How We Do It
What are we looking for?
The unloved, the complex and the misunderstood. We look for market inefficiencies that can be identified and exploited. These inefficiencies exist for several reasons:
- Deal complexity
- Supply and demand imbalance resulting from:
- Structural issues due to changes in the investor base of a security
- Underfollowed securities and situations "off the beaten path"
- Information scarcity
How do we find it?
We diligently monitor news flow and outputs from computer models which process large amounts of data. The output is used to identify opportunities. We then screen these opportunities, and finally structure a trade.
- Arbitrage opportunities
- Unusual volatility
- Change in trends
- Fundamental Research
- Management Review
- Capital Structure Review
- Scenario Analysis and probability Establishment
How do we profit from it?
We employ numerous different trade types, strategies and structures to achieve returns and minimize risk.
- Risk Arbitrage
- Relative Value / Capital Structure Arbitrage
- High Yield / Distressed Debt
- Closed-End Fund Arbitrage
- Fundamental Value Arbitrage
- Statistical Arbitrage
- Volatility Carry
- Global Macro
- Special Situations
HoW do we manage / monitor risk?
Systematic trading but discretionary management. Quantitatively developed systems are a product of underlying inputs. Those inputs are conceived by humans, based on their assumptions. Rarely does a system conceive of those assumptions on its own. We recognize that every good systematic strategy requires discretion. Markets evolve, therefore so do we.
Our edge is not only in the development of our systems but in an ability to reassess systems performance and respond quickly to strategy decay. Even the most thorough back-tests can't predict an evolving market. Irrespective of performance, we constantly monitor strategy behaviour against expectations and then modify our approach regularly to adjust for change. In the event a modification is not enough, we are quick to unwind and move to the next opportunity. We believe long-term successful investing is as much about "not losing" money as it is about "making money". Structuring positions to avoid significant capital impairment plays a big role in our investment process. The portfolio follows guidelines to limit risk:
- Diversification: 30-100+ names in the portfolio
- Position sizing: Single positions structured to cap losses at 3% of NAV
- Conservative use of leverage: Average gross leverage of 2x since inception
- Stress testing: Daily position and portfolio stress testing to ensure durability in case of a market shock.