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Blue Diamond Asset Management – Best Statistical Arbitrage Hedge Fund

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Blue Diamond Asset Management is an independent privately owned company based in Pfaffikon, Switzerland. The team of four investment professionals and one COO has a singular focus on trading equity volatility.

Since the strategy launched on 30 September, 2011 it has generated a net annualised return of 21.34 per cent. 

To demonstrate the robustness of the strategy, it has generated positive returns during both negative and positive S&P 500 months, showing low correlation to hedge funds and negative correlation to CTA indices. 

"Last year the strategy returned 21.78 per cent net and we increased the AUM from USD150 million to USD400 million. Most of our assets are from sophisticated institutional investors like pension funds, insurance companies and foundations,” confirms Jonas Stark (pictured), CEO/CIO of Blue Diamond. 

The Non-Directional strategy uses systematic, proprietary investment processes to capture opportunities arising in the equity volatility markets to generate attractive risk-adjusted returns. The strategy's investment process seeks to identify and exploit inefficiencies arising from the price level and term structure of liquid, listed equity market volatility-related instruments. It establishes spread positions to capture these inefficiencies, explains Stark. 

"We believe that market inefficiencies exist and that while these inefficiencies wax and wane, robust research, rigorous risk management, and diligent position management can allow a manager to continue to maintain its edge. This is especially true in markets like the VIX futures and options where there are an increasing number of new and diverse volatility-related exchanged traded and privately placed products," he says.

Currently, the fund is closed to new investors. It is close to capacity in terms of how much Blue Diamond thinks it can trade in relation to the strategy. "With a strategy like ours," says Stark, "it takes a long time to prove to investors that you can deliver repeatable performance. For a long time we were at USD50 million, then suddenly we had a jump to USD150 million. As the fund grew, existing investors topped up their allocations. It created a snowball effect in terms of AUM growth."

There are a few key features that help Blue Diamond stand out from the competition. Firstly, it has a singular focus on equity volatility. Having such a targeted approach is important if one wants to beat the competition. "Secondly, whilst we run a systematic strategy one of the key success factors is that we've adapted the strategy over time. We've conducted quantitative research on the market to improve the strategy and harness new opportunities as they've arisen. 

"It's important to try and constantly improve how one trades the markets. That's how the team works, we are always seeking out new opportunities," stresses Stark. 

Blue Diamond has also spent a lot of time getting its operational processes to a very high level. It now has two dedicated programmers who are responsible for a proprietary portfolio management and back-office system. 

"Everything from fee reconciliation to cash management and reporting to clients is fully automated. Fewer manual processes significantly reduce operational risks and costs. And that is something that investors really appreciate when they meet us. 

"A good operational infrastructure allows us to better work with clients and focus on the investment strategy rather than get caught up in daily operational tasks that offer no value add to the investor," explains Stark.

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