more liquid and has less leverage, which reduces the tail risk in more distressed market environments,” elaborates Celebi. Historically, Brummer Multi-Strategy has opted for a more conservative approach to applying leverage, typically employing lower leverage compared to other multi-manager platforms, on average. “Going forward, BMS is also slightly longer volatility structurally, given our higher allocation to our systematic trend-following strategies that we increased last year, which also could be helpful in more distressed market scenarios.”

During the course of 2021, Brummer & Partners also created a new structure that enables the onboarding of new managers exclusively for Brummer Multi-Strategy “without the managers having to bother with running their own fund management companies,” according to Celebi. “And the first new strategy in this new structure, starting this spring, will be a market-neutral sector specialist in the long/short equity space, focusing primarily on the technology sector, mainly in the Nordics, but also the rest of Europe,” says the portfolio manager. Celebi refers to the recruitment of technology-focused portfolio manager Henrik Nyblom, former portfolio manager of Swedbank Robur Ny Teknik – one of Europe’s largest tech funds.

“All in all, we have a more robust portfolio, which is especially important in a context with a larger degree of uncertainty in the macro environment.”

“We will most likely also add another strategy in the second quarter of this year,” reveals Celebi. “With these changes, we are further improving diversification in BMS and the probability to generate strong risk-adjusted returns, with low correlation to risky assets,” he emphasizes. “Given the changes that we’ve done to the BMS portfolio, complexity has been reduced and we have better visibility into the risk-taking of the strategies that we invest in and how they are expected to behave in different scenarios,” says Celebi. “All in all, we have a more robust portfolio, which is especially important in a context with a larger degree of uncertainty in the macro environment.”

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Eugeniu Guzun
Eugeniu Guzun
Eugeniu Guzun serves as a data analyst responsible for maintaining and gatekeeping the Nordic Hedge Index, and as a journalist covering the Nordic hedge fund industry for HedgeNordic. Eugeniu completed his Master’s degree at the Stockholm School of Economics in 2018. Write to Eugeniu Guzun at eugene@hedgenordic.com

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