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Algebris’ macro credit fund powered by catalyst gains

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Algebris Macro Credit, a macro credit-focused hedge fund strategy run by Davide Serra’s Algebris Investments, is positioning for market volatility with catalyst-focused trades, amid a strong start to 2020.

The EUR520 million fund, which is managed by portfolio manager Alberto Gallo, is up some 3 per cent so far in 2020, having gained 2 per cent in January. Last year the fund was up 20 per cent, driven partly by gains in beta credit positions and selective long and short bets across sovereigns, corporates and banks, reversing 2018’s hefty 13.67 per cent loss.

The fund is currently focused on concentrated long and short positions in issuers with positive or negative catalysts, which have been the main drivers of its year-to-date returns.

“Our portfolio construction is currently a barbell between assets with upside, like bonds trading below par with selective upside catalysts, and very liquid assets,” portfolio manager Gallo said in Algebris’ recent macro letter. “This allows us to benefit from market volatility, compared to a fully invested portfolio at an average market yield.”

Launched in 2016, Algebris Macro Credit takes a multi-strategy approach to credit markets globally, trading corporate and bank debt long and short, on a both a directional and relative value basis, while hedging macro risks.

“We believe broad credit spreads, and in particular US high yield double-Bs, represent one of the best macro shorts today for a downside growth scenario, at only 100 bps in spread,” Gallo said.

“In emerging markets, we think Turkey and Brazil are vulnerable to too-dovish central bank policies, which have compressed real interest rates to a very thin margin. In Turkey, government policies which support credit easing in the private sector may boost demand in the short-term, but create large balance sheet losses in the medium term.”

Algebris Investments was established in 2006 by founder and CEO Davide Serra, an Italian-born former UBS and Morgan Stanley analyst, and focuses on a range of credit, equity and non-performing loan markets.

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