The Hedgeweek Interview: Andrea Rialas, Founder, Argo Capital Management Ltd: Targeting distressed workouts in emerging markets
Andreas Rialas highlights the ideas and vision behind Argo Capital Management's emerging markets-focused funds.
The Argo business was set up in the beginning of 2000 by Andreas Rialas.
Andreas Rialas trained as an English Barrister and joined London Forfaiting Company Plc (LFC) as emerging markets trade finance and loan syndication specialist which operated as a wholesaler of emerging markets' credit. Andreas was a pioneer of the Russian loan market and more generally of Eastern European and Asian secondary loan trading. In 1997 Andreas was hired by the Emerging Markets Proprietary Division of Deutsche Morgan Grenfell to run a loan trading book in emerging markets. Early in 1998 Andreas saw the Russian default coming and significantly reduced his portfolio exposure in that area for his desk. His desk in Deutsche Morgan Grenfell was profitable even in 1998.
In the beginning of 2000 Rialas identified that 'a great opportunity existed in distressed workouts in emerging markets' and left Deutsche Bank to set up his own business.
HW: What is the background to your funds?
AR: We currently manage two main funds, which are both investing in Global Emerging Markets. Our flagship fund The Argo Fund Ltd with some USD 500 million in assets was launched on 16 October 2000 and focuses in fixed income products and distressed debt. Throughout the 5-year history of the fund it has maintained a profile of a very liquid and low volatility fund which has returned an average annualized return of 21% p.a. with consistent Sharpe ratio of above 4 and only 3 negative months out of 62 months of returns.
In August 2004 our second fund Argo Global Special Situations Fund (AGSSF) was launched to utilize on those opportunities that the Argo Fund could not enjoy due to its liquidity profile and low volatility levels. AGSSF invests in a wide spectrum of instruments including equity in Emerging Markets and aims in superior uncorrelated returns. Currently the fund has USD 190 million under this strategy and has delivered some 26% since inception.
HW: How and where do you distribute the fund? What is your current and targeted client base?
AR: We do not employ any active marketing to distribute our funds, we rely on word of mouth and various internet databases that the funds are listed. We have over 300 investors and most of them are High Net worth Individuals. Amongst the investors of the fund are several family offices as well as few Fund of Funds.
HW: What is the investment process of your fund?
AR: Our investment approach is bottom up. We create our proprietary research based on very thorough credit analysis, supported by legal and financial due diligence. We have rarely invested in a company we have not met before. We employ a sovereign risk model which provides a top down overlay to our process. Investments are sized taking into account their liquidity and correlations.
HW: How do you generate ideas for your fund?
AR: We have great deal flow generated by our local contacts and network as well as investment banks that appreciate our bottom up approach. People associate Argo with the ability to tackle difficult and structured deals.
HW: What is your approach to managing risk?
AR: We use very little leverage, run quite a diversified global book and can go short very easily. We employ a number of traditional risk metrics, but we have a philosophy of protecting downside at all costs which prove quite useful in difficult markets.
HW: How/against what do you benchmark the performance of your fund?
AR: Our funds are absolute return funds, we use no benchmarks.
HW: Has your performance been as per budget and expectations? Do you expect your performance or style to change going forward?
AR: Yes it has. As mentioned earlier we target low volatility and prefer to reduce directionality in very bullish markets.
HW: What opportunities are you looking at right now?
AR: Currently we are looking at NPL opportunities, something we are already active in Latin America and look into other regions as well. We also see a few good opportunities in Emerging Markets' Private Equity.
HW: What events do you expect to see in your sector in the year ahead?
AR: We expect the sector to range trade, but with increased volatility. Big electoral calendar in Latin America.
HW: How will these changes/future events impact on your own portfolio?
AR: We will continue to monitor correlations in our portfolio and pursue uncorrelated transactions.
HW: What differentiates you from other managers in your sector?
AR: Argo's edge is very intensive bottom up work, frequent travel and visits scheduled to the countries and places it invests in.
HW: Do you have any plans for similar/other product launches in the near future?
AR: We are launching an Emerging Markets Private Equity Fund.
(Andreas Rialas was interviewed on 24 February 2006)
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