Stockholm (HedgeNordic) – Reaching the 20th anniversary in the often short-lived and fast-paced hedge fund world is quite an achievement. In fact, some activity in the Nordics in recent years with funds launching, merging and closing resembled more of a come-and-go party. With pleasure then we can congratulate PriorNilsson Yield of Torgny Prior’s and PO Nilsson’s PriorNilsson Fonder on its 20th anniversary these days.

“PriorNilsson Yield is the first fund we opened and we have never closed any funds because of bad performance or anything else,” says PO Nilsson, who co-founded PriorNilsson Fonder alongside Torgny Prior back in 2002. “This anniversary is a testament to our ability to maneuver well through many different market conditions over the years,” he comments on the fund’s anniversary. “I hope we have learned something out of these 20 years and I hope for at least another 20 years.”

“This anniversary is a testament to our ability to maneuver well through many different market conditions over the years.”

PriorNilsson Yield has been designed to cater to investors looking for capital preservation solutions.  The market-neutral equity fund seeks to represent a higher-returning alternative to cash or a bank deposit. “The fund’s objectives are still the same as when we started 20 years ago. The strategy is not spectacular in any sense,” Nilsson tells HedgeNordic. “The whole purpose of Yield was to offer a market-neutral fund that can return a few percentages higher than short-term interest rates. We still try to achieve that with as little volatility as possible.”

PriorNilsson Yield has generated an annualized return of 2.1 percent in the low-interest rate environment after the financial crisis. Over its 20-year journey, the fund can even show a  3.4 percent return. “Since the fund is more or less market neutral, we have 90 percent of our assets invested in the short-term interest market,” explains Nilsson. “When short-term interest rates go up, we automatically receive a higher return,” he elaborates. Stock picking in the market-neutral bucket, meanwhile, serves as an additional return driver for PriorNilsson Yield. “If you have a short-term interest rate at two percent, our goal is definitely to reach around four percent,” says Nilsson.

PriorNilsson’s Younger Idea

Since the launch of PriorNilsson Yield in late 2002, PriorNilsson Fonder has evolved from a two-person asset manager into a stock-picking boutique with a larger team and a more extensive range of funds. Four years after the launch of its first product, PriorNilsson Fonder launched a higher-risk, higher-reward long/short equity fund – PriorNilsson Idea. This fund seeks to match the performance of the broader stock market with lower risk. While both Idea and Yield share the same stock-picking process, Idea has an entirely different objective: delivering equity-like returns at lower volatility.

“We share the same stock-picking strategy, we are looking at the same companies, doing the same research, and sharing the same ideas,” says Torgny Prior, who is in charge of running PriorNilsson Idea. “But Idea is quite different by aiming to perform in line with the stock market at half of the market’s volatility,” he elaborates. The younger long/short equity fund has maintained a net equity market exposure of between 20 percent and a little more than 100 percent, according to Prior.

“But Idea is quite different by aiming to perform in line with the stock market at half of the market’s volatility.”

“We have a lot of investors who use the fund to get down the volatility in the client portfolio, but still get an equity market return,” confirms Marcus Ehrenpreis from PriorNilsson Fonder. “If you look at the fund’s track record from 2006 up to 2014, there was a lot higher volatility in the fund’s return steam,” he adds. “We had a much more offensive strategy. But we have changed the strategy since 2014 to avoid market volatility on the downside,” according to Ehrenpreis. “Since 2014, we more or less returned as the equity market, but with much lower risk.” PriorNilsson Idea has generated an annualized return of 8.9 percent since its launch in early 2006, with the fund delivering 10.7 percent per year since 2014 with almost half of the volatility experienced before 2014.

“Our hope is that we would grow organically during the next 20 years as well through new niche products and more talented people.”

PriorNilsson Yield and Idea are just two of the nine funds in PriorNilsson’s product range. “In the last five-six years, we have hired three younger portfolio managers or analysts to help us with existing and new products,” says PO Nilsson. “Our hope is that we would grow organically during the next 20 years as well through new niche products and more talented people,” he concludes. “Despite growing over the years, we are still the same stock nerds that we have been since inception.”