Winner: Best Ucits product

Dave Benichou, portfolio manager for the Equity Style Arbitrage Fund, has been in the hedge fund industry for 10 years and with Amundi for the last three. Previously he worked at Systeia Capital Management.

His team of three senior investment managers collectively has over 33 years of experience in hedge funds, proprietary trading and risk management. They share market views constantly as there is no hierarchy in the investment decision-making process.

Stock-picking is purely quantitative and there is no specialisation in terms of sectors although there is a strong focus on the developed markets of Europe, the US and Japan. This is because Benichou needs highly active borrowing markets and readily available fundamental time series data.

The arbitrage philosophy aims to identify and profit from price anomalies in equities using systematic and quantitative techniques based on fundamental factors, drawn from balance sheets, income statements and cashflow statements.

Benichou’s team scours through tons of data from over 3,000 companies. Every morning these data are checked, corrected and adjusted. Proprietary algorithms compute financial factors and ratios used in style screenings detect arbitrage opportunities for the long/short portfolio.
 
There are 230 long positions and over 400 short positions in the fund’s portfolio to ensure diversification. The selections are chosen through systematic stock-picking, although fundamental factors also play a role, particularly keeping an eye on what other investors are doing.

“We are systematic in the stock-picking and fundamental in the risk management. We don’t have meetings with companies, rather with analysts in banks once a month across all sectors to discuss risk and structural changes," Benichou explains.

Although the fund is well diversified, macro betas can lead to unusual positive or negative portfolio returns. In this scenario the fund “actively adjusts the total risk of the portfolio by using listed options and futures or by reducing the gross leverage of the portfolio,” Benichou notes.

According to Benichou constant innovation is the key to staying one step ahead of the market. “New challenges are arriving all the time, so we chase after a constant quest for innovation,” he comments.

A potential challenge could be a decline in interest in Ucits products if investors’ appetite for risk increases as the memory of the financial crisis begins to fade. Benichou is not convinced this will happen, emphasising that “Ucits are the best format for transparency and liquidity”.

Taking a pragmatic stance, he notes that Ucits’ survival “will depend on the risk return that Ucits will be able to deliver in the next few years. If the returns are low, people will progressively come back to more offshore hedge funds. If we can maintain the good returns and demonstrate to clients and to the industry that we are able to do exactly the same performance, I think Ucits will stay.”

He continues: “We have delivered that concept this year and I hope we will renew it next year. Some strategies – equity market neutral, fundamental, equity long/short and some global macro strategies – will be able to deliver returns in the Ucits format.”

In 2010 the fund recorded a positive 11.23% net return with volatility slightly above 3%, achieving a Sharpe ratio of 3.5.

Benichou believes the client base for hedge funds and Ucits funds is now dichotomised. “Hedge funds think in leverage and Ucits [hedge funds] think in risk. You don’t have the same client base. Here at Amundi clients ask for transparency and liquidity.”

Although he believes onshore and offshore vehicles can co-exist, there is a competitive glean to his assessment of this viability. “I think cohabitation is desirable. Ucits gives access to hedge fund strategies in an onshore format. The more Ucits players, the better," he concludes.


Fund facts
Full name of fund: Structura – Equity Style Arbitrage I(C)
Name of portfolio manager: Dave Benichou
Name of investment/management company: Amundi
Contact information: Charlotte Binche, head of press relations, Amundi, 90 boulevard Pasteur, 75015 Paris (+33 1 76 33 79 54; charlotte.binche@amundi.com; www.amundi.com)
Launch date: July 21, 2009
Assets under management: $55 million (at April 5, 2011)
Net cumulative performance since inception: 7.40% (at April 5, 2011))
Annualised return: 4.10% (at April 5, 2011)
Annualised volatility: 3.35% (at April 5, 2011)
Sharpe ratio: 1.08 (since inception, risk-free rate used is Eonia Index capitalised in euro)
Strategy: equity market neutral
Share classes: I (institutional)
Administrator: Caceis Bank Luxembourg
Auditor: PricewaterhouseCoopers Luxembourg
Custodian: Caceis Bank Luxembourg
Prime broker: Morgan Stanley is the swap provider of the fund
Domicile: Luxembourg
Management fee: 0.76%
Performance fee: none
Minimum investment: €500,000
Lock-in: none
Redemption/liquidity terms: daily liquidity; no redemption fees