Stockholm (HedgeNordic) – Celina Hedgefond, once a €1.4 billion Catella fund whose portfolio maintains low enough risk to inspire comparisons to a bond investment, delivered a near zero return to investors over the six years ending 2021. Up 5.3 percent so far in 2022, the low-risk multi-strategy hedge fund has received a new breath of life since the appointment of Bodenholm founder Per Johansson as the CIO of the fund’s management company – now in the process of being acquired by Case Group.

Celina Hedgefond, formerly under the Catella brand, combines long/short equity and fixed-income investing in the pursuit of achieving a return target of 3-5 percent. In the past decade’s environment of low and negative yields across fixed-income markets, the long/short equity strategy had a big weight to carry on its shoulders. After years of not-so-successful equity investing, Per Johansson took over the management of the fund and its long/short equity leg since his appointment as CIO in February this year. The management and strategy overhaul has already started bearing fruits in what has been a challenging market environment for all investors this year.

Same, Same but Different

“Celina Hedgefond uses the same low-risk strategy as before, just a different equity strategy within it,” says Per Johansson, who joined the then called Catella Fonder – now Celina Fonder – with his entire team from Bodenholm-successor Boden Capital in early 2022. The fund’s approach to fixed-income investing has remained unchanged. “We have a very capable credit team led by fixed-income portfolio manager Stefan Wigstrand, who has been very good at steering the fixed-income portfolios over the years,” emphasizes Johansson. “We were runner up for credit house of the year by Morningstar, that’s to Stefan’s credit – no pun intented.”

“Celina Hedgefond uses the same low-risk strategy as before, just a different equity strategy within it.”

Celina Hedgefond’s equity component, meanwhile, has undergone a notable overhaul. “First, we scaled up the equity portfolio by increasing the gross equity exposure even though the net exposure remains unchanged at around zero,” explains Johansson. This gives Johansson and his team more room for alpha generation. “Second, we are now running the same Bodenholm strategy focused on companies in the de-conglomeration phase,” he continues. “We are looking at spin-offs from companies, conglomerates that are splitting up and even companies that are undergoing some operational structural changes.”

“We are looking at spin-offs from companies, conglomerates that are splitting up and even companies that are undergoing some operational structural changes.”

And third, Johansson and the team changed the approach to bringing down the net equity exposure. “We do not hedge the portfolio with index futures or pair trades anymore. Instead, we engage in more individual security short selling in companies with accounting deterioration or irregularties,” explains Johansson. “We are looking for idiosyncratic investment ideas, both on the long and short side. Very similar to our approach at Bodenholm.”

This Year’s Journey

These idiosyncratic investment ideas, particularly on the short side, have paid off handsomly for Celina Hedgefond so far. The fund was down two percent at the time of Johansson’s appointment and the stock market rout had yet to kick off. Celina Hedgefond is now up 5.3 percent year-to-date through July 26. “We have generated good alpha on the long side, but we have had amazing alpha on the short side,” says Johansson. “The ability to short and the successful selection on the short side is the main reason why the fund is up over five percent this year and that is the advantage of running a long/short equity strategy compared to a long-only one.”

“We have generated good alpha on the long side, but we have had amazing alpha on the short side.”

Outlining differences between the Bodenholm strategy and the one run at Celina Hedgefond, Johansson says the short book at Bodenholm had fewer names with higher concentration on top positions and had a too low batting average. “It is perhaps a short period to reflect on, but we have better batting average now with more names, contrary to logic,” says Johansson. “We thought our annualized alpha of two percent on shorts at Bodenholm was too low and we had to take that up a notch. So far so good.”

Rather than targeting a specific net exposure when running their long/short equity strategy, Johansson and the team seek to maintain a low beta close to zero. The team focuses on minimizing the portfolio’s drawdown risk instead. “A low net exposure does not guarantee adequate returns in a market correction as correlations between asset classes and securities can move closer to one,” explains Johansson. “We are doing scenario analysis to prepare the portfolio for various conditions. This is our pro active risk management approach compared to a statistical one.”

“A low net exposure does not guarantee adequate returns in a market correction as correlations between asset classes and securities can move closer to one.”

Celina Hedgefond was overseeing more than SEK 15 billion as recently as 2016, but assets under management have nosedived to below SEK 2 billion in 2022. The refreshed team behind the fund is now on a quest to regain investors’ trust and capital. “You have to crawl before you can run,” Johansson discusses their plans to regain assets under management. “We have turned around the performance and we have proven that the fund can hold up and even deliver good returns in difficult market conditions, so we can start building the fund again in terms of assets,” he continues. “This will take time.”

Johansson goes on to emphasize that “the fund probably cannot take another change in the portfolio management team, as every manager change cuts into the clients’ trust.” According to Johansson, “clients are now engaged and pro actively reaching out, but probably await the Case integration.” A higher level of assets allows for more scale and more resources to work with, “which will help us deliver better performance,” concludes Johansson.