Winner: Best credit/distressed hedge fund

Shortlisted 2010
Best credit/distressed hedge fund

Numen Credit Opportunities Fund is a credit special situations fund. Its portfolio managers and co-founders – Filippo Lanza and Kushal Kumar – look at anything from investment grade to distressed special situations, across the spectrum of credit including corporate, banks and sovereign credit.

The investment decision is a combination of fundamental research and fundamental thesis of the credit worthiness of the issuer of the security we invest and a defined calendar of events/catalyst, typically within three months.

The portfolio managers have known each other for 10 years and have been involved in many deals through different credit cycles. This, says Numen, has given the fund a strong team.

Numen’s team managed to adapt to a new market environment and retrained their skillset from corporate credit analysts to analyse banks, sovereigns and macro. The fund has also won in 2010 one of the most sought-after mandates from one of the largest pension funds in the US.

The portfolio managers follow a top-down analysis which looks at macro trends, credit cycles, volatility and  liquidity. Numen uses valuation and proprietary modelling next to determine valuations of bonds relative to peers and other parts of capital structure. The third step in the investment process is credit analysis and selection. The managers look at cashflow, coverage, leverage and other factors before making a decision.

Finally, the managers consider security and trade selection looking at things like volatility, historical ranges, stop loss, exit strategy, target return, liquidity, sizing and execution. Risk management includes stress testing, systems-based risk monitoring, individual position and beta monitoring. Risk management is scenario-based, not model-based or based on value at risk (VaR).

The Numen Credit Opportunities Fund works primarily in the European markets and focuses on credit special situations and looks at anything from investment grade to distressed situations.

The portfolio managers establish fundamentally driven positions largely on an outright long or short basis and secondly on a relative value basis. They look to take advantage of pricing discontinuities in special situations triggered by the unfolding of credit and company events.

Liquidity of the securities and the fund is a priority, according to the managers. They try to implement the investment strategies by using only the most liquid securities available in the relevant context.

The fund uses plain vanilla and liquid instruments such as corporate bonds and single-name credit default swaps, cash equities and plain call/put options, together with ITRAXX credit indexes and listed equity indexes as hedge overlays.

Numen’s investor base is made up mainly of institutional investors, including funds of funds, high net worth individuals and family offices with 10% of the capital contributed by the principals. The majority of investors are European.

Numen Capital was established as an investment manager in 2008 by Filippo Lanza and Kushal Kumar.

Lanza and Kumar, former Lehman Brothers executives, have worked since the mid‐1990s in the European and Asian credit markets, where they have followed the credit special situation, high-yield and distressed segments of the market. They worked together at Lehman Brothers from 2001 to 2004. This period, they point out, was similar to the ongoing cycle, characterised among other things by a liquidity crunch, high numbers of issuers with an imbalanced liability structure, complexity of contractual borrowing arrangements, high volatility and price dislocations.

The management company is authorised and regulated by the UK Financial Services Authority. The company’s investment philosophy is based on a strong understanding of credit fundamentals that encompasses a wide range of aspects from enterprise valuation, cashflow analysis, prospectus/document analysis, creditor rights and knowledge of bankruptcy proceedings.

Fund facts
Full name of fund: Numen Credit Opportunities Fund
Name of portfolio managers: Filippo Lanza and Kushal Kumar
Name of investment/management company: Numen Capital
Contact: Katrin Bulach, investor relations, 1 Knights bridge Green, 7th Floor, SW1X 7NE(+356 22 48 38 01 (Malta); +44 (0)20 7052 8407 (UK);; katrin.bulach@numencapital.com; investor.relations@numencapital.com; www.numencapital.com)
Launch date: 2008
Assets under management: $200 million (at December 31, 2010)
Return over one year: 10.71% (at December 31, 2010)
Volatility over one year: 5.91% (at December 31, 2010)
Downside volatility over one year: 2.92% (at December 31, 2010)
Percentage of negative months over one year: 17% (at December 31, 2010)
Percentage of positive months over one year: 83% (at December 31, 2010)
Sharpe ratio over one year: 1.7192 (at December 31, 2010)
Sortino ratio over one year: 3.4778 (at December 31, 2010)
Strategy: credit special situations
Share classes: US dollar, euro
Administrator: LaCrosse Global Fund Services
Auditor: Ernst & Young
Custodian: Credit Suisse
Prime broker: Morgan Stanley
Management fee: 2%
Performance fee: 20%, with high water mark
Minimum investment: €250,000
Gate: 20% gate at fund level but has never been enforce since inception
Redemption period: monthly liquidity with a penalty of 5% for 45 days' notice and no penalty for 120 days' notice and a sliding scale inbetween