PARTNER CONTENT
Sigma Advanced Capital Management is a macro investment firm specialising in absolute return strategies across global futures, with a focus on commodity and carbon markets. Carlos Arcila-Barrera, CFA, CAIA Founder and Chief Investment Officer chats to Hedgeweek about some of the current challenges and opportunities facing hedge fund managers, potential catalysts for future growth and the firm’s deep commitment to a robust sustainability strategy…
Where do you see the most significant opportunities for growth in the coming year?
In the current global economic environment, characterized by central banks’ challenging task of balancing growth and inflation control, and further complicated by a volatile macroeconomic landscape marked by geopolitical tensions, recession fears, and significant debt levels in developed countries, a dynamic and proactive portfolio management approach is expected to reveal significant opportunities across various asset classes this year.
Particularly, active strategies in fixed income, emerging markets, and commodities, with a special focus on carbon markets, could present significant opportunities for 2024. Currently, Commodities not only offer an attractive carry and roll yield, but they also strategically align with the ongoing structural energy transition. Moreover, they could serve as a hedge against the risks associated with supply disruptions and geopolitical events, which have the potential to cause a sharp increase in commodity prices.
The year 2024 marks a significant phase for the implementation of major reforms in various global carbon cap-and-trade systems. Prominent among these is California’s initiative to align its carbon allowance supply with new emission targets, the European Union’s roll-out of the ‘Fit for 55’ and RePower initiatives, and the United Kingdom’s enhancements to its Cap and Trade system, including a potential supply adjustment mechanism. We anticipate that these reforms, combined with the persistent volatility in the energy sector, will create multiple directional and term structure opportunities in this market. Additionally, we expect a significant influx of financial capital and the development of new investment options that offer exposure to this market, with a particular focus on the US California market.
How do you see the appetite for hedge funds shifting in the future?
The past few years have served as a reminder to investors of the importance of maintaining a well-balanced portfolio and the benefits derived from non-correlated asset classes and strategies. Several hedge fund strategies have demonstrated strong performance and diversification, reiterating the value proposition they offer to portfolios. As investors’ perspectives shift away from the TINA (There Is No Alternative to equity) mentality, there is a growing appetite for hedge fund strategies that can capitalize on the current macro-economic environment. Multi-strategy funds that can demonstrate risk-adjusted performance, offer diversification, and have the capacity to deploy substantial capital are likely to attract significant interest. Additionally, there is a growing interest in specialist and niche hedge fund strategies capable of extracting idiosyncratic alpha in their respective specialized markets. However, we anticipate not only increasing demand but also industry consolidation, especially in multi-strategy hedge funds, where cost, technology, and talent will play a crucial role in competitiveness.
What opportunities do you see emerging for hedge fund firms in the near future?
As the era of zero interest rates, low inflation, and traditional 60/40 portfolio diversification seems increasingly distant, the hedge fund finds an environment with abundant opportunities arising in various markets. The persistence of high volatility in interest rates, structural changes in emerging markets, and the disruptions and dislocations in commodity markets, as well as the growth and development of carbon markets, are just a few examples of the dynamic environments where hedge funds can thrive.
The commodity markets, far from reaching a state of stability, offer a diverse landscape for a range of strategies, from discretionary fundamental approaches to quantitative methods. In the carbon market sector, the increasing adoption of Emissions Trading Systems (ETS) and cap-and-trade frameworks by numerous countries not only broadens the market and its instruments but also opens up opportunities for investment funds to participate in the market.
Active strategies in the fixed income space, coupled with the new dynamics in emerging markets, such as the political changes and reforms in Latin American countries like Argentina and El Salvador, represent additional examples of the myriad opportunities available for hedge funds. This trend accelerates the growing interest in multi-strategy hedge funds and specialised managers who can benefit from these present opportunities.
Which are the most significant challenges in the hedge fund industry right now and how can they be best mitigated?
The hedge fund industry is currently navigating significant challenges, including heightened competition, escalating operational costs, and an increasingly stringent regulatory landscape. To effectively address these issues, hedge funds need to seek an operational edge and adopt innovative strategies. This requires the utilisation of technologies to enhance operational efficiency, the improvement of compliance infrastructure to navigate the complex regulatory environment, and the demonstration of their value proposition through performance, diversification, specialisation, and risk control. These strategies can help hedge funds distinguish themselves in a crowded field.
Has your firm been prioritising ESG and sustainability – why/why not?
Sigma Advanced Capital Management (SACM) is deeply committed to a robust sustainability strategy, not merely as a narrative, but as a core aspect of our operations and investments. Since 2018, we have strategically focused on generating a positive impact economically, socially, and environmentally. Our approach is twofold: firstly, improving our business operations by reducing emissions and enhancing energy efficiency; secondly, steering our investments towards initiatives that meaningfully performs while addressing climate change and align with the Sustainable Development Goals (SDGs), particularly through our carbon-focused investment program initiated in 2020. Also, a significant portion of our management and performance fees is dedicated to the SDGs, emphasizing climate action, clean water, affordable energy, and biodiversity conservation in communities worldwide. We are also signatories of the UN Principles for Responsible Investment (PRI) and adhering to the CFA Asset Manager Code, at SACM our commitment is to real action, financial performance and meaningful impact, reflecting our dedication to contribute to a sustainable future.
Carlos Arcila Barrera, CFA, CAIA, SCR Founder and Chief Investment Officer Sigma Advanced Capital – Carlos Arcila Barrera, CFA, CAIA, SCR, is the Founder and Chief Investment Officer of Sigma Advanced Capital Management, a Chicago-based macro investment firm specialising in commodity and carbon markets. He serves as a lecturer at the University of Cambridge, UK, the University of Notre Dame (USA), and the Universidad de Los Andes (Colombia), focusing on financial derivatives and sustainable finance. Prior to establishing Sigma, Carlos was an Energy Risk Associate at Optima Consultores, managing the power hedging desk. He also worked as a trading analyst at a commodity hedge fund in the US and as an investment analyst for the Universidad de Los Andes endowment. Carlos holds a Master of Science in Finance (Magna cum Laude) from the University of Notre Dame and is currently a candidate for a Master of Studies in Sustainability Leadership at the University of Cambridge. Carlos also holds CFA, CAIA, and SCR certifications. He completed his undergraduate degree in Business Administration with minors in Government and Chinese at the Universidad de Los Andes.
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