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The Hedgeweek Interview: Neal Goyal, Blue Horizon Asset Management: "There are still a number of uncovered areas of the financial sector that will lead to further turbulence"

Neal Goyal, chief investment officer of Blue Horizon Asset Management, outlines his firm's strategy to capitalise on the volatile market environment and continuing fall-out from the sub-prime collapse.

HW: What is the background to your company?

NG: Founded in 2006, Blue Horizon Asset Management is a Chicago-based investment management firm that oversees a portfolio of hedge funds. The firm was launched with a niche focus to offer customised investment solutions through hedge funds and managed accounts to institutions and high net worth individuals.

The funds managed by Blue Horizon maintain an absolute return objective with a global long/short equity strategy. The funds target returns of 20 per cent annually while maintaining a low risk profile through diversification and tactical asset allocation.

HW: Who are your service providers?

NG: The firm's prime brokers are Goldman Sachs and RBC, legal counsel is Investment Law Group of Gillett Walker, and the accounting firm is Ingold & Associates.

HW: How and where do you distribute the fund? What is the profile of your current and targeted client base?

NG: The funds are offered to accredited investors including institutions and high net worth individuals. Distribution takes place via arms-length transactions as each investor has unique investment objectives.

Currently, the majority of the current client base is made up of high net worth individuals. The firm also target funds of funds, family offices, university endowments, pension plans and banks. Virtually all client assets come from the US, but going forward the firm plans to offer our funds internationally to increase our global presence.

HW: What is the investment process for your fund?

NG: Blue Horizon applies an intricate two-step investment process that combines rigorous macro-economic analysis with a fundamental approach to individual company examination.

First, an in-depth analysis of macroeconomic conditions is conducted to determine the allocation to long and short positions. Factors considered include interest rates, economic data, commodity prices, geopolitical events, currency markets, the real estate environment and credit markets.

The second step involves a detailed individual company analysis from both a fundamental and technical perspective. Fundamental factors considered include revenue growth and projections, earnings growth, cash flow, debt ratios, valuation relative to peers in the industry, industry outlook, competition within the industry, and management team.

Once these screens reveal a core of potential long and short positions, various technical analysis methods are used to determine appropriate entry and exit points. We believe this investment approach maximises the potential returns while minimising risk for investors.

HW: How do you generate ideas for your fund?

NG: Ideas stem from an initial analysis of macroeconomic conditions. Based on this analysis, we identify a number of sectors and asset classes that appear to be most suitable for the market environment.

We then conduct a host of screens that narrow the number of potential companies for investment. All ideas are rigorously analysed with a high degree of scrutiny. Before a company is determined suitable for investment, a complete evaluation of risk is performed.

HW: What is your approach to managing risk?

NG: Portfolio risk is constantly evaluated through an analysis of position limits and diversification of the portfolios. Many of our investments are hedged through the use of equity derivatives and exchange-traded funds.

HW: Has your performance been as per budget and expectations? Do you expect you performance or style to change going forward?

NG: Our performance has dramatically exceeded our expectations. This has allowed us to successfully launch new funds with varying sector focuses. Going forward, although we may offer new funds with different sector allocations, we plan on maintaining our long/short equity strategy, which has proven successful for us and will perform well in any type of market environment.

HW: What opportunities are you looking at right now?

NG: We are currently evaluating ideas that offer the largest opportunity to exploit the disproportion in valuations. The recent market volatility resulting from turmoil in the credit markets has caused a host of market inefficiencies.

This offers an attractive opportunity to take long or short positions in companies that have traded outside their appropriate valuation range. We are also increasing our international exposure, as emerging markets have introduced a number of opportunities to exploit inconsistent valuations.

HW: What events do you expect to see in your sector in the year ahead?

NG: We will see continued market volatility as credit problems are far from over. With the domino effect we have witnessed stemming from the sub-prime market, we believe there are still a number of uncovered areas of the financial sector that will lead to further turbulence. Therefore, although we believe the S&P 500 will be modestly higher by the year's end, there will be a great deal of volatility along the way.

HW: How will these developments impact your own portfolio?

NG: Continued volatility would be beneficial to the firm's funds as the long/short equity strategy is most successful in this type of environments=. However, we plan on remaining fairly defensive, and will preserve sizable cash positions that will allow us to capitalise on situations where the markets behaves irrationally.

HW: What differentiates you from other managers in your sectors?

NG: Blue Horizon has the ability to combine detailed fundamental analysis with capacity to adapt quickly to ever-changing market conditions. Our research, analytics, and screening methods allow us to identify exceptional ideas before the rest of the market. But most importantly, our strong focus on risk management allows us generate returns for investors while giving capital preservation the utmost importance.

HW: Do you have any plans for similar/other product launches in the near future?

NG: We recently launched a global equity fund that focuses its investments in international markets. Due to the success of our current funds, we will continue to introduce new products that will allow investors to benefit from our unique investment perspective.

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