Stockholm (HedgeNordic) – After an extensive career spanning both allocator and fund manager roles, Mikael Simonsen joined Visio Asset Management in late 2021 to lead the firm as managing partner and launch a hedge fund strategy. In early 2022, he introduced Visio Siilo, a fund designed to capitalize on the mean reversion of related, but siloed – isolated – risk premiums. After operating for one and a half years in an environment characterized by erratic behavior in the dislocation of risk premiums from their assumed equilibriums, Simonsen has decided to close down Visio Siilo.
“The Visio Siilo fund will be closed by the end of September and all funds will be returned to the investors due to lack of performance and assets under management,” Simonsen tells HedgeNordic. In connection with the fund closure, Simonsen is set to step down from his role as CEO, considering that the Siilo project was a fundamental aspect of his involvement with the company. “Every journey, no matter how promising, eventually reaches its destination,” he writes in a letter to investors. “The subpar performance that persisted through July has extended into early August, leading to a systemic stop loss trigger within the fund.” Visio Siilo edged down 1.2 percent over the first seven months of 2023, following a loss of about 10 percent in the challenging market conditions of 2022.
“Every journey, no matter how promising, eventually reaches its destination.”
“Within our investment framework, a systemic stop loss means a complete cessation of the investment process itself – a form of self-rectification,” explains Simonsen. “While we had hoped for the strategy’s continued success, a comprehensive evaluation of the past 10 months’ results relative to our initial expectations reveals a discouraging reality,” he acknowledges in the letter to investors. Having initially aimed for an information ratio of about one, the fund ended up with an inception-to-date information rate of -1.3. “This disparity implies a mere two percent likelihood that our expectations were reasonably accurate, attributing the poor outcome to bad luck,” says Simonsen.
Visio Siilo employed an investment approach focused on identifying clusters comprising similar but not identical risks. Simonsen then analyzed whether these risks were priced in a similar manner and aimed to capture dislocations in the pricing between these risks, which tend to fluctuate over time with an average of zero. Contrary to expectations based on past time series, Visio Siilo operated in an environment characterized by random walks in the movements of these clusters of similar yet isolated risk premiums. Consequently, Simonsen and the Visio team have chosen to discontinue the strategy and close down Visio Siilo.
“We cannot, in good conscience, continue managing funds on behalf of both external investors and ourselves, using a process that we’ve lost faith in.”
“Searching for potential factors contributing to this situation, we acknowledge a multitude of plausible explanations. However, these hypotheses reside in unchartered terrain,” says Simonsen. “Continuing to operate the fund based on speculative assumptions about potential causes is indefensible,” he continues. “We cannot, in good conscience, continue managing funds on behalf of both external investors and ourselves, using a process that we’ve lost faith in.”
One possible explanation for the erratic behavior of these risk premium dislocations lies in the growing prevalence of artificial intelligence in financial markets. “We believe that, at least concerning the Siilo investment process, the emergence of AI has reshaped the landscape,” argues Simonsen. “It is not that the opportunities would close faster than before but merely that the evolution of the opportunities have started doing new, quirky forms before closing,” he explains.
Visio Siilo is set to officially conclude its operations at the end of September, after less than two years in existence. “While the outcome did not align with our aspirations, it was always within the realm of possibility that our efforts would yield the intended results, benefiting all parties involved,” Simonsen concludes. “Evolution hinges on the sowing of promising seeds. Without venturing into the unknown, the prospect of greater achievements remains elusive.”