Shortlist: Best convertible arbitrage/volatility hedge fund

The CQS Convertible and Quantitative Strategies Fund was launched in March 2000 and is focused on global convertible arbitrage. 

The investment advisers believe the fund when considering the fundamental drivers underpinning an investment differs in a number of ways from its competitors due to the depth of in-house credit research resources. The quantitative analytics enhances awareness of all comparative valuation models and their limitations.

Another key advantage is scale. The fund had $853 million of assets under management at March 31, 2011. The size of the fund brings favourable funding/stock borrow terms and a high level of broker service in terms of idea generation, liquidity and allocations.

The fund seeks to exploit convertible opportunities across sector, geographic and security profiles. It has strong liquidity management and has never suspended redemptions, gated investor capital or used a side-pocket.

The fund employs a number of strategies to generate returns. These include gamma trading, levered yield, cashflow positive trades, cheap puts and events and new issues on an opportunistic basis.

The fund’s managers seek to construct a balanced portfolio and to apply leverage to maximise returns within a framework of experience-based judgement and explicit risk limits. 

The CQS convertible team is led by Oliver Dobbs and CQS founder Michael Hintze who has 29 years of experience at CQS, CSFB, Goldman Sachs and Salomon Brothers. The core team comprises 12 portfolio managers and traders supported by the CQS credit research team.

The research team as well as sourced externally from third-party broker reports. Regional portfolio managers are responsible for idiosyncratic security screening and selection. They also access new issuance opportunities.

Once an opportunity is identified the research analyst produces a written research opinion. This will typically cover key credit and relevant hedging considerations including: credit rating and spread, potential recovery in the event of a default.

Detailed document review is an important focus and includes a review of the trust deed, prospectus and terms and conditions to assess security structure, seniority, capital distribution adjustments and event risk.

The team targets a minimum 10% or more net levered returns for individual positions on a 12-month time horizon, calibrating across the global convertible market. There is also optimisation of sizing and timing of trade execution and finally portfolio construction based on target returns, scenario analysis, sizing and fit into existing portfolio.

Fund facts
Full name of fund: CQS Convertible and Quantitative Strategies Fund
Name of portfolio managers: Michael Hintze and Oliver Dobbs
Name of investment/management company: CQS
Contact information: Michael Rummel, CQS, 5th Floor, 33 Chester Street, London, SW1X 7BL (+44 (0)20 7201 2491; Michael.Rummel@cqsm.com; www.cqs.ch)
Launch date: March 2000
Assets under management: $853 million (at March 31, 2011)
Net cumulative performance since inception: 179.51% (at March 31, 2011)
Annualised return: 9.71% (at March 31, 2011)
Annualised volatility: 8.95% (at March 31, 2011)
Sharpe ratio LTD: 0.78 (at March 31, 2011)
Strategy: global convertible arbitrage
Share classes: US dollar, euro, sterling and Swiss franc
Administrator: JP Morgan Hedge Fund Services (Ireland)
Auditor: Ernst & Young
Prime brokers: Barclays Capital Securities, BNP Paribas, Citigroup Global Markets, Credit Suisse Securities (Europe), Deutsche Bank (London branch) Goldman Sachs International, Morgan Stanley & Co International and UBS
Legal counsel: Allen & Overy (UK), Seward & Kissel (US), Maples & Calder (Cayman)
Domicile: Cayman Islands
Management fee: 1.5%
Performance fee: 20%
Minimum investment: $100,000
Lock-in: none
Redemption/liquidity terms: monthly, with 90 days’ notice