NORDIC HEDGE FUND INDUSTRY REPORT 2021 - HedgeNordic
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M 202
AR 1
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Promotion. For Investment Professionals Only. Not for public Distribution
NORDIC HEDGE FUND
INDUSTRY REPORT 2021
www.hedgenordic.com – March 2021 www.hedgenordic.com – March 2021
INTRODUCTION
HedgeNordic is the leading media
covering the Nordic alternative
investment and hedge fund universe.
The website brings daily news, research,
NORDIC HEDGE analysis and background that is relevant
to Nordic hedge fund professionals from
FUND INDUSTRY the sell and buy side from all tiers.
HedgeNordic publishes monthly,
REPORT 2021 quarterly and annual reports on recent
developments in her core market as
well as special, indepth reports on “hot
topics”.
HedgeNordic also calculates and
publishes the Nordic Hedge Index
(NHX) and is host to the Nordic Hedge
Award and organizes round tables and
seminars.
Contents 4 Editor's Note... Nothing to Write Home About.
38 Lynx Wins 20 Year Award – But is Not Relaxing
PUBLICATION PLAN 2021:
April:
May:
Finding Alpha in Equities
Illiquid Strategies
6 2020: A Tale of Two Extremes
44 2020 Nordic Hedge Award
June:
August:
Private Markets
Quant Strategies
September: Value / Quality Investing
10 The White Crow
48 Secrets of Long Livers: Crisis Alpha
October:
November:
December:
Multi Asset
Alternative Fixed Income
ESG and Alternatives
14 Fundamentally Driven
54 Where Are the Diversifiers?
CONTACT:
18 Truly Nordic Hidden Gems
58 SuperStrategies Kamran George Ghalitschi
Nordic Business Media AB
Kungsgatan 8
22 Capitalising on Nordic Market
Inefficiencies and Volatility 62 DNB’s All-in-One SE-103 89 Stockholm, Sweden
Corporate Number: 556838-6170
VAT Number: SE-556838617001
26 "Small" Compounders 66 You Can’t Eat a Sharpe Ratio
Direct: +46 (0) 8 5333 8688
Mobile: +46 (0) 706566688
30 Understanding and Capturing Change 70 The Multi-Strategy Appeal
Email: kamran@hedgenordic.com
www.hedgenordic.com
34 Boring is Good 74 The Hedge Fund Pandemic Picture Index: Drazen Zigic--shutterstock, Fer
Gregory--shutterstock, Dirk Ercken--shutterstock,
Shutterstock,
PROMOTION. FOR INVESTMENT PROFESSIONALS ONLY. NOT FOR PUBLIC DISTRIBUTION Design & Layout: Sara Ahlström
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an all-time high. We recorded ten new fund launches, One of the newer additions to the NHX, St. Petri
and unfortunately many more closures. Capital describes how “Understanding and Capturing
Change” leads to the Danish manager’s success.
One of the most exciting things I find, is when we Fredrik Sjöstrand is convinced that “Boring is Good”
“discover” new funds. We received an e-mail for when it comes to the strategies used by their factoring
instance from Jonathan Copplestone in the weeks fund or Scandinavian Credit Fund.
running up to Christmas inquiring whether his fund,
Lucerne Nordic Fund, would meet the criteria to be “Lynx wins 20 Year Award – but it is not relaxing” tells
listed in the Nordic Hedge Index. By experience, the tale of the journey behind, and also ahead of one
when the manager asks for index inclusion, we have of the Nordic’s oldest hedge funds.
learned that the track-record typically did not look all
that bad. For a PhD dissertation, Danielius Kolisovas dissects
the equity sub-index to the Nordic Hedge Index and
Then there are those funds which we happen to find discovers “The Secrets of Long Livers – Crisis Alpha.”
by knocking on doors, turning over stones or hearing The CIO of Veritas Pension Insurance, Kari Vatanen
of elsewhere. More often than not there are hedge asks the all-important question “Where Are the
fund strategies and funds buried deep in the big Diversifiers?” while the head of Nordea’s multi-asset
banks, SEB and Nordea being prime candidates for team is turning to “SuperStrategies.”
such hiding places. They are hard to bring to surface,
get access to or even identify the right people or get It has become a tradition that we highlight three new
a hold of the required information. Now, this does not launches in the Nordic Hedge Fund Industry report,
happen all too often, but just last week, we unearthed and 2021 shall be no different in that aspect and
two new index constituents falling into that category. Feature “DNB´s All-in-one,” Coeli’s Multi-Asset Fund
insisting “You Can’t Eat a Sharpe Ratio” and Anna
On the one hand, it is quite a frustration to learn that Svahn and Martin Sandquist, portfolio managers at
there are funds and managers out there that we do Antiloop Hedge, explain “The Multi-Strategy Appeal.”
not know of, or cannot access or who, for whatever
Editor´s Note...
reason, choose not to be listed in the Nordic Hedge The Nordic hedge fund universe now for many years
Index. At HedgeNordic, we do want to claim to know in a row has seen more graves than cradles, with
every Nordic fund and manager and have good, more funds going out of business than are being
established relations to them. launched. Reason enough for our very own Eugeniu
Guzun to investigate “The Hedge Fund Pandemic.”
Nothing to Write Home About. On the other hand, it is part of the fuel that drives
us. It is like a treasure hunt, knowing there are some
hidden few out there still to be discovered by us.
These random e-mails or calls that come pointing
KAMRAN GHALITSCHI
out a new fund. And some of them turn out to be
L
CEO & PUBLISHER HEDGENORDIC
ooking back at this last year since publishing gems we will be looking at in this publication, too.
our last Nordic Hedge Fund Industry Report in
March of 2020, there is really very little to write The 2021 Nordic Hedge Fund Industry Report kicks off
home about. Not that it was not an eventful year, on with a review of 2020, a tale of two extremes before
the contrary, this one will sure stick in our minds and we turn to “The White Crow,” interviewing Jonathan
we will be discussing it for decades to come. It is Copplestone who manages the Lucerence Nordic
just, most of us have spent more time than enough Fund out of New York. In “Fundamentally Driven,” we
at home, so there is probably really not much news to visit Volt Capital Management, a CTA using not price,
spread in our own four walls. but fundamental data in their trading models. Staffan
Östlin of Adrigo lets us in on how to find “Truly Nordic
For the Nordic hedge fund universe however, there are Hidden Gems” and SEB’s team managing Eureka
stories to tell a plenty – entire sagas were written and describes how they are “Capitalising on Nordic
will be sung. As a whole, the industry recorded the Market Inefficiencies and Volatility,” while Andreas
best annual performance in a decade and closed at Aaen at Symmetry bets on “Small Compounders.”
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Figure 1. A Tale of Two Extremes for Nordic Hedge Funds.
2020: A Tale of Two
Extremes
By Eugeniu Guzun – HedgeNordic
Source: HedgeNordic.
fund industry lost 6.8 percent in the first quarter of THE NORDIC HEDGE INDEX
last year, its worst quarterly decline on record. The OVERCOMES THE SURVIVORSHIP BIAS
quarterly decline was mainly attributable to the 5.4
percent-loss in March, which was the industry’s Hedge fund indices are often (perhaps wrongfully)
worst month on record. associated with exhibiting “survivorship bias,” which
reflects the tendency of certain data providers to
Starting with a loss of 1.8 percent in February and solely reflect the returns only generated by existing
then enduring an additional decline of 5.4 percent in funds – thereby, ignoring the performance of already-
2
020 was a year of extremes for markets, the first quarter, the Nordic hedge fund industry went March, the Nordic hedge fund industry experienced defunct funds. With no less than 30 Nordic hedge
investors and hedge funds managers alike. on to enjoy its best three-quarter performance since its second-worst drawdown on record in the first funds delisted from the Nordic Hedge Index last year
For the Nordic hedge fund industry, 2020 2005. quarter of last year. Drawdowns are peak to trough, – funds either closed down or merged into other
could be summed up as a tale of two extremes. The what about climbing out from the trough back to funds, an inappropriate calculation methodology
first quarter of last year was exceptionally difficult The Nordic hedge fund industry, as reflected by the a new peak? How long did it take for the Nordic for the Nordic Hedge Index could have resulted in
for Nordic hedge funds, which recorded their worst Nordic Hedge Index, advanced 8.5 percent last year, hedge fund industry to recover from its second- significant survivorship bias.
quarterly decline since HedgeNordic started tracking its strongest annual performance since 2009. Viewed worst drawdown? The recovery from the valley of the
the industry back in 2005. The industry’s sizeable on a standalone basis, 2020 was an exceptionally index to a new high lasted only four months. In the The Nordic Hedge Index tackles this bias by reflecting
drawdown was quickly offset by strong performance strong year for Nordic hedge funds. When looking final three quarters of 2020, the Nordic hedge fund the aggregate performance of both defunct and up-
when markets bounced back starting in April. beneath the surface, last year was indeed a tale of industry enjoyed a cumulative return of 16.4 percent, and-running funds. The index was up 8.5 percent last
Following the worst quarterly decline on record in two extremes for the industry. The Nordic hedge its best three-quarter performance on record. year, but the 138 active Nordic hedge funds returned
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10.9 percent on average last year. The 240 percentage in the NHX Equities. The 50 up-and-running equity In the graph below, the grey boxes show that the hedge fund in the Nordic Hedge Index was up 16.1
points-difference reflects the performance detraction hedge funds within the Nordic Hedge Index gained Nordic hedge funds that were not in the top and percent last year, but, again, the average hides wide
from the funds that closed during 2020 (which, 19.9 percent on average in 2020, while the NHX bottom 30 percent in terms of performance returned disparities.
unsurprisingly, performed worse than the up-and- Equities was up 16.1 percent as 13 members of this between 1.8 percent and 16.9 percent last year. About
running funds). sub-index closed down last year. one in every five members of the Nordic Hedge Index The top 20 percent of performers in the NHX Equites
achieved a return higher than 16.9 percent in 2020, returned 63.1 percent on average last year, while
The most noticeable difference between the Up-and-running Nordic multi-strategy hedge funds while eight percent returned above 30 percent. A little the bottom 20 percent were down 6.5 percent on
performance of a sub-index and the performance of returned 6.8 percent on average last year, whereas more than seven percent of all members returned average. The equity hedge funds that were neither
active funds underlying that sub-index is observed the NHX Multi-Strategy was up 4.0 percent. This 280 above 40 percent last year. in the top 30 percent nor in the bottom 30 percent
returned between 3.6 percent and 33.4 percent. In
About 47 percent of Nordic equity hedge funds a similar fashion, the great majority of fixed-income
outperformed the MSCI World’s 16.5 percent-return hedge funds returned between 1.6 percent and 9.7
last year, but one should not forget that most percent last year. The top 20 percent, meanwhile,
Figure 2. Lack of Survivorship Bias in the Nordic Hedge Index. Nordic equity hedge fund maintain a net market were up 13.8 percent on average, whereas the bottom
exposure below 100 percent. Some members of the 20 percent lost 3.0 percent on average. The majority
NHX Equities employ a market-neutral approach of multi-strategy hedge funds returned between 1.1
25,00
to investing, and some even maintain negative percent and 10.0 percent.
net exposure to the market. The average equity
20,00
3,80
15,00
10,00 2,41 Figure 3. 2020 Performance Statistics on the Nordic Hedge Index and NHX Sub-Indices.
16,07
5,00 1,59 0,80 2,77
8,49
1,73 105
4,62 St. Petri L/S, 98.3% St. Petri L/S, 98.3%
4,18 4,03 100
2,58
- 95
Nordic Hedge Index Equity Funds CTAs Fixed-Income Funds Multi-Strategy Funds Funds of Funds 90
Index Performance Detraction from Defunct Funds 85
80
Source: HedgeNordic. 75
70
65
60
Average (10.9%)
55
50
45
percentage points-difference stems from the worse- disparities. With a return of 98.3 percent, thematic- Volt Diversified Alpha Fund, 41%
40
than-average performance of the 13 multi-strategy focused long/short equity fund St. Petri L/S was last 35
Nordic Cross Stable Return, 27.3%
hedge funds that closed down last year. Similarly, the year’s best-performing member of the Nordic Hedge 30
25
existing funds of hedge funds in the Nordic Hedge Index. The worst performing fund that is still part
20 70th percentile (16.9%)
Index were up 4.3 percent last year, while the NHX of the index, meanwhile, was down 17.4 percent. Asgard Fixed Income Fund, 16.2% Brummer Multi-Strategy, 12.5%
15
Funds of Funds, which reflects the performance of The dispersion between last year’s best- and worst- 10
defunct funds too, gained only 2.6 percent. performing hedge fund was wide, very wide in fact. 5
0
-5 30th percentile (1.8%)
The top 30 percent of all members of the Nordic -10
AVERAGES HIDE DISPARITIES Hedge Index gained 30.2 percent on average, whereas -15
the bottom 30 percent was down slightly over two -20
-25
The Nordic hedge fund industry gained 8.5 percent percent. The top 20 percent, meanwhile, gained 37.9
NHX Equities Fixed Income Multi-Strategy Fund of Funds CTA
net-of-fees last year and active Nordic hedge funds percent last year and the bottom 20 percent lost 3.9
were up 10.9 percent on average. While these average percent on average.
figures are useful for comparison, averages do hide Source: HedgeNordic.
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The White Crow
By Eugeniu Guzun – HedgeNordic
Jonathan Copplestone, Portfolio Manager – Lucerne Capital Management.
T
he term “White Crow” is a Russian language- Hedge Index has a different claim to being listed. The in the Nordic region. “One of the most frequent
originating metaphor for a person who is
“I have never seen Lucerne Nordic Fund is a Cayman Islands-domiciled questions that comes up when talking with potential
different from others, one variant of the “black
sheep” metaphor used for someone with exceptional
any correlation hedge fund run by a Brit out of New York but runs a
strictly Nordic investment theme.
investors is how can you have an investing edge
sitting in New York?” Copplestone tells HedgeNordic.
ability and an outsider who does not fit in somewhere. between managers’
One new member of the Nordic Hedge Index appears Warren Buffett famously said that allocating money “Part of my answer is that we have better access
to be epitomizing this concept. location and their out of Omaha, far away from Wall Street, helped him to management than we would have by sitting in
achieve investing success by being “undisturbed by London, Stockholm or other cities because every
The funds included in the Nordic Hedge Index performance.” irrelevant factors and the noise generally of business Nordic company, large or small, comes to New
have typically either been managed by Nordic-born investments.” While Jonathan Copplestone of York and we get to talk to them,” says Copplestone.
managers, have been domiciled in one of the Nordic Lucerne Capital Management lives in New York City Since Lucerne Capital Management is a unique
countries, or have been run by teams out of the in the heart of Wall Street, he is an ocean away from organization in New York because of its pure focus
Nordic countries. The latest addition to the Nordic his hunting ground: small- and mid-sized companies on small- and mid-sized European companies, “we
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get to see Nordic companies one-on-one when they Copplestone regards return on invested capital as but it is so much harder to make money on shorts,” he
are in town,” according to Copplestone, who was a one of the best measures of financial success for acknowledges. “If you try to make money by shorting,
founding member of Enskilda Securities in London a business, sharing the same opinion with the likes the window of opportunity is very narrow unless you
in 1982. “The other part of the answer is that I have of Charlie Munger or Terry Smith. “When looking at are able to short the right stocks at the exact right
never seen any correlation between managers’ individual companies, we focus on what they can time.”
location and their performance,” he continues. “One make on the capital reinvested in the business,”
of best fund shops investing globally that I knew was Copplestone tells HedgeNordic. “If businesses are “I haven’t come across better corporate governance
based in Alaska, and they were absolutely spectacular deploying a lot of capital now because they are anywhere, including the United States, which is one
investors.” growing and are generating negative cash flows as of the reasons the Nordic markets are so fantastic
a result, that’s fine,” he continues. “I don’t need to see for investors,” says Copplestone. “It is not only the
“We have Copplestone relies on a bottom-up investment
process to build a concentrated portfolio between 20
cash flows straight away, but I do have to see that
in the next few years the companies can get good
laws but also the culture that supports the laws,”
he continues. This environment makes shorting
better access to to 50 names from a universe of around 400 Nordic returns on that capital invested.” in Scandinavia harder than elsewhere, “because
companies with market capitalizations between underperforming management teams are identified
management than $200 million and $5 billion. A fund manager’s “We are fixated on how much capital a business and replaced much more quickly,” according to
investing success “is all about the process,” considers needs, and the potential returns on that capital,” Copplestone. “You don’t see those long-lingering
we would have by Copplestone. And his proven and repeatable research elaborates Copplestone. “That doesn’t put us in the decaying businesses where the shareholders are not
process has borne fruit despite him being thousands corner of value investors or cash flow-obsessed taking responsibility and not making management
sitting in London, of kilometers away from the Nordic region. Lucerne investors,” he emphasizes. “In a nutshell, we are changes. It is a smaller pool of opportunities to short
Stockholm or other Nordic Fund has delivered an annualized return
of about 33 percent since Copplestone started
very much bottom-up focused, return on capital-
obsessed,” says Copplestone. “If I were to highlight
in the Nordics.” For that reason, Copplestone spends
“the vast majority of my limited mental bandwidth
cities because every managing the fund in early 2015. a style preference, I definitely have a skew towards looking for longs.”
growth, but at the moment, I equally own low-growth
Nordic company, large businesses because the returns on capital are so
BOTTOM-UP FOCUSED, RETURN good. Adaptability and flexibility are very important,
or small, comes to ON CAPITAL-OBSESSED they have served us very well.”
New York and we get “The investment process starts with the companies,”
to talk to them.” says Copplestone, who has more than 30 years of UNATTRACTIVE RISK-REWARD
experience working in Nordic capital markets. “I
FOR NORDIC SHORTS
work very comfortably with the broking community
in the Nordics, which is of a very high standard,” he Despite running the Lucerne Nordic Fund with a net
emphasizes. “But the key aspect of my process is market exposure in the range of 29 percent to 106
meeting with the company management and meeting percent over the last five years, Copplestone mostly
with the other stakeholders such as board members runs a long-biased portfolio. Partly because profitable
to discuss strategic priorities,” adds Copplestone. short ideas are more difficult to uncover but mostly
“Those things you don’t read in a research report.” because Copplestone is an “optimist, equity guy” who
Regular discussions and meetings with corporate believes equity markets will continue to rise over
management help Copplestone avoid surprises in time, “I am skewed very long,” says Copplestone. “I
the portfolio. run a hedge fund and I do short stocks occasionally,
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Fundamentally Driven
By Kamran Ghalitschi – HedgeNordic
Patrik Säfvenblad
CIO
Volt Capital Management
A
fter a period of drought, 2020 was a good into the volatile period that initially saw global equity Säfvenblad, Volt’s CIO explains. Market volatility
year for CTAs. CTA indices advanced broadly,
"We are not actively indices sharply declining, with strong, long positions. often means that fundamentals have changed, and
with the CTA sub-index for the Nordic Hedge
Index, for instance, advancing by 4.2 percent during
basing our positions Whereas many funds, hedge funds, and CTAs were
caught flat-footed by the coronavirus-fueled market
that markets are searching for a new equilibrium.
the year. In this heterogeneous space with many on market prices, sell-off, Volt Diversified Alpha successfully captured In contrast to many other commodity trading
different approaches, styles, and strategies, some trends triggered by the deteriorating sentiment. advisors, price data is not the key driver for entering
stars shone brighter than others, and some appeared fundamentals are a or exiting positions for Volt. “We observe market
in the sky as high voltage bolts of lightning. prices, and they help determine things such as timing
far superior indicator FUNDAMENTAL EDGE or stop losses. However, we are not actively basing
Volt Diversified Alpha Fund returned beyond 40
percent in 2020, over 22 percent in the first quarter,
to predict market “When volatility picked up in late February and onward,
our positions on market prices,” explains Säfvenblad
and continues, “fundamentals are a far superior
and 11.5 percent alone in March, when many other developments.” there were a lot of noisy signals from market prices. indicator to predict market developments.”
CTAs struggled. The average CTA would have gone If you are price-based, volatility is your enemy,” Patrik
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“In the two major market moves of 2020, the initial Well over 8000 independent, bottom-up signals feed risk management in mind, maybe more than anything
crash triggered by the pandemic and the following 200 different fundamental models weighted by their else. “Risk management is inherent in our DNA,”
rally supported by economic stimulus, fundamentals expected contribution in the current market regime. Lindeman explains. “Risk management stretches
behaved largely normally and we were able to predict from a model level, to portfolio construction, trade
moves early, ahead of the curve,” Tommi Lindeman, execution to operation. It covers all areas; from
Volt’s Head of Business Development observes. Volt, MACHINE LEARNING AND investing in diversified, liquid markets, having a
therefore, relies on fundamental data for its trading bottom-up view rather than having a biased in-house
SMOOTH OPERATIONS
signals. view, not making use of high leverage, working a
Machine learning supports areas such as data disciplined reduction of losing positions with stop-
The manager’s models are classified in five main collection, signal generation, and real-time execution. loss in every market and more.”
"Getting your groups: market fundamentals, economic data, Machine learning also evaluates each model and
stop-losses right, market sentiment, relative value and calendar effects.
Market fundamentals host the highest risk allocation
market based on expected contributions in the
current environment. “We have an open architecture,
“Getting your stop-losses right, determining which
positions to keep or cut is one of the hardest achieved,
determining which based on expected returns and the low correlation and new models coming up from research are but most crucial part of the secret sauce to a good
to other models. They could include mining output, straightforward to plug in. However, our machine risk-return profile,” explains Säfvenblad. “Getting
positions to keep shipping activity or weather data. An especially wet learning framework will determine if and when these stopped out too often can be costly, and then, when
or hot period in the American Midwest, for instance, new models will be allocated to, and to what extent,” do you get back in? The period of March to April was
or cut is one of the during harvesting or planting season may give good Säfvenblad explains. a perfect example of there being no point in getting
hardest achieved, but indications on the future pricing of wheat, or other
grains. Säfvenblad is pleased that operations worked
back in too early.”
most crucial part of smoothly and uninterrupted even in the volatile
“You can see Volt as a conglomerate of many market markets of last spring and under work-from-home VIRTUAL PROCESS, REAL
the secret sauce to specialists. There are many specialist ideas, and key conditions. “It gave us the opportunity to stress
INVESTORS
market factors driving individual markets,” explains test the entire system in a real-life environment, and
a good risk-return Lindeman. “Some of our modeling would be looking every part of it worked to perfection,” he says. There Volt Diversified Alpha Fund, launched in March of
at a market just as a discretionary trader in a specific were also no hiccups with external service providers 2017, reached its three-year track record last year.
profile." market might. Weather data is crucial for someone such as the fund’s administrator, Northern Trust, and This, in combination with the strong performance
trading grains but largely irrelevant for a metals clearing broker Goldman Sachs. “Here, our investment shown during 2020, has enabled Volt to attract
trader.” in a robust infrastructure and an institutional quality new investors with fresh capital to the fund. “We
operational setup really paid off.” onboarded new investors and managed to grow
The portfolio breakdown, too, shows a sector assets under management during the year. The
diversification that is distinct from most peers. entire process from due diligence to investment was
Exposure to equity indices, for example, only account RISK MANAGEMENT IN DNA done remotely through digital channels,” Lindeman
for 11 percent of the portfolio, whereas metals, softs, explains.
and energy combined account for more than half the Säfvenblad stressed that 2020 was the year of
portfolio, the remainder falling to fixed income and risk management where all could be won or lost,
FX. showing that Volt Diversified Alpha was built with
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Truly Nordic Hidden
Gems
By Eugeniu Guzun – HedgeNordic
M
aking money in the stock market sometimes the fund’s portfolio over time, with each Core position Staffan Östlin
Portfolio Manager
involves going places everybody else is usually accounting between eight and 11 percent
Adrigo.
neglecting or outright avoiding. Places of the entire portfolio. These four to six positions
such as an unloved company getting its house represent core, high-conviction investment ideas
back in order or a small, little-known company with in companies undergoing some form of long-term
significant upside potential. Staffan Östlin and his change. “That is really where we take a very long-
co-portfolio manager Johan Eriksson are focused term view,” explains Östlin, adding that “we look for
on finding undiscovered and unloved gems among significant change within a company or an industry.”
smaller companies in the Nordics for Adrigo Small &
Midcap L/S. Since launching the stock-picking hedge “We like to invest in low expectations, and low
fund back in late 2017, Östlin has found plenty of expectations could involve a share price that has gone
such gems. South, a company run by mistrusted management, a
company experiencing some problems in a division, or
a business with a long history of underperformance,
THE CORE but a new management coming in,” Östlin explains
the most common traits of the Core holdings. Östlin
Adrigo Small & Midcap L/S maintains a truly Nordic also emphasizes the importance of aligning his
concentrated, high-conviction portfolio that houses fund’s interests with the ones of management teams
between 25 to 30 long positions allocated across and other owners in these long-term investments. “It
three building blocks: Core Five, Dynamic, and High- is very important that we have the right owners and
Potential. The Core Five block, which “can essentially also the right management in the sort of long-term
be called Core Four to Six,” accounts for about half of cases, really transformation cases, that tend to have
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an investment horizon between two to five years,” space, considers Östlin. “Investors should expect overall annual return we have managed to deliver,”
says the fund manager, who has a little more than 30 us to continue to find undiscovered stocks and they says Östlin. “We are also pleased to have avoided
years of investing experience. should expect us to continue to be very curious,” says a down year so far, and we are very happy that we
the fund manager. “We meet around 200 companies produced a positive return in 2018, which was a
per year, and that gives us a very good view of the difficult year for small caps,” he continues. However,
DYNAMIC overall market, of what is happening or changing in Östlin and his co-portfolio manager, Johan Eriksson,
the market, and of all new business models coming are not satisfied with the drawdowns incurred during
The Dynamic block contains about 15 names and to the market.” a few separate months. “We had two relatively big
accounts for around 35 percent of the entire portfolio,
“It is very important drawdowns,” acknowledges Östlin. “The focus for us
investments with a shorter investment horizon
between one and 12 months. “That is a more trading-
that we have the right SHORT BOOK
now is bringing down the volatility, particularly on the
downside.”
intensive part of the portfolio,” says Östlin. “We have owners and also the
a good view and understanding of at least 400 stocks Since launching in late 2017, Adrigo Small & Midcap With a full-year advance of 44.5 percent, 2020 was the
from our Nordic universe and quite often we find that, right management L/S has maintained a net market exposure between fund’s best year yet. “We had very good performance
shorter term, the stock market is hammering down 40 and 50 percent, but “the net exposure varies quite a from all of the building blocks in our portfolio,” says
some stocks a little bit too much around quarterly in the sort of long- lot throughout the months,” according to Östlin. “The Östlin. “We had good returns from high potentials
earnings releases or other announcements,” explains net exposure really depends on the opportunities we such vertical farming company Kalera, for example,
Östlin. “We might use these shorter-term price
term cases, really find both on the long side and also on the short side,” which was added in late March and started off as
drifts as opportunities to generate returns,” says the
architect of the strategy powering Adrigo Small &
transformation cases, he continues. “The exposure doesn’t have too much
to do with our view of the overall market.” The fund
a very small position,” he points out. “Game-based
learning platform Kahoot was more of a dynamic
Midcap L/S. “Our dynamic investments allow us to that tend to have an tends to maintain a concentrated portfolio of 25 to position that started off as a high potential two and
react when market conditions are changing.” 30 long positions, with roughly a similar number of a half years ago and performed really well for us,”
investment horizon short positions. says Östlin. “But we also had good performance from
medical technology company Bonesupport, which is
FINDING UNDISCOVERED STOCKS between two to five The short candidates usually include market darlings clearly among our core five ideas.”
The High-Potential block includes long-term, high-
years.” near inflection points, companies hurt by structural
shifts in their industries, or companies using Commenting on the fund’s strong rebound following
return potential ideas that collectively account for aggressive accounting. “Like most hedge funds, the turbulent market conditions in the first quarter of
15 percent of the fund’s portfolio on average. “High- we look for aggressive accounting or businesses last year, Östlin says that “in late March we decided
potential investment ideas clearly involve much in structural decline,” says Östlin. “We are very to turn around both the short side and the dynamic
higher risk levels compared to the Core Five,” points pragmatic in managing our short book,” he adds. “We part of the portfolio.” The team “added more high beta
out Östlin. “We usually make these investments trade the short book every day, we are very active, but stocks on the long side, which produced very good
in very small companies that are below the radar quite often, we are shorting the same names.” Östlin returns in April and May, so we quickly recovered from
screens of many investors and even many traditional occasionally initiates short positions to hedge out the drawdown experienced in February and March,”
small-cap funds,” he continues. “Our high-potential some sector risk stemming from the larger positions according to Östlin. “We have also been successful in
ideas have limited sell-side analyst coverage, strong and also makes use of index futures to adjust the net holding on to the winners,” says the fund manager. “It
management teams, and commercially viable exposure over time. is very easy to sell a stock when you are up a hundred
products on the market.” Östlin expects much higher percent, but we managed to hold on to these winning
returns from high-potential ideas than the core five stocks.” Overall, “It was really stock-picking that has
holdings, which are expected to double during their PERFORMANCE AND RETURN DRIVERS contributed to our performance both last year and
holding periods. throughout our journey since inception.”
Adrigo Small & Midcap L/S has delivered an
The ability to find high-potential, undiscovered stocks annualized return of 26 percent since launching in
differentiates Adrigo Small & Midcap L/S from other November 2017, accompanied by an inception-to-
vehicles focusing on the Nordic small- and mid-cap date Sharpe ratio of 1.36. “We are very happy with the
20 21www.hedgenordic.com – March 2021 www.hedgenordic.com – March 2021
Capitalising on Nordic
Market Inefficiencies
and Volatility
By Hamlin Lovell – HedgeNordic
Tore Davidsen, Bo Andersen, Rasmus Dall-Hansen
Portfolio Management Team – SEB Eureka Fixed Income Relative
Eureka needs to stay nimble to rapidly shift exposures
T
he SEB Eureka strategy launched in January The investment universe is mainly ‘AAA’ rated
"We do not as relative valuations and pricings move around.
2018 has delivered a double digit return in
2020, including a positive month in March 2020,
government and covered bonds in the Nordic
countries of Denmark, Sweden and Norway, but also
automatically trade The investment process starts with quantitative
screens, but it is a discretionary process that includes
with low single digit volatility, and has averaged high includes interest rate swaps and cross currency every two standard qualitative judgement. “We do not automatically
single digit returns since inception. This matches the basis. The fact that these countries still have their trade every two standard deviation outlier. We need
expectations of Copenhagen-based Senior Portfolio own currencies adds to the opportunities. deviation outlier. We to observe why the market has moved. The “why” is
Manager and CIO, Bo Michael Andersen, who began as important as the “what”. Then comes the “how” –
preparing the launch in late 2016: “I came from a Though Scandinavia does boast some of the largest need to observe why the how we implement it to get exposure, and how it fits
position in SEB Markets where I saw from first-
hand experience how tougher bank regulations were
covered bonds markets in Europe, the strategy is
about alpha rather than asset gathering. It was seeded
market has moved. The into our existing portfolio. We are trying to construct
a well-diversified portfolio,” says Andersen. For
increasing volatility and mis-pricings, particularly
in Scandinavian markets, which were already less
with around DKK 1.1 billion by tier one institutions in
Scandinavia, such as pension funds, insurers and
“why” is as important as instance in covered bonds, the Eureka team will form
a view on variables such as mortgage bond issuance,
efficient. We find the opportunities are better in our foundations. Assets are currently DKK 2.5 billion and the “what”.” curvature, hedging instruments, investor demand,
local markets than in global fixed income markets.” nearly half of capacity has been taken, given the soft money market fixings and derivative flows, based on
capacity limit of DKK 5-6 billion. their market intelligence and proprietary analytics.
22 23www.hedgenordic.com – March 2021 www.hedgenordic.com – March 2021
Eureka has delivered on its target to generate not only found that market volatility creates better trading This illustrates one important feature of portfolio spread on underlying instruments is typically 1 or 2
absolute returns but also lowly correlated returns. opportunities. For instance, the return in 2020 was construction: the sub-strategies are themselves lowly basis points, which multiplies up to 50 or 80 basis
“Our institutional investor base are focused on the more than that in 2018 and 2019 taken together and correlated. That partly explains why the strategy points at the fund level after applying leverage”.
diversification benefit and want strong risk adjusted a positive return was recorded in March 2020. has undershot its volatility target of 4-8%, which the
returns. We avoid directional exposure and correlation manager admits might be a bit too high. Some areas of the Nordic fixed income markets
to interest rates, credit and equity,” says Portfolio Yet very little of the performance has come from have occasionally experienced liquidity and valuation
manager, Tore Davidsen. In volatile markets, there is explicitly owning long volatility portfolio insurance, The strategy has also been less volatile because issues, most recently in March 2020 when some
no magic formula that will lead a portfolio to deliver such as tail risk hedges. One possibly surprising it used moderate leverage, which also meant that funds had to briefly suspend dealing. Andersen does
these returns, so diversification, active management aspect of the performance attribution is that the tail the manager had dry powder to take advantage of not expect this is likely to happen in his markets: “we
and rebalancing are required. risk hedges overlay contributed positively in 2019 - the March 2020 selloff and rebuild covered bond are confident about the liquidity of the markets traded
but registered a zero return in 2020. This is actually exposures at very attractive levels. – even under Lehman, the Danish market stayed open,
and spreads didn’t widen that much in March 2020,”
OPPORTUNISTIC SUB-STRATEGY says Andersen. The Luxembourg RAIF structure fund
LEVERAGE AND LIQUIDITY offers monthly liquidity and publishes daily NAVs.
ALLOCATIONS
There are three core return drivers: “on average, one In common with strategy and trade selection,
third of returns should come from carry and roll down
“We do not want to leverage is used very opportunistically and varies a
on covered bonds, one third from active covered
bond trading driven by valuation or shifting between
be forced to unwind lot. Leverage adjusted to ten year bond equivalent has
ranged between two times and seven or eight times in
Swedish, Danish and Norwegian paper, and one third positions in stressed gross terms, and net leverage has been much smaller,
from the other strategies, including callable Danish often near zero.
mortgage bonds, interest rate swaps and cross markets.”
currency swaps,” says Andersen. Leverage is obtained from multiple banks through
repos of between two weeks and three months’
Eureka is highly opportunistic however, so the strategy maturity. “They are not guaranteed but we want to be
and performance attribution mix will vary from year to an attractive client to banks so they are reluctant to
year - and in fact less than half of the 23.11% returns pull repos,” says Andersen.
from inception to January 2021 have come from quite easy to explain in the context of opportunistic
covered bonds, both active management and passive allocations amongst the sub-strategies: “we need tail Leverage is only one angle of multi-layered risk
harvesting risk premia. This reflects the opportunity risk hedges mainly when we have more covered bond management, which also includes real time monitoring
set and also the investment philosophy. exposure. We entered 2020 with very low exposure of risks, limits and stress tests. “We do not want to be
to covered bonds, because they were expensive, and forced to unwind positions in stressed markets,” says
Some fixed income arbitrage hedge funds make the so did not need to spend money on tail risk hedges,” portfolio manager, Rasmus Dall-Hansen. Independent
majority of their returns from leveraged carry trades, says Andersen. risk management and internal audit, both conducted
that often demonstrate a “short volatility” return profile by the SEB Group, add to the controls.
because they are either explicitly selling options such Diversification and active trading delivered a positive
as mortgage prepayment options, or perhaps implicitly return in March 2020. Though the covered bond sleeve Leverage also influences the dealing costs of the
selling options on liquidity or volatility or both. Eureka unsurprisingly lost ground in March 2020, the overall fund, which has a variable bid/offer spread, based
is sometimes earning a reward for liquidity provision, return for the month was a positive 1.2% because on the costs of building or liquidating the portfolio
and can have a meaningful sensitivity towards spread the losses on covered bonds were outweighed by – essentially the bid/offer spreads on the underlying
widening, which has so far peaked at 33 basis points profits on the other strategies, including relative value assets. This protects investors from transaction
of fund NAV per spread basis point. But viewing strategies in interest rate derivatives and government costs of inflows and outflows, and clearly does not
the overall strategy in big picture terms, Eureka has bonds. generate any profit for the manager. “The bid/offer
24 25www.hedgenordic.com – March 2021 www.hedgenordic.com – March 2021
“Small” Compounders
By Eugeniu Guzun - HedgeNordic
Andreas Aaen
CEO and Portfolio Manager
Symmetry Invest.
A “We are mostly focused
ccountant-turned-fund manager Andreas have been able to find a lot of smaller-sized market is expanding, have an edge over the market and have
Aaen is looking for so-called “compounding leaders in smaller niches,” says the fund manager. none or reduced analyst coverage,” explains Aaen.
machines” where few are looking: in the “We are mostly focused on finding long-term on finding long- Such businesses tend to be founder-led companies
universe of smaller-sized businesses across the compounders among smaller-sized companies, and with a founder that acts as chief executive, president,
Nordics, the rest of Europe and the United States. “We these are normally founder-led companies.” term compounders board member or holds some other position of
mostly look for what we call small market leaders significant influence.
in expanding niches,” says Aaen, who launched his among smaller-sized
long/short equity fund Symmetry Invest out of the FOUNDER-LED COMPOUNDERS “There are two reasons our strategy focuses on
region of Aalborg in Denmark back in early 2013.
companies, and these founder-led companies,” says Aaen. “One is that
“Sometimes investors ask how do we find market
Andreas Aaen and his co-portfolio manager Henrik
Abrahamson, who joined Symmetry Invest during the
are normally founder- statistics show that investors get the best returns
from investing in this segment,” points out the fund
leaders by focusing on small-cap companies if summer of last year, are predominantly looking for led companies.” manager. “The second reason, which I have come to
market leaders are normally big companies with lots smaller businesses with a sustainable competitive appreciate a lot, is that I just have more fund analyzing
of resources,” Aaen tells HedgeNordic. “Although advantage in a small yet expanding market niche. and looking at founder-led companies,” says Aaen.
most market leaders are indeed large companies, we “Most businesses we like operate in a small niche that “Running Symmetry Invest is a 24-hour-a-day job, so
26 27www.hedgenordic.com – March 2021 www.hedgenordic.com – March 2021
if I have to stay up late at night, I need to have fun who recommend staying small, concentrated, and backward – in March of last year. With its long book
doing it,” he continues. “Interacting with the founders invest for the long term,” says Aaen. Symmetry housing founder-led companies characterized by
that have a real passion for their companies and their Invest maintains a concentrated portfolio to limit the low levels of free float, Symmetry Invest incurred a
industries is just what I love to do.” downside effects of over-diversification stemming loss of 37 percent in March, but the fund still ended
from the dilution of portfolio manager’s attention, the year up over 40 percent. “In retrospect, we did all
By focusing on founder-led companies, Symmetry
Invest tends to invest alongside people who often
“We just do what has knowledge and time, with Aaen focusing on ten
names and his partner Abrahamson focusing on five
the right things from a stock selection perspective,”
says Aaen. “We found the right stocks, we bought
have a long-term vision and a sense of legacy, have worked so well in names. more of them and we earned a lot of money after the
significant “skin in the game,” and have incentives March period all the way through the end of the year.”
aligned with the ones of shareholders. These the past for famous With Abrahamson joining Symmetry in the summer
combined tend to lead to better capital allocation of last year, “I have become more concentrated “From a risk management perspective, I should have
decisions, which is essential for long-term investors investors such as within my own portfolio because he takes five done a little better on the hedging side,” acknowledges
such as Symmetry Invest that are looking for positions himself,” says Aaen. “I now concentrated Aaen. “That was something we improved a lot on
“compounding machines.” Long-term wealth creation
Warren Buffett, on ten holdings instead of 20, which enables me to during the course of last year,” he continues. “One
for shareholders, after all, involves reinvesting
internally-generated cash or borrowed capital at
Mohnish Pabrai and concentrate more on my best ideas,” he adds. “I do
not think one can analyze too many companies, I
thing I believe we are really good at is constantly
learning, developing and adapting to the market
attractive rates of return. other legends who only have real conviction in a small number of ideas,” environment,” argues Aaen. “We spent one day a
emphasizes Aaen. “If looking at my returns in the week just reading books or letters instead of doing
“Share buybacks, dividends, or merger and acquisition recommend staying past, one can see that my biggest investments have pure investment work,” he adds. “We have been agile
decisions are capital allocation decisions that can been the best-performing ones.” around moving to where the opportunity set is, which
create value over time,” says Aaen. “But one thing I small, concentrated, involves a constant learning process.”
have come to appreciate is management teams that As bottom-up investors, Aaen and Abrahamson steer
are really, really good at capital allocation within the
and invest for the Symmetry Invest’s net market exposure depending Symmetry Invest gained an additional 18 percent in
company,” he emphasizes. Aaen and Abrahamson
are increasingly focusing on internal capital
long term.” on the opportunity set at a given point in time. “When
the market is quite overvalued, it is easier to find
the first two months of 2021, helping the fund keep
its status as one of the best-performing Nordic hedge
allocation, which may involve allocating capital short positions, but in a market environment such funds in the universe. With an annualized return of
towards marketing activities, training employees, as the one in March of last year, I had an easier over 23 percent, Symmetry Invest has delivered the
better equipment, technology or user experience, time finding longs,” explains Aaen. “We do not try to second-highest annualized inception-to-date return
among many others. “We spend a lot more time time the market.” The lead generation on the short among the funds with a track record exceeding five
finding management teams that are really good at side, however, is more automated. “We have a lot of years. The strong performance in 2021 is “just a
these internal capital allocation decisions, because it data tools and internally-developed systems to get continuation of what worked towards the end of last
is much easier to understand whether one should do short candidates and then we do the due diligence year,” says Aaen. “Of course, I will say that I am good
buybacks or pay out dividends.” manually on those leads to decide what to short,” at selecting stocks, but it was also a little luck from
says Aaen. “The shorting is more event-driven and some positions that just went really well.”
the holding period is much shorter.”
CONCENTRATION OF FOCUS
Symmetry Invest is a long-biased long/short equity PERFORMANCE IN FOCUS AND
fund running with a net market exposure between 60 CONSTANT LEARNING
to 80 percent, with the long portfolio housing between
12 to 18 names and the short portfolio including Symmetry Investing has generated an annualized
from 15 and up to 40 names. “We just do what has return of 23.3 percent since launching in March
worked so well in the past for famous investors such of 2013 through February this year, but this
as Warren Buffett, Mohnish Pabrai and other legends “compounding machine” ground to a halt – and rolled
28 29www.hedgenordic.com – March 2021 www.hedgenordic.com – March 2021
Understanding and
Capturing Change
By Eugeniu Guzun – HedgeNordic
E
uropean stocks have returned an average of on, we could face a similar scenario going forward,
1.3 percent per annum since the end of 1998 in where the overall market doesn’t do much, but there
nominal terms, which amounts to nothing when is massive disruption beneath,” argues Danielewicz.
adjusting for inflation. On the surface, the universe of “If you just focus on the index as a whole, you will
public companies in Europe has been sleepwalking not be able to capture the disruption,” warns the fund
its way through two “lost decades,” but in reality, there manager, who launched a thematic-focused long/
was a breadth of changes afoot on the continent. short equity fund – St. Petri L/S – in early 2018. “That
is the motivation for us to focus on paradigm shifts.”
“If you invested a hundred euros in a European Left: Michal Danielewicz and Jens Larsson, Portfolio Managers and Founders – St. Petri Capital.
stock index 20 years ago, you would still have a
hundred euros now,” says Michal Danielewicz, who UNDERSTANDING AND
co-founded thematic-focused asset manager St.
CAPTURING CHANGE
Petri Capital with Jens Larsson back in 2017. “But
if you look beneath the surface, some very powerful
seismic shifts have occurred,” he emphasizes. Some
St. Petri L/S, which returned 98 percent during
2020, represents “a thematic, unconstrained and
“We invest in change, we invest in disruption.
sectors, such as the European banking sector, uncorrelated hedge fund,” according to Danielewicz. Our thematic investment process focuses
have significantly underperformed, but many other “We invest in change, we invest in disruption. Our
industries have evolved, developed, and created thematic investment process focuses on change, on change, on understanding change, and
significant value over the years. on understanding change, and capturing change,”
he continues. “Before we engage with and invest capturing change.”
“Given where we are in the long-term debt cycle, the in a company, we try to understand the seismic
level of interest rates and the disruption that is going shifts that are driving and will drive this company – Michal Danielewicz
30 31www.hedgenordic.com – March 2021 www.hedgenordic.com – March 2021
and its industry over a longer period of time.” At its The second block, expectations, involves assessing each other that this is negative and you have to go
core, St. Petri L/S is a European-focused long/short what market expectations are priced in a company’s the other direction.”
fundamental equity fund that utilizes a thematic stock price. “When looking at valuations, you can see
process for stock picking to capture CHANGE. what is actually being priced in terms of expectations,” “The second point is that many of the themes that
says Danielewicz. When analyzing a potential Covid had an impact on or accelerated had already
At any moment in time, Danielewicz and Larsson investment opportunity, Danielewicz and Larsson been in our portfolio as they were initiated a few
maintain a portfolio consisting of eight to 12
“Given where we go through “a long list of checkpoints that every years back,” continues Danielewicz. “Themes such
investable themes, which collectively house between
50 to 60 positions – half of which are on the long side
are in the long-term fundamental equity analyst considers, which include
assessing management quality, scrutinizing the
as the online retail transition, all the online, stay-at-
home or work-from-home themes, had already been
and the other half on the short side. “The number of debt cycle, the level balance sheet and income statements, conducting part of our portfolio,” he adds. “On the short side, we
names within each theme depends, first of all, on the ESG screening, Porter’s Forces and SWAT analysis, had already shorted real estate companies before
maturity of the theme,” explains Danielewicz. “We of interest rates all those types of things.” the pandemic,” says Danielewicz. “Again, it was just
believe every theme follows an S-curve and has its a question of adjusting the right knobs.”
own maturity life cycle.” and the disruption The duo then adds a thematic overlay to their valuation
“For younger, early-stage themes, where we do not
that is going on, we process, which reflects their own expectations
about the impact of structural changes on the
Size was also a critical element that enabled
Danielewicz and Larsson to deliver a net return of
have much data to build high conviction, we typically could face a similar analyzed business. “We model our own revenue over 98 percent during 2020. “It is quite important to
have fewer names,” elaborates Danielewicz. “For growth rates, margins, capital allocation, among maintain agility and be nimble,” argues Danielewicz.
the more mature, more widely-recognized themes, scenario going others,” explains Danielewicz. “If this process results “Things that Jens and I can implement in our portfolio
where we have higher conviction, we put both larger in a big discrepancy between our own thematic is probably a question of days, sometimes just a day.
positions and more names into them,” he continues. forward, where the expectations and what the market is currently pricing When you work in a big organization and you have a
“On average, there are five to six positions across in, we will typically initiate a position.” The last block, lot of assets, it is quite difficult to adjust.” The fund’s
each theme, with the younger themes reflecting
overall market doesn’t timing, relates to portfolio construction. “From idea unconstrained mandate has also enabled the two
one or two positions, and the more mature, higher-
conviction themes containing between ten to 15
do much, but there generation to stock selection and then portfolio
construction, the last part focuses around the
fund managers out of Copenhagen to achieve an
exceptional year. “We are also managing our own
names,” says Danielewicz. “Some of the themes only is massive disruption maturity of a given theme,” explains Danielewicz. “We money, which means that we are pretty unconstrained
have short positions, and some of the themes will go back to assess our conviction in a given theme, to take what we deem necessary positions.”
have a blend of both long and short exposures.” beneath.” which decides how much we allocate to the theme
and the particular idea related to that theme.” “We define change as a transformative force that
– Michal Danielewicz will persist throughout many economic cycles,
CHANGE, EXPECTATIONS, AND it is structural, not cyclical,” says Danielewicz.
EXCEPTIONAL YEAR “These structural changes will transform our lives
TIMING
permanently, so there is no mean reversion and there
The idea generation for St. Petri L/S generally starts St. Petri L/S almost doubled investors’ money during is no coming back,” he continues. “We at St. Petri
with company meetings. “Meeting companies the course of 2020, currently enjoying a 14-month have dedicated our careers to trying to understand
is a very good source of new ideas because you string of consecutive positive monthly returns. The and capture those paradigm shifts and the ripple
can discuss with management teams about their fund has now delivered an annualized return of close effects of those paradigm shifts on company cash
capital allocation priorities, strategic priorities, to 30 percent since launching in March of 2018. “Last flows,” he adds. “Our process is very well-positioned
and company- or industry-specific developments,” year was a very exceptional year, and one of the key to capture disruption and capitalize on disruption.
explains Danielewicz. “That is an excellent source factors was that going into 2020, Jens and I were not Thematic thinking is not new to us because we have
of understanding the background, understanding particularly positive,” explains Danielewicz. “When been thinking in thematic terms for more than 20
structural change.” The process of understanding you start with a little bit of a negative mindset and years.”
change is just one of the three blocks in St. Petri something negative like the Covid pandemic occurs,
Capital’s philosophy: change, expectations, and you are already in a pole position to adjust faster
timing. to the Covid tsunami than first starting to convince
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