With over $2bn in AUM just two years after launch, Empureon is leveraging volatility premiums, portfolio hedging and portable alpha to navigate market drawdowns and sustain growth.
Empureon has enjoyed an astronomical rise since its inception two years ago. Spearheaded by managing partners Daniel Lucke and Ahmet Peker, the German firm now boasts over $2bn AUM, with its systematic volatility strategies drawing significant attention from investors. Peker puts this rapid growth and strong appeal for allocators down to two significant factors: “What really defines us is our robust strategy; we acknowledge that the volatility premium tends to be mean-reverting. Additionally, we also have hedges within the portfolio, which help negate against tail events or significant market drawdowns.”
Lucke believes that despite the turnover of managers who manage assets and the volume of short volatility positions, there is still a vast amount of capital in the market to be exploited, meaning the risk premium still exists. “The balance of supply and demand hasn’t changed that much,” he notes. In that regard, managing that dynamic is a central tenet of the strategy, as is managing the downside. Empureon prides itself on its ability to manage risk and be willing to pay for hedges others may not, which allows for diversification across the portfolio.
This thesis has kept Empureon in strong shape navigating the current market environment. An increasing market is good for a short volatility seller, while a large reversal can be damaging, particularly if implied or realised volatility increases. Lucke cites the example of 2022 as a particularly bad environment, as implied volatility failed to increase, meaning the tail hedges within the portfolio failed to work well. “This drop was not good for us. Following that experience, we took the appropriate measures to mitigate against the problem.”
The firm’s rapid growth is a strong example, in an industry where accumulation of assets can be most challenging in the following years since starting. Peker believes that capacity is not an issue for Empureon, citing the purely systemised nature of the strategy as capable of handling consistent inflows and not facing concentration risks. “We believe that we can handle a high amount of capital and not lose our edge. We are seeing strong inflows from a multitude of different clients across our funds.”
Another area that is garnering investors’ attention is portable alpha, which Peker sees as coming back into fashion after its reclusion post GFC. Moreover, Empureon sees the volatility premium lending itself particularly well to portable alpha being used across strategies. “The flagship fund – Volatility One – is a pure volatility strategy with a very conservative bond portfolio as collateral. And Imperial US Equity, which overlays our volatility strategy over the S&P 500. Both use portable alpha and generate significant outperformance.” The US markets are rivalled in liquidity capacity by Europe, with Peker citing the primary difference being options linked to implied volatility indices: “calls on the VIX index are much more liquid than calls on the VSTOXX, which is a European implied volatility measure.”
Watch the full alternative views interview below
