Dalton Strategic Partnership, established in 2002 by a group of ex-Mercury Asset Management colleagues, is a global investment management firm that manages assets on behalf of institutions, family offices, charities, foundations, private clients and retail investors. This is achieved through the use of specialist equity funds (all named Melchior), global asset allocation portfolios and a private client business.
The firm has offices in London, Hong Kong and Mumbai as well as affiliated offices in Tokyo and Toronto. It is owned by its 16 working partners, including founding partners Andrew Dalton and Magnus Spence (pictured), and had USD2bn in assets under management at the end of 2010.
Partner Leonard Charlton has been managing DSP’s European Absolute Return Strategy since joining the firm in 2006. Originally launched as a Cayman fund, the Melchior European Fund completed its fourth consecutive year of positive performance with 16 per cent in 2010, following returns of 8 per cent in 2007, 6 per cent in 2008 and 4 per cent in 2009.
A Ucits III-compliant version of the strategy, the Melchior Selected Trust: European Absolute Return Fund was launched in February 2010 and returned 10.3 per cent with volatility of 4.2 per cent. The two funds were run as mirror images of each other until September, when the leverage of the Cayman fund was doubled to offer a higher risk/return profile for investors.
Charlton, who has 13 years’ investment experience, began his career in 1998 as an equity trader for Goldman Sachs, then in 2003 joined GLG Partners as a portfolio manager with the European long/short team.
David Robinson and Benjamin Billiard, the fund’s senior analysts, work alongside Charlton, while the firm’s independent risk manager, Dr Philip Hua, offers advice on all aspects of risk. In-house traders Daniel Blake and Tom O’Kelly ensure trading activity is efficiently executed.
The basic strategy, as employed by the Ucits Fund, is to achieve annual absolute returns of 8 to 10 per cent with volatility of 5 per cent irrespective of market conditions by taking long and short positions in listed European equities.
DSP aims to deliver consistent uncorrelated returns by combining a fundamental approach to stock selection with an active trading overlay, which helps to reduce volatility as well as enhance alpha generation. The fund has a record of positive returns in down markets, and has generated an average short book alpha component of 1.09 per cent per month since launch.
“Fund managers understand that long positions can go up multiple times, whereas short positions can only go to 0, thereby capping returns at 100 per cent,” Spence says. “Consequently, the industry tends to spend 90 per cent of its time looking for long positions, which competes away the alpha on the long side.
“We focus 50 per cent of our time on finding longs and 50 per cent on shorts. We believe this helps generate alpha, particularly on the short side, and can maintain our record of producing uncorrelated positive returns.”
The strategy is made up of 40 to 60 liquid stocks, with no structural bias to country, sector or market cap. It maintains a low net exposure to equity markets, and the Ucits fund seldom employs leverage.
Adds Spence: “Our strategy is ideally suited for volatile equity markets such as 2010. The dispersion that emerged in European equity markets meant we were able to generate alpha equally in both the long and short books, while our active trading style helped reduce the volatility of returns.”
All information in this document has been prepared by Dalton Strategic Partnership LLP. This document is issued by Dalton Strategic Partnership LLP, which is authorised and regulated in the UK by the Financial Services Authority.
Any views and opinions contained in this document are those of Dalton Strategic Partnership LLP at the time of going to print and are not intended to be construed as investment advice. This document does not constitute or form part of any offer to issue or sell, or any solicitation of any offer to subscribe or purchase, any shares or any other interests nor shall it or the fact of its distribution form the basis of, or be relied on in connection with, any contract thereof. Recipients of this document who intend to apply for shares or interests in the Funds are reminded that any such application may be made solely on the basis of the information and opinions contained in the prospectus or other offering document relating thereto, as and when they become available, which may be different from the information and opinions contained in this document.
Performance statistics are not necessarily based on audited financial statements and assume reinvestment of portfolio distributions. Past performance is not necessarily indicative of future results and you may not retrieve your original investment.
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The securities referenced in this document have not been registered under the Securities Act of 1933 (the “1933 Act”) or any other securities laws of any other U.S. jurisdiction. Such securities may not be sold or transferred to U.S. persons unless such sale or transfer is registered under the 1933 Act or exempts from such registration.