“Architect of themes”: Former Soros and Fortress macro hedge fund veteran William Callanan builds momentum with novel outsourced CSO venture
William Callanan – a veteran of the investment management industry and a global macro hedge fund specialist, whose resume includes stints at Soros Fund Management and Fortress Investment Group – is capitalising on evolving outsourcing trends with Syzygy Investment Advisory, a novel advisory unit that provides an outsourced chief strategy officer role to an assortment of institutional investors, hedge funds and family office clients.
Launched in April last year, London-based Syzygy’s core focus is on generating alpha across a range of global macroeconomic themes and ideas, investing in currencies, interest rates, commodities and public-traded equities on a long/short and long/only basis.
“We essentially act as a chief strategy officer for the client,” Callanan says of the business. “We offer an end-solution where we provide them with the theme, the framework, the triggers, and the sequencing for an investment idea - but also, more importantly, the deliverable investment instrument.”
With more than two decades of investment expertise honed at several high-profile asset managers, the hedge fund veteran initially envisioned a new type of business which, in his words, would “combine and synthesise” the traditional advisory and investment functions.
“Throughout my career, regardless of strategy, every investor meeting always concluded with the same question: ‘What are your top three ideas?’ That was what everybody always wanted to know,” he tells Hedgeweek.
Expanding further, he explains how his concept borrows elements from the well-established unbundling model common across industries as diverse as IT services, music, and cable television.
“I asked myself: how can I bring the concept of unbundling into the asset and investment management world? I wanted to see how I could give the client what they want, when they wanted it, where they want, and how they want - at the most efficient cost.”
An on-demand service
The solution was Syzygy, which offers customised investment products for a broad client base spanning the hedge fund, family office, pension fund, endowment, superannuation, and sovereign wealth fund space. Geographically, meanwhile, clients tend to be based in North America and Australasia, reflecting Callanan’s historic trading focus.
The firm concentrates on 10 to 15 close-knit relationships with clients who have large, long-duration pools of capital - rather than having 50-100 clients in a more “commoditised” type of advisory service.
“Our goal is not to be something for everyone, but to be a lot for a few,” he adds. “What’s extremely important to me is being able to provide this very significant level of client service and engagement and a kind of on-demand service.”
As a result, Syzygy eschews the shorter-term, tactical-type themes and trades which hinge on marginal data point trades, instead focusing on big-picture structural themes.
“We are focused on longer-duration pools of capital so we can arbitrage time, liquidity, valuation, and volatility in the market, because the investment horizon of our ideas is not really measured in weeks, it’s more six months to two or three years.”
He adds: “For our clients, we are fully transparent on how we acquire, assimilate, analyse, structure and implement our ideas. They are active participants in the process at each and every stage of the development of the idea.”
Bridging the gap
Almost 18 months after opening for business, one measure of Syzygy’s success is the eye-catching gains made by a customised research and investment portfolio it created from scratch for a US-based family office client upon launch.
This pool of investments – which is built around an array of macro themes including US-China trade tensions, oil price volatility, and dislocations in precious metals markets – is understood to have generated a striking 43 per cent return since April 2019.
“This strategy is really a great example of what we do with a US family office,” Callanan says of its end-to-end, holistic portfolio-building approach.
“Here, we’ve done the deep and broad research on the ideas after having identified and evaluated them, we’ve then structured and advised on what we think are the most leveraged ways to express those ideas. But the client has the ultimate discretion on how to how to implement the ideas in terms of trading and risk management.”
As talk turns to broader trends in outsourcing within the hedge fund and investment management industries, Callanan acknowledges the potential for further acceleration as a result of the ongoing coronavirus pandemic, which has upended business environments across the globe.
As home-working, digitalisation and decentralisation have become prominent watchwords over the past several months, he believes that the outsourcing of certain business infrastructure and operations functions potentially may spread further towards the research and investment management functions among some forward-thinking money managers.
“This virtual CIO or CSO-type role that I offer is becoming more popular in concept,” he observes. “In the same way that different administrators have been set up to be able to outsource the business process aspects of the hedge fund business model - the back office and mid-office functions – it seems to me to be a natural evolution that the outsourcing of some portions of the alpha makes a lot of sense.”
What is key, Callanan believes, is successfully fusing the research and trading functions of a strategy.
“There are phenomenal people in the market who fulfil that advisory-type market intelligence role, whether it’s in energy, in technology, or in the geopolitical world. But many of them don’t have market-based and investment structuring experience,” he contends. “So while they can generate strong themes and ideas, how do they put that into a market context? What’s the deliverable instrument?
“We bridge that gap,” he says. “We take advisory information and put it in a market context with structuring and execution expertise, creating the portfolio. A great CIO is really a content curator and an architect of themes, and can synthesise information exceptionally well from a diverse number of sources.”
As an “architect of themes”, as he would put it, Callanan has some 20 years’ experience in global macro investing under his belt. His formidable resume boasts senior roles at Soros Fund Management, the USD35 billion private asset manager founded by legendary investor George Soros where he began his career, along with stints managing money at a number of high-profile hedge fund firms, namely Fortress Investment Group, Rubicon, and Stanley Druckenmiller’s Duquesne Capital.
“I’ve been extraordinarily fortunate to have a really remarkable and talented set of mentors over the course of my entire career,” the US-born, UK-based manager says, reflecting on his investment background.
“Starting out as an equity analyst, and then as a commodity analyst, helped foster my understanding of balance sheet fundamentals, and supply and demand,” he recalls. “As a macro investor looking at companies, and looking at commodities, this helped create a solid foundation to try to learn about how to then look at countries’ balance sheets, and what drives the larger macro moves.”
Asked about his investment philosophy, he says a key lesson he has learned is acknowledging the limited number of opportunities that arise each year in the macro arena.
“That’s why we really spend 90 per cent of our time on research. For us, that is the core of creating alpha generation,” he continues. “The challenge is to create asymmetric returns and find what we call mis-priced optionality because of structural changes in a particular market or asset.”
The current investment landscape is being shaped by “the most important geopolitical and geo-economic shifts in a generation”, Callanan says, which is unleashing a “host of actionable themes.”
Specifically, he says there’s “no shortage” of trends - including globalisation versus de-globalisation, the rise of economic nationalism, US-China trade tensions, transitions in US fiscal policy, and the energy transition – to tap into, each of which carry far-reaching ramifications for currencies, interest rate, credit, equities and commodities markets.
“It’s not always about knowing everything about a topic,” he says of his approach to investing.
“It’s about how you figure out which things are relevant in influencing price action, and then how you express that in terms of generating alpha for portfolios. We focus on seeking to maximise magnitude, not just frequency of payoffs on investment positions.”