Julien Stouff, Pictet Asset Management: “The purchase of convexity positions protect against and profit from major market moves”
Julien Stouff (pictured), head of the team managing Pictet Asset Management’s newly-launched Kronos Fund says the global long/short equity trading strategy, previously offered as a Luxembourg-domiciled Sicav-SIF and before that as a trading book, follows an investment approach in which quantitative stock selection, convexity positions – deep out-of-the money options – and active trading are intertwined…
GFM: What is the history and background of your company, principals and fund?
JS: Pictet Asset Management is the investment manager of the Kronos Fund, a global long/short equity trading fund launched on March 28 this year and with assets of USD120m at the end of March. The fund is incorporated as a Cayman Island exempted company and has a master-feeder structure.
I have developed and managed the Kronos strategy over many years, drawing on my extensive experience in equity trading, equity derivatives and global macro, and lead a team that also comprises Alexis Morange, Lennart Andreasson and Gregory Chevalley.
Pictet & Cie was founded in Geneva in 1805 and is currently one of the largest independent asset and wealth managers in Europe. The Pictet Group is wholly owned and managed by eight partners with unlimited liability, a structure that throughout the bank’s history has ensured stability, continuity and commitment to Pictet’s strength and independence.
Pictet Asset Management, the group’s asset management division, provides specialist investment management services to leading institutions globally, and distributes products across multiple channels. Our clients include some of the world’s largest pension funds, mutual funds, sovereign wealth funds and financial institutions.
GFM: Who are your main service providers?
JS: In Cayman our auditor is Deloitte & Touche and our legal advisers are Walkers. The fund’s administrator is Citco Fund Services (Ireland), while the custodians and prime brokers are Goldman Sachs International and Deutsche Bank.
GFM: Please describe your investment process.
JS: The Kronos Fund pursues a global long/short equity approach with an overlay of volatility trading through the purchase of convexity positions (deep out-of-the money options) to protect against and profit from major market moves. The investment process is quantitatively driven and is a combination of bottom-up security selection and top-down models by region, covering the US, the European Union and the BRIC countries.
At the security level, our model is designed to identify stocks with strong growth potential, for the long book, and conversely for the short book. Top-down models, focusing on relative valuation, liquidity, market trends, and sentiment, then provide a framework within which the portfolio is built. An additional key characteristic of the Kronos investment process is the building of convexity through the purchase of options.
GFM: How do you generate ideas for your funds?
JS: Investment ideas are triggered by our proprietary quantitative models, both at top-down and bottom-up levels. This approach produces an unbiased and scalable selection process.
GFM: What is your approach to managing risk?
JS: Risk discipline and management are integral to our investment process and reflects our extensive experience in equity trading, equity derivatives and macro.
GFM: How has your fund performed?
JS: The Kronos Fund was launched in March with a return target of 10-15 per cent per annum net of fees over three to five years, with a conservative volatility profile of 6 to 10 per cent.
The strategy was previously managed within a Luxembourg-domiciled Sicav-SIF structure. Performance was slightly down by 2.0 per cent in 2011, but was up 1.7 per cent over the first three months of this year.
From January 2005 to October 2010, the strategy was run as a trading book. Net annual returns, calculated using model capital, were in the range of 4.2 to 36.9 per cent. Strong performance was notably achieved in 2008 and 2009, when the strategy posted net annual returns of 36.9 and 24.8 per cent respectively.
GFM: What differentiates you from other managers in your sector?
JS: We believe that a key differentiating factor of the Kronos Fund is our investment approach in which quantitative stock selection, convexity and active trading are intertwined. This investment approach has the twofold objective of capturing growth in up-market phases, while protecting returns during down markets.
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