Best Credit/Distressed Hedge Fund: Winner

Hedge Fund of the Year: Shortlisted

The success of the Pamplona Credit Opportunities Fund (PCO) results from "the investment team's ability to build out and manage a diversified European credit portfolio, which has delivered strong risk-adjusted returns for clients and this is why we are rated as one of the best funds in 2009," says Zoran Kozic, head of PCO marketing.

The €245 million multi-strategy credit fund invests in both structured credit and corporate credit in Europe. PCO targets a net return of 12%-17% a year looking to keep volatility in the 5%-7% range. The fund returned 32.14% in 2009 and 6.3% in the first three months of 2010.

Launched in September 2008 with €168 million of seed capital, PCO is managed by Yves Leysen, the former head of fixed income in Europe for Bear Stearns. He has over 20 years trading, sales, origination and management experience. Several other members of the team worked with Yves Leysen at Bear Stearns.

The primary geographical focus of PCO is developed Europe and the investment team adopts a "very opportunistic", active approach, says Kozic.

"We look for wherever there is best relative value across corporate and structured credit in both performing and distressed securities, and concentrate our analytical resources and capital on those segments. For example, at the beginning of 2009 we had 40% of net asset value (NAV) in non-conforming UK RMBS, but as we started to identify value in the corporate market and other segments of the structured credit market (CMBS, CLOs) we shifted our emphasis, reducing RMBS exposure down to 12%," Kozic explains.

Kozic says the managers will be "quite aggressive" in moving capital around to take advantage of the best opportunities as they arise.

"We are aware of few comparable credit hedge funds to PCO which have the same level of resources on the ground and capital to invest, dedicated solely to the European market. In our view the heterogeneous and less mature nature of the distinctive European national markets offers a wider opportunity set for PCO to exploit than is available to investors in the US," he adds.

While the fund will actively allocate capital between corporate and structured credit (RMBS, CMBS, CDOs and consumer credit) at present, Kozic says, the European mortgage market is providing greater relative value.

"In the mortgage space you can achieve better returns for less risk than is currently possible in the corporate space, where we believe most of our competitors are focused," he notes.

Assets are often sourced through dealers and end owners directly. This is an approach where PCO has a particular edge through the strong relationships with institutions across Europe which the team has built up over the last 20 years, Kozic says.

The success of PCO can in part be attributed to the commitment and stability of the investor base. The seed capital invested in September 2008 was locked in for three years and a 12-month hard lock up applies to all new investments.

"This proved hugely beneficial at the time of PCO's launch when markets were particularly volatile following the Lehman Brothers' collapse as it meant we knew we had long-term capital at the outset and would, therefore, not face large redemptions. Now it is less important as the markets are liquid again," Kozic says.

Internal research generates most of the investment ideas with the investment team applying fundamental and relative value analysis and investor activism where appropriate to maximise investment returns and create alpha.

The fund looks for securities or issuers that are either fundamentally cheap relative to their peers or where there is a situation, event or catalyst coming up that will change the value of a security. This will often see the fund looking to hedge the market, or beta, risk to try to extract the purer alpha from the investment idea, Kozic adds.

PCO's investment committee meets on at least on a monthly basis to set the overall direction of the fund and the sector focus. Weekly meetings of the investment team are security specific. Alhtough consensus is the preferred route within the fund, the ultimate decision to commit to an investment (or take it off) resides with the portfolio manager, Yves Leysen.

"At this stage of PCO's development, we remain very excited about the opportunities available to us in the European credit universe and we are looking forward to the challenge of continuing to create value for our existing and new investors", says John Bills, PCM's head of business development and sales.

Fund facts: Pamploma Credit Opportunities Fund

Full name of fund: Pamplona Credit Opportunities Fund
Name of investment/management company: Pamplona Capital Management
Name of portfolio manager: Yves Leysen
Contacts: Zoran Kozic and John Bills, 25 Park Lane, London W1K 1RA (+44 (0)20 7079 8050 or 8027; zkozic@pamplonafunds.com jbills@pamplonafunds.com)
Launch date: 2008
Portfolio size: €244.4 million (at March 2010)
Average annualised return: 25.12% (at March 2010)
Average annualised volatility: 7.90% (at March 2010)
Sharpe ratio: 3.08 (since inception)
Share classes: US dollar, sterling and euro
Administrator: Quintillion
Auditor: Ernst & Young
Prime broker/custodian: BNP Paribas
Listing: Channel Islands Stock Exchange (pending)
Management fee: 2%
Performance fee: 20%
Minimum investment: $150,000
Lock-in/up: initial 12 months
Redemption period: monthly with 90 days' notice