Athanasios T Ladopoulos, senior partner and senior portfolio manager of Swiss Investment Managers, says the Directors Dealings Fund, which uses a proprietary investment methodology focusing on share transactions by companies’ directors and senior executives, offers sophisticated investors non-correlated returns accompanies by robust risk management techniques.
GFM: What is the history and background of your company, principals and fund?
AL: Swiss Investment Managers is an alternative investments trading firm, specialising in identifying, profiling, analysing, and investing in European and US equities using a proprietary investment methodology that focuses wholly on share transactions by companies’directors and senior executives.
Founded in 2010, Swiss Investment Managers is registered in Zug and has a branch office in Zurich. It is investment advisor to the Directors Dealings Fund, a long/short equity fund established as a Sicav-SIF in Luxembourg that is probably unique in the world inemploying exclusively the directors’ dealings methodology.
The fund, which was launched in September this year, is run by a team of seven professionals led by myself and advised by George Muzea. It has a 12-month target of EUR50m under management, with total fund capacity close to EUR2bn.
GFM: Who are your main service providers?
AL: The custodian is ABN Amro Luxembourg and the administrator is Apex Fund Services Luxembourg. The auditor is PwC Luxembourg, and our legal counsel is Chevalier & Sciales inLuxembourg and Klein in Switzerland.
GFM: What is your distribution strategy and targeted client base?
AL: We target well-informed investors across Europe and abroad, excluding the US, consisting of high and ultra-high net worth individuals, family offices, private banks, funds of funds and foundations.
GFM: What impact has the recent global financial crisis and economic downturn had on your business?
AL: None. Our investment methodology provides a sound safety net, and on top of that the opportunity for strong returns. Targeted short positions could provide significant returns and not only counterbalance long exposure but help to generate positive returns. We see our hedging as profit-generation centres from the entry point.
GFM: Please describe your investment process.
AL: After we identify what we classify as significant share transactions thorough our proprietary selection mechanisms, we profile the directors and rank and plot their history and performance. We seek validity of our understanding though various proprietary criteria.
Finally, we apply money and risk management procedures to ensure a clear understanding of the risk each position carries. Our aim is to isolate and fully understand each position’s risk, and thus define the entry size accordingly. We believe successful long-term performance is directly linked to strong risk management processes.
GFM: How do you generate ideas for your funds?
AL: We carefully monitor reported share transactions, filtering the ‘noise’that we believe accounts forbetween 95 and 99 per cent of transactions – we monitor the leaders not the followers of companies. One of our competitive advantages is that our ideas are confirmed by those on the helm and are not speculation or extrapolation based on the capital asset pricing model or any other variant on the efficient marketshypothesis.
GFM: What is your approach to managing risk?
AL: We respect risk. We believe longevity cannot exist without a sound understanding of risk. Thus we have several risk monitoring and money management mechanisms in place – from defining the position size relative to risk and dynamic stop-loss application for individual positions to total portfolio risk monitoring and hard stop-loss leading to total liquidation across the portfolio and conversion to cash at a predefined level.
GFM: How has your fund performed?
AL: Our target annual return is 15 per cent with standard deviation of less than 10 per cent. Our model showed a total return of 21.83 per cent since the starting date of October 1, 2010.
GFM: What developments do you expect to see in the coming year?
AL: We believe directors’ share transactions should continue to provide us with ample investment opportunities. We expect to see significant transactions and notable patterns appearing over the next six to 12 months that might indicate the bottoming of the market.
GFM: How will these developments affect your firm and the performance of your fund?
AL: Investors seeking safety of invested capital in conjunction with strong real risk-adjusted returns with low volatility should find the Directors Dealing Fund an attractive investment opportunity. We expect to see significant assets inflows going forward.
GFM: What do investors currently expect from managers, and how do you deal with those expectations?
AL: Investors seek transparency, respect for risk, consistency in returns and low volatility, which makes them pickier when it comes down to selection and allocation.
GFM: What differentiates you from other managers in your sector?
AL: This is a niche strategy that can be a true diversifier for funds of funds, family offices and individual investors. We offer a uniqueinvestment methodology, investing with the insiders not the masses by following the philosophy of ‘the vital few not the trivial many’.
We understand share dealings by directors and corporate insiders, and have developed in-house proprietary investment methodologies to identify, monitor and value them. Our ownership of the intellectual capital involved in the proprietary profiling and data analysis methodologies we have developed represents barrier to entry for third parties.
We use no leverage – maximum gross exposure is 100 per cent, meaning there is no collateral risk in falling markets. Our solid money and risk management rules arebased on entry size, volatility and percentage of profitas well as trailing strict stop-loss rules applied at prime broker level. The fund has limited correlation, being market, sector and directional agnostic.
We invest only after the appropriate signals are confirmed by the share transactions of executive directors in the companies where they are employed. We only sell short equities where the executive directors are selling shares after several criteria are met. The intention is to be close to market-neutral in non-directional markets and contrarian close to the tippingpoints.
Finally, we have unique expertise, in that the originator of thedirectors’ dealings concept and methodology, George Muzea, is a senior adviser to Swiss Investment Managers.
GFM: How do you view the environment for fundraising over the coming 12 months?
AL: The coming year will be challenging,but we believe we will attract the right investors, loyal with a good eye for opportunities.