Stockholm (HedgeNordic) – One of the most decorated Nordic hedge funds is celebrating its 20-year anniversary in July. Asgard Fixed Income Fund has enjoyed an annualized return of 11 percent over the past two decades, with an impressive return of 13.4 percent since Morten Mathiesen took over as CIO in 2008.

Fixed-income boutique Asgard Asset Management specializes in identifying and capturing risk premiums in interest rate markets to achieve high risk-adjusted and mostly uncorrelated returns. Kenny Friis Gade (pictured right), Deputy CIO at Asgard Asset Management, explains that the foundation for their investment management is a strong belief in the existence of risk premiums in interest rate markets. “These can be identified and isolated, hereby creating attractive investment opportunities on a leveraged basis,” he explains. Investing in risk premia has proven to be an attractive marketplace for fulfilling their investment goals.

“The high risk-adjusted return obtained by the Asgard team since the launch of the fund is something we are very proud of!”

Throughout its journey, Asgard Fixed Income Fund has consistently ranked among the best Nordic fixed-income hedge funds, finishing on the podium of the “Best Nordic Fixed-Income Hedge Fund” category nine times in the eleven editions of the Nordic Hedge Award. The fund has delivered an annualized return of 11.1 percent since its inception in July 2003. “The annualized return is of course attractive over such a long time horizon, but it should always be considered in relation to the level of risk embedded in achieving the return,” argues Kasper Ullegaard (pictured left), the CEO of Asgard Asset Management. Asgard Fixed Income Fund exhibited an annualized volatility in returns of 7.2 percent to reach a Sharpe ratio of 1.5, which “serves as a blue stamp of our strategy,” says Ullegaard.

“The high risk-adjusted return obtained by the Asgard team since the launch of the fund is something we are very proud of!,” expresses Ullegaard. “It truly underscores the viability and longevity of the strategy, which has been followed meticulously throughout the years,” he continues. “Hopefully we can continue to leverage on this strong history to develop the strategy even further as markets undergo continuous change. The agility to exploit market opportunities as they arise throughout time has been a core credential of the Asgard team, which will be equally important going forward.”

Early Days 

In its early days, Asgard Fixed Income Fund was run by a team of three people with a Bloomberg terminal, growing into an organization of now 11 people with different roles across portfolio management, risk management and quantitative tasks. “Key people dependencies have been significantly diminished and proprietary quantitative developments over the years have vastly improved investment decision-making and risk management while reducing the operational risks embedded in running investment risks of this magnitude,” says Ullegaard. “On top of this, Asgard Asset Management has long-lasting and efficient relationships regarding administration and prime brokerage – an aspect not to be underestimated.”

Asgard Fixed Income Fund trades and invests long and short in government, mortgage, covered, and index-linked bonds to capture relative-value opportunities in European, mostly Scandinavian, fixed-income markets. Similar to its peers in the Danish universe of fixed-income hedge funds, the fund employs leverage to multiply expected returns from spreads. Friis Gade, who joined Asgard Asset Management earlier this year as Deputy CIO alongside CIO Morten Mathiesen, stresses the need for a strong emphasis on investment discipline and a continuous and consistent process to execute this strategy effectively.

Journey So Far

2022 was a challenging year for fixed-income investors and those focusing on capturing risk premia in fixed-income markets. Asgard Fixed Income Fund managed to navigate similarly challenging environments in 2008 with a 4.0 percent decline. 2022, however, proved to be a much more challenging year for the fixed-income fund. “The Global Financial Crisis in 2008 obviously pinpointed some risks embedded in the markets that weren’t really recognized earlier,” says Ullegaard. “The aftermath of this crisis served as a catapult for the Asgard Fixed Income Fund.”

After delivering an annualized return of 18.4 percent in the 12 years since early 2009, the fund paused its winning streak after edging down less than one percent in 2021 before booking a more painful loss of 10.9 percent in 2022. The fund did manage a 16 percent recovery in the final quarter of the year to mitigate some of the downturn. “2022 was very challenging in this respect with almost unprecedented correlation between risk premia strategies, that usually have moved much less in tandem through other recent crises,” explains Gade. This initiated a drive internally at Asgard to search for attractive diversifiers to safeguard the risk premia strategies to a larger extent. “We are essentially trying to make the strategy even more robust to different market scenarios.”

“2022 was very challenging in this respect with almost unprecedented correlation between risk premia strategies…”

“The recent period ending autumn 2022 with compressed risk premia due to massive QE from central banks across the globe in the aftermath of the Covid pandemic was certainly also challenging,” according to Friis Gade. “We witnessed markets that correlated to a much higher extent than usual, which challenged our positioning to a large degree,” he further elaborates. “But we regrouped on risks and focused more on core strategies as the expected return versus risk in this space improved tremendously.”

Asgard Fixed Income Fund made a notable recovery, achieving an 8.6 percent gain in the first half of 2023 and 26.3 percent in the trailing nine months. “The recent, solid performance of the strategy since the end of September of 2022 is predominantly due to ongoing income rather than favourable market movements such as spread compression,” emphasizes Friis Gade. “Hence, the expected return of the strategy is still at very lucrative levels from a historical perspective.”

Journey Going Forward

One advantage of the low-interest rate environment post the 2008 financial crisis had been the ability to achieve high leverage through cheap repo funding. Friis Gade acknowledges that sub-Libor funding levels prevailing for an extended period after the GFC are highly unlikely, but he remains confident that the proven strategy will continue to serve their investors well in the foreseeable future. 

“Opportunities are ample currently and relative value strategies look far more appealing than in the QE period since 2018 and onwards…”

“Opportunities are ample currently and relative value strategies look far more appealing than in the QE period since 2018 and onwards, hence we have a very constructive view on the strategy going forward,” concludes Friis Gade. “A broader team has been brought together and risk premia look ripe for picking across our core strategy space, so the future looks very rosy indeed,” adds Ullegaard. “But we are humble and know that it will take dedication, focus, and agility to fully exploit these attractive investment opportunities.”