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Why size matters in multi-strategy: a risk premia view

Why size matters in multi-strategy: a risk premia view

The size of a multi-strategy fund can be one of the defining qualities of a strategy and provide both benefits and huge challenges, according to Quoniam Asset Management’s CIO, Thomas Kieselstein.

Speaking to Citywire Selector, A-rated Kieselstein (pictured below) and Citywire + Markus Ebner singled out key challenges for the €163.5 million Quoniam Funds Selection – Global Risk Premia fund.

‘Our active quantitative investment approach allows for an efficient combination of different strategies within a single integrated platform – this is essential not least for multi-asset solutions such as ours.

‘The size of a fund is important. Even with regard to interesting strategies, seed money can be a challenge. Beyond an inflection point strategies can grow very fast ultimately facing capacity constraints,' Kieselstein said.

Ebner added that the Alt Ucits sector has gained traction in recent months due to the current market environment.

‘Due to the low yield and low return environment, in combination with limited risk budgets, multi-asset strategies which provide low correlation with traditional asset classes are gaining in importance.

‘Whereas traditional portfolios usually have high exposure to interest rates and equity beta, it is crucial to distinguish and integrate a variety of unrelated and distinct risk premia to achieve attractive return potential.’

Portfolio moves

The fund has a slight dip in performance in September, but Ebner (pictured below) said the strategy is now almost back to normal.

‘After a very successful multi-year period the stock selection showed a temporary decline in September but is already recovering.

'Sophisticated multi-factor equity premia, such as value, quality, sentiment, size and carry in the fixed income universe are important drivers of performance as well as various FX strategies such as value, momentum and carry’.

‘The implementation of size exposure using single stock European strategies instead of US futures have proven to be more effective. On the other hand, there are theoretical investment opportunities in FX, like Russian ruble, which we did not pursue due to geopolitical risk considerations.’

Unlike most multi-strategy funds, the Quoniam fund is quantitative, which Kieselstein said has been a benefit to the management of the fund.

‘Although based on fundamentals our investment process is purely quantitative. All sub-strategies used in the fund are based on this process in which we automatically evaluate a large amount of relevant data and translate the results into investment decisions, incorporating risk management.'

Over the three years to the end of September 2017, Ebner returned 9.19% in euro terms in the multi-strategy sector. This compares with a 5.59% return by the average manager over the same time period.

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