Numen Capital LLP was founded in May 2008 by Filippo Lanza and Kushal Kumar. The firm’s flagship mandate is the Numen Credit Opportunities Fund, an event-driven credit special situations strategy.
The fund looks at opportunities in the liquid credit space related to issuers spanning sovereigns, financial institutions and corporates. The analytical approach used is a proprietary adaptation of the traditional corporate credit tool kit to analyse ex-risk free assets i.e. sovereigns, as though they are traditional corporate borrowers.
“We apply this approach across the board from AAA-rated borrowers all the way down to stressed and distressed banks and corporates. Our credit themes are expressed using plain vanilla products: cash bonds, CDS and indexes. Liquidity is a key factor in the strategy. We use scenario-based risk management models to complement the fundamental analysis,” confirms Kushal.
Each of the three sub-strategies – macro credit, bank capital, corporate credit – uses a combination of long and short positions to express the firm’s views, typically based on a variety of event-driven factors. Opportunistic trades using ultra-liquid instruments makes up the fourth sub-strategy.
The primary theme linking all four strategies is the credit variable being priced in the financial system relative to cash flows, and the drivers behind that level of debt.
“We spend a lot of time thinking about how the system’s tradeable financial assets, as a whole, have vastly outgrown the resources available to analyse them. For example, the number of people who have done sovereign debt analysis from a credit perspective has not meaningfully increased since 2008. Equally, the number of people ready to analyse bank securities from a credit perspective has not increased in pace with the increased complexity of their liability structure.
“So part of the opportunity set, for us, is precisely because of this mismatch between the size of the financial assets in the system and the available resources,” says Kushal.
Unsurprisingly, given the “noise” in the eurozone, macro credit and building a series of busted sovereign debt positions within the portfolio has been an important focus of the fund. Over the last 12 months, it has consumed 37 per cent of capital.
Reflecting on 2013, Kushal says: “The credit markets have been opportunity rich. Over the longer term, the creditworthiness of ultra large borrowers will determine where the system goes. Over the shorter term, as liquidity is withdrawn by the central banks, there will be a wider dispersion in how micro corporate/financial borrower credits perform.
“At the macro level we’ve been playing it both sides: currently we are long weaker sovereigns that have restructured their balance sheet (e.g. Cyprus and Greece), and short sovereigns that have not yet been forced to address these problems: e.g. South Africa.”
For corporate credit, it’s a somewhat different story, as credit spreads are largely back to pre-Lehman periods.
“On the long side, there is no value, either in the short-term or in the long-term. That is because of the higher rate risk embedded in these bonds, and duration risk being too elevated. Conversely, the same factors provide significant short side opportunities related to borrowers with balance sheet weaknesses.”
The beauty of Numen’s strategy is that all four sub-strategies are flexible and nimble. The fund has been designed to capture liquidity in newer credit instruments in the European credit markets, says Kushal, where liquidity is much higher than in traditional ones.
“We believe that this flexible opportunistic approach has the potential to deliver attractive unlevered returns in liquid credit markets”
On winning the award, Kushal comments: “We are pleased to be recognised by the industry and our peers. The Numen team thanks Hedgeweek and its readers for this recognition.”