THE VOICE OF THE ALTERNATIVE INVESTMENT INDUSTRY FOR 10 YEARS
Friendly systematic trader
Altis Partners has been
successfully running its
systematic strategy for
almost 10 years. Margie
Lindsay looks at what
has contributed to the
positive performance
and the easy-going
atmosphere.
The first thing anyone entering the Altis
Partners’ office in St Helier, Jersey, notices is
the friendly and relaxed atmosphere. For a 100%
systematic hedge fund, this is rather unusual.
The ‘one big happy family’ feeling is no
accident. The four founding partners (who are
also the portfolio managers for the flagship
Global Futures Portfolio) have worked hard to
keep the atmosphere amicable. Alex Brunwin
and Zbigniew Hermaszewski, overseeing
research and technology, Natasha ReeveGray on business development and Stephen
Hedgecock in charge of corporate operations
form a tight group that has built the hedge fund
from its inception in 2001 to the over $1 billion
operation it is today.
Internal events aimed at not just keeping
staff happy but at rewarding loyalty and good
performance have helped keep employee
turnover very low. The fact the principals –
with collectively over 70 years of experience in
financial markets – made the decision to move
to Jersey in the Channel Islands early on has
probably also kept the family atmosphere from
deteriorating. As the first hedge fund to set up
in Jersey, it is an operation the local authorities
are proud of as well as pleased to have seen
grow in both numbers of staff and in assets
under management.
While it is continuing to gather assets, Altis
is keen to keep its size under control. ReeveGray says $4 billion AUM is the current target,
although that could change. She, like the others,
does not want to grow into too much of a
corporation.
“It’s nice to
know everyone
and have
everyone know
you. If we go
above a certain
size and start to
compete with the
big boys, we’ll need
more infrastructure and
more people,” she notes.
“All four of us are involved
in the business 100%,” she
adds. That commitment to Altis is
at the core of the fund’s culture.
The fund uses a proprietary quantitative
trading system that has been trading
continuously since 2001, targeting annualised
returns of 20%. Current annualised return is
just shy of the 20%. Given the tough market
conditions this year, it is a credit to the fund
that it has been able to keep so close to
its target.
Interestingly, Altis does not consider itself to
be a traditional CTA. It runs a portfolio-based
system compared with the trade-based system
typical of traditional CTAs. The fund exploits
a wide variety of market conditions and is not
biased towards trend following.
“We trade in around 190 markets with
www.hedgefundsreview.com
allocations
to approx­
imately 600
different contracts.
We look at the relationship between different
sectors and markets,” says Reeve-Gray.
The single integrated trading system employs
multiple techniques. Its positions on over
100 exchange traded futures across multiple
maturities gives it a wide set of possible
instruments whereas other CTAs use a limited
subset of markets, usually only the most liquid.
Historically the fund takes a high commodity
exposure while other CTAs are dominated by
financials. The dynamic weighting of sectors,
timeframes, minimal arbitrary constraints
adapts to changing conditions compared with
the arbitrary parameters such as fixed-sector
concentration limits other CTAs use.
There is also dynamic allocation between
multiple timeframes: days, weeks and months.
The whole portfolio is geared towards
integrated, proactive risk management based on
return/risk forecasting, portfolio management
whereas other CTAs usually use stops as
risk controls. This is not effective in volatile
conditions and increases trading costs as well
as eroding returns, believes Altis.
The trading system builds in allowances for
extreme events (fat tails) unlike other CTAs that
may assume normal return distribution which
considering recent market history might not be
seen as a smart move.
Hedgecock explains the system in terms that
are more philosophical. “It has to be truly overmodelled and highly adaptive. It reacts to ebbs
and flows of light.”
In short Altis believes all markets
­demonstrate generic behaviours which apply
­universally across sectors and timeframes.
Because of their persistent nature, these
generic principles can, over the long term,
generate significant compound returns. The
goal of the Altis strategy is to capture generic
market effects, performing well in a variety
of market conditions. It has what it considers
robust system architecture with maximised
diversification but is geared toward minimising
arbitrary constraints while allocating
risk dynamically.
The portfolio has a short, medium and longterm outlook with no fixed sector weightings or
hard limits.
“When we run 400 different positions, not
all of them do the same thing at the same
time,” sums up Hedgecock. He points out that
that what he terms the “free money period”
of government stimulation has “taken away
normal behaviour of markets. They are not
diversified. The greed limits aren’t working.
CTAs can’t make money in the current
environment. There is a lack of ‘give-back’,”
he notes.
Nevertheless, Altis has managed to keep a
positive 4.41% return year to date.
Research plays a big role at Altis. Over 50%
of resources are devoted to research and
technology. The research and technology
team includes numerous disciplines such
as physics, engineering, maths, computer
science and statistics. The challenges they face
encompass short-term forecasting, changing
market conditions including market coherence
and crowding, the evolution of the managed
futures industry itself, algorithmic trading and
ever-changing technologies that can be used in
the program.
Reeve-Gray sums it up: “The key to a
successful business is the development of
an internal department in harmony with the
research. I think investors take comfort in
managers with such a depth of experience.” She
adds: “We also think compliance is important
and although other funds may neglect this
until they are larger, we’ve always put this as
a priority.”
As a hedge fund based outside the European
Union (as Jersey is a Crown dependency of
the UK, but not an EU member), Altis has
been watching the progress of the alternative
investment fund managers (AIFM) directive
with interest as well as debates about how
to bring over the counter (OTC) derivatives
onto exchanges.
“From our side AIFM risk is mitigated as we
have a lot of our AUM as managed accounts.
We also think Jersey as a fund domicile has
established a good relationship with the EU
and we operate in a highly regulated domicile.
It is frustrating for us in any event as CTAs have
always been regulated,” notes Hedgecock.
What worries Altis more than the AIFM
directive are proposals affecting OTC clearing
and settlement. This could, say Reeve-Gray and
Hedgecock, add up to 50% of the costs of trades.
Given the number of positions Altis trades, this
could be a substantial drag on the portfolio
performance, even though other CTAs would be
caught in the same rules.
As for gathering more assets, both ReeveGray and Hedgecock are optimistic. “We have
been adding assets carefully. In 2008 we had a
fantastic year but many clients used the fund
as an ATM machine. Our AUM was down 20%
that year,” notes Reeve-Gray. “We saw a lot of
interest in the first and second quarters of 2009
but nothing came of it, even off the back of a
fantastic performance in 2009. Now, however,
we’re seeing more interest. In the first half
of 2010 we have made progress with some
sophisticated clients who understand the risks
and the volatility. This is not a smooth ride
and investors need to be prepared for that,”
concludes Reeve-Gray.
Hong Kong base for Altis
Altis Partners (Asia) opened its first office
outside Europe in Hong Kong on November
3, making it the first Jersey-based hedge fund
manager to open an office in the territory.
“This is excellent news for Jersey,” according
to Zhaoan Li, head of Greater China business
development for Jersey Finance.
A key function of the Hong Kong office will
be to oversee trading operations across the
markets of the Asia Pacific region. Hong Kong
staff will supervise trading in Sydney, Tokyo,
Seoul, Hong Kong and Singapore markets.
“Many Asia-Pacific economies are growing
strongly, with increased volume and liquidity in
their futures markets. Having a local presence
allows us to improve execution of our existing
trading program and develop relationships to
research new opportunities,” says Robin Duxfield,
chief operating officer of Altis Partners (Asia).
The Hong Kong office will also provide
support for Altis’s existing client base and
the growing interest in managed futures from
investors in the Asia Pacific region.
“For a long time we have wanted to offer
more on-the-ground support to our investors in
the region as we are painfully aware that the flyin, fly-out model does not offer a good basis for
a real personal relationship,” explains Natasha
Reeve-Gray. “A permanent base in Hong Kong
will enable us to show the commitment that we
think this region requires.”
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Looking to the future, Reeve-Gray expects
more assets to come through the Far East
as well as continued interest from US and
European investors. She is less certain about
attracting Middle Eastern investors. “We don’t
have a huge sales team. We want to grow but
we want to keep the ‘hands on’ approach to our
clients,” she concludes. ■
Fund facts
Name of fund:
Altis Master Fund ICC Global Futures Portfolio
IC (ICC is an incorporated
cell company)
Portfolio
managers:
Natasha Reeve-Gray,
Stephen Hedgecock, Alex
Brunwin and Zbigniew
Hermaszewski
Management
company:
Altis Partners (Jersey)
Contact
information:
2 Hill Street, St Helier,
Jersey, Channel Islands, JE2
4UA (+44 (0)1534 787 700;
info@altispartners.com;
www.altispartners.com)
Fund inception:
July 2001
Strategy
assets under
management:
$1.458 billion
Target
annualised
return:
20%
Annualised
volatility:
20%
Annualised
standard
deviation:
24.01%
Annualised
rate of return:
19.61%
Return year to
date:
4.41% (estimated at
September 30, 2010)
Total return
since inception:
468.37%
Strategy:
CTA/managed futures
Domicile:
Jersey, Channel Islands
Prime broker:
Newedge
Administrator:
Custom House Global
Fund Services (Ireland)
Auditor:
PricewaterhouseCoopers
(Jersey)
Legal counsel:
offshore Carey Olsen
(Jersey, Channel Islands);
onshore Akin Gump
Strauss Hauer & Feld (New
York, US)
Minimum
investment:
$/€/£ 100,000 (managed
account $20 million)
Management
fee:
2%
Performance
fee:
20% with a high watermark
Liquidity:
weekly (managed account,
daily)