Fri, 15/06/2007 - 06:58
Yonatan Gozdanker outlines the investment process and strategies underlying Pamplona's newly launched emerging markets fund.
HW: What is the background to your fund?
YG: Pamplona Global Emerging Markets Hedge Fund was launched on 1 June 2007. The Fund's investment strategy is primarily long/short equity, covering Central Eastern Europe, Middle East, Africa, Latin America and Asia. The Fund will seek equity-like returns and although predominantly long/short equity it has the ability to invest throughout the capital structure. The fund has two components: a long term deep value component which will represent 40-60% of capital and form the core of the portfolio and a liquid trading component, which aims to opportunistically capitalize on changes in technicals and market inefficiencies.
Pamplona GEM Fund will target returns of 15% to 20% per annum with an annualized monthly volatility of 10%-15%. The Pamplona GEM Hedge Fund is managed by two experienced emerging markets portfolio managers, Gil Peleg and myself. We are supported by a dedicated research and administrative team of six professionals.
HW: Who are your service providers?
YG: PFPC International Ltd is our administrator; our auditor is Ernst & Young; our legal adviser is Schulte, Roth & Zabel and we have Deutsche Bank AG and Goldman Sachs acting as prime brokers to the fund.
HW: What is the profile of your current and targeted client base?
YG: The fund was launched with capital from one strategic investor together with capital from the partners at Pamplona Capital Management. Our current priority is therefore putting the capital to work and generating good performance.
HW: What is the investment process of your fund?
YG: Firstly, the Fund's investment universe is filtered according to several criteria such as market access, liquidity of the stocks and an assessment of corporate governance. For the core long term portfolio the team generate ideas from their deep fundamental work combined with macro research. Investment ideas are then discussed and screened by the team. High conviction ideas are then tested for trigger events and stocks' inflection points.
Short-term trading ideas are opportunistic and generated from Technical and Arbitrage research. Technical research is used to identify momentum indicators, measure risk appetite and produce volume analysis; whereas Arbitrage research is used to identify market inefficiencies as well as measuring relative performance. Finally, Gil and I choose the appropriate instrument to reflect the trade and define the structure of the trade and its sizing. We assess the position in the context of the portfolio and set P&L targets and trade limits.
HW: How do you generate ideas for your fund?
YG: Ideas are primarily generated in house through the fund's team of five analysts and the Pamplona partners extensive network of contacts. Our team has a long history of investing and trading in emerging markets and strong contracts across public and private markets. Ideas may also be sourced through the global broker network although all such ideas will be independently researched by the team.
HW: What is your approach to managing risk?
YG: A large part of our risk management is conducted at a position level. Having focused on high conviction ideas, we discuss how to implement an idea, its catalysts and all micro and macro risks associated with the trade. At this point we will also assess position level liquidity and momentum, the best way to execute a strategy and its impact on the portfolio.
At the fund level various methods are used to monitor and manage risk and to ensure that limits are not breached. Clear limits are set for liquidity, leverage and concentration (country, industry, company, currency) of the portfolio, these exposures are constantly monitored. Further risk analysis involves: VAR, Stress and correlation testing, Portfolio and currency hedging.
HW: Has your performance been as per budget and expectations?
YG: Given that fund was launched at the beginning of June it is too early comment on performance. Over the long term we aim to generate annual returns of 15% to 20% with annualized monthly volatility of 10-15%.
HW: What opportunities are you looking at right now?
YG: There are currently many interesting opportunities across emerging markets.
HW: What events do you expect to see in your sector in the year ahead?
YG: There are obviously several key macro events across emerging markets in the year ahead not to mention the impact of developed market events. However we also see many stock specific opportunities and events from a bottom up perspective.
HW: How will these changes/future events impact on your own portfolio?
YG: We aim to structure the portfolio to take advantage of long-term fundamental stock specific opportunities. Our research and analysis takes into account both micro and macro risks and drivers which is reflected in position sizing and portfolio positioning. We are also able to trade to take advantage of the short term technical opportunities that often arise in Emerging Markets.
HW: What differentiates you from other managers in your sector?
YG: The Fund combines a dynamic thematic approach with deep fundamental research. This is supported by the team's local knowledge and strong contact network and their long history of trading emerging markets.
HW: Do you have any plans for similar/other product launches in the near future?
YG: Currently the team is focused solely on Pamplona Global Emerging Markets Hedge Fund.
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