Since Arpad Busson founded EIM in 1992, the firm, which specialises in the construction and management of tailor-made fund of hedge funds portfolios, has seen its assets under management grow to USD6.2bn.
EIM’s philosophy is to help investors, many of whom simply lack the resources to conduct in-depth analysis of managers, identify the right third-party managers relative to their risk profiles and allocate capital to them accordingly.
“Our business has always been focused on bespoke portfolios, which make up about 90 per cent of our assets under management,” says Eric Bissonnier, partner, chief strategist and chairman of EIM’s global investment committee.
The firm has some 85 managers on its list of approved funds, around 15 of them added in the past 12 months – for opportunistic reasons, Bissonnier says: “For example, we’ve increased our allocation to structured credit and macro, especially in the commodity and emerging market spaces.”
In 2010, EIM launched LumX, a managed account platform that has since grown to more than USD700m, and last year the firm launched a Ucits hedge fund mandate for a Swiss institution.
Bissonnier believes the firm’s ability to think about what a client requires when investing in hedge funds sets it apart from its peers. “As we create bespoke portfolios, it’s a lot easier for us to adapt, not just in terms of strategies but also operationally through managed accounts,” he says. “We are able to express diversification in explicit terms.”
EIM excels at combining bottom-up strategy allocation with analytic tools that focus both on historical performance and also forward-looking scenarios. “Historical returns are not very good at describing the current risk environment,” Bissonnier says. “We use a lot of forward-looking work that describes the world today, anticipating a range of probable scenarios and making sure we’re conscious of that, and that our clients understand what it means for their portfolios.”
Another important element of risk management is that all managers contribute position-level risk data to RiskMetrics, which can be consolidated to facilitate the production of monthly risk reports. “We suspect that few institutions use RiskMetrics the way we do,” Bissonnier says. “A combination of forward-looking tools combined with actual exposures in the portfolio is definitely unique.”
Two of the firm’s seven commingled funds of funds that did particularly well last year were a multistrategy fund and a CTA product that was in the top performance quartile.
A new product, ECHO (Enhanced Convexity Hedge Overlay), illustrates how EIM adapts to market conditions. ECHO looks to generate outsized returns in extreme market events but is structured in a way that carries its weight during benign markets.
“The concept required certain payout profiles that were not available through existing funds,” Bissonnier says. “We therefore found managers who could implement the required strategies in a dedicated fund format on our LumX platform.
“It’s not a classic tail fund because we’re not just trying to catch the downside. We still want to capture an inflationary growth environment. Though unlikely to happen anytime soon, it’s definitely a worry for institutions. We have eight to 10 managers in the fund, two-thirds of which are weighted toward a disinflationary market.”
Bissonnier adds: “We’ve done a lot of work over the past three years to develop our use of RiskMetrics, bespoke portfolios and our managed account platform, looking for strategies off the beaten track. To have this hard work recognised by the Hedgeweek award is a positive for us, and we’re very proud to have won.”