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Afalon’s Holistic Approach Amid Fund Closure

Report: Systematic Strategies

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Stockholm (HedgeNordic) –  Finnish asset manager Afalon Investment Management has called time on its hedge fund that sought to identify investments aligned with sustainability themes. With the closure of Incomea Steady Opportunities and the earlier closure of its systematic managed futures fund NS Quant, Afalon is putting all efforts and time into a global asset allocation model that takes a more holistic view of portfolio construction.

“Long story short, we decided that we are closing the fund due to a combination of different things,” says Jaakko Soini (pictured), the CIO of Incomea Steady Opportunities. Built around the idea of sustainability and designed to capture secular trends related to sustainability, Incomea Steady Opportunities received strong investor interest towards the end of 2021 and early January this year. “We were growing like crazy and the fund quickly passed €12 million under management,” says Soini. “But when the war started in Ukraine, the momentum more or less wound down as ESG was put on its knees.”

“Long story short, we decided that we are closing the fund due to a combination of different things.”

The investment strategy behind Income Steady Opportunities involved building a concentrated portfolio of companies connected to secular trends related to sustainability and ESG. The relatively concentrated portfolio was combined with a premium collection strategy that involved selling short-dated out-of-the-money call options on long holdings. This covered call strategy sought to provide Incomea Steady Opportunities with a source of income in the form of options premiums while capping some of the upside potential from the underlying investments. This options strategy meant that Income Steady Opportunities had been run with a delta-adjusted net exposure in the range of 60 to 75 percent.

After incurring losses as equity markets suffered broad-based falls in 2022, Incomea Steady Opportunities had seen its assets under management drop to a level that could not sustain operations. “People appreciate the fact that everybody wants to do good things, but the size of the fund is what matters here,” says Soini. “Unfortunately we did not get into that size.” Soini will continue running the strategy in clients’ managed accounts. “The strategy is still very much alive and kicking, we can do good for the planet but we don’t need to do that through a fund structure.”

“People appreciate the fact that everybody wants to do good things, but the size of the fund is what matters here. Unfortunately we did not get into that size.”

After closing both Incomea Steady Opportunities and NS Quant, Alafon Investment Management is now focusing its efforts on a global asset allocation model developed by Soini’s colleague Benjamin Strabo. “Since we are not a bank and we don’t have tens of thousands of customers who can choose from a wide range of investment options, we decided to offer an investment product that has a more holistic view of all assets and risks in the portfolio,” says Soini, who is working alongside Strabo on Afalon’s global allocation model. “In the light of the recent market developments, investors want to have a more holistic approach to asset allocation that considers and integrates a wider range of asset classes into a broader investment portfolio. One single fund such as Incomea Steady Opportunities will not offer it.”

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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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