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Henning von Issendorff, Tungsten Capital Management

Fund Spotlight: Tungsten-PRO ART ERV UCITS-III Fund

This week’s spotlight is on Frankfurt-based Tungsten Capital Management and their market neutral absolute return PRO ART ERV Fund. Managed by Henning von Issendorff, the fund has a dual return target of eight per cent p.a. or EUROLIBOR plus 3 per cent. But as von Issendorff tells Hedgeweek, it’s been a tough year for the fund, which invests in European stocks, bonds and derivatives. “We’re happy at how we’ve contained the fund’s risk and volatility but we are slightly below our long-term target return (1.4 per cent YTD, 6.04 per cent YoY). The first and last quarter tend to be better for the strategy we’re running, the summer is always a bit of a black hole.” Based on 90-day volatility, the fund’s volatility is currently 7.4 per cent.

Finding the right positions has been hard in this year’s choppy markets for von Issendorff. “I didn’t expect the German car sector to outperform on an earnings basis so that was tough. The utility sector has also been underperforming more than I thought. Big squeezes and sell-offs have made positioning difficult this year.” The fund’s portfolio is currently weighted 60 per cent in German stocks, focusing on a basket of 50 to 60 companies, along with 150-200 European pairs in respective sectors (France/Germany/Spain/Italy mainly). There is a slight 10 per cent net long bias to the fund, with short positions held in high beta stocks, although von Issendorff points out that “We hardly ever have more than 3 per cent exposure on any particular stock.” Asked about key positions, von Issendorff says: “Over the last twelve months it has been in pair trades in the steel and telecoms sectors, with one spread position on Hanover Re (long) and Munich Re (short).” The fund, which has a 95 per cent leaning on institutional investors, currently has AUM of EUR14-15 million, but with capital inflows throughout September this will go to EUR25-30 million. “There are still huge macro risks in the system,” concludes von Issendorff, “but I expect the last quarter to be interesting. M&A activity will continue and should open good opportunities but it won’t be a straight flight through.”

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