MaxQ Fund awarded as Discretionary Global Macro Fund of 2012

North Asset Management’s MaxQ Fund received two awards at the Choice European Hedge Fund Awards 2013. The MaxQ Fund was up +15.51% last year and this continued the strong performance seen in 2011. As a result the Fund won “Discretionary Global Fund of 2012 and Discretionary Global Macro Fund last 3 years” at the Investors Choice European Hedge Funds Awards and has been nominated for 2 further awards this year. 

George Papamarkakis, North CIO commenting on the results stated: “The Fund was able to take advantage of a diverse set of market opportunities and in particular within the European time zone, both within the Eurozone as well as with unique country specific exposures outside of the Eurozone. The Fund returns were achieved through a balance of relative value, cross market strategies as well as directional strategies. The Fund returns were also through capital gains, achieved predominately in fixed income strategies and to a lesser extent in foreign exchange and equities”.

The European Hedge Fund Awards recognise genuine excellence in the field of hedge fund investment management by considering a range of qualitative and quantitative assessment criteria. Uniquely, distinguished hedge fund investors on the HedgePo platform determine the award winners, placing strong emphasis on qualitative assessment criteria, such as investment process and risk management. Emerging managers are considered in separate categories.

Best global macro hedge fund winner: MaxQ Fund - North Asset Management

North Asset Management's MaxQ Fund distinguishes itself from other global macro funds by focusing beyond just the G3 markets, says the company's chief investment officer and portfolio manager George Papamarkakis. This, combined with its active trading approach, has helped the fund through the volatility in 2011 and so far in 2012.

The fund was up 25.19% last year. Papamarkakis says having a short-term investment horizon meant the fund was not caught out by reversals in the market.

"There were a lot of dislocations around the world, so we took advantage of, for example, the slowdown in China," he explains. "We took advantage of the fact that the Chinese renminbi market started becoming more liberalised and so forwards started to normalise.

“We took advantage of the weakening in the commodity complex towards the end of the third quarter when people again started questioning the spill over from China. And we also took advantage significantly of the opportunities within the European time zone and all the turmoil that we've seen."

The fund focuses largely on two asset classes, fixed income and foreign exchange, with a bit of equities. It combines a global macro view with a bottom-up microanalysis coupled with fundamental and tactical strategies.

Fundamental strategies generate two-thirds of the fund's returns with the manager looking at ways to express country specific views that are neutral to the global risk environment. The investment horizon is three to six months.

The tactical side of the portfolio seeks directional opportunities supported by statistical driven signalling. The investment horizon is between 24 hours and a few weeks.

Investment ideas are expressed using liquid instruments in liquid markets, an approach that Papamarkakis admits can mean missing opportunities. However, because the fund offers 45-day liquidity, he thinks it would be "imprudent" to have illiquid assets in the portfolio.

"In 2008 we saw a lot of funds that obviously had significant illiquid positions which their investors weren't aware of. In contrast our fund, despite having a very good 2008 [up 6.67%] and being significantly positive, had redemptions like the rest of the industry. We were able to meet them in a very orderly manner without imposing any gates. That's a function of being invested in those liquid markets."

The concept of liquid markets has changed post-2008, believes Papamarkakis. It is more difficult to identify which instruments or markets are liquid. He defines a liquid market as one where an investor can exit within 24 hours.

The fund should be able to trade quickly in out and out of positions if liquidity disappears from the market, says Papamarkakis. Holding a net long volatility position helps to protect the portfolio in times of distress.

Risk is also managed by limiting exposure to the G3 countries. "We will trade one currency or one interest rate market versus another market. That's usually the predominant theme or predominant hedge we will use in order to isolate overall global risk environment and focus very much on that micro opportunity."

Volatility also works in the fund's favour. This is where Papamarkakis believes there will be opportunities over the next 12 months. "Europe will continue to be a source of potential return because of the volatility that we're seeing due to the [eurozone] crisis. That will be predominantly focused in the fixed income space," he says.

One of the opportunities stemming from the eurozone's woes is an oversupply of government bonds, bringing a substantial discount on most new issuance.

French bonds in particular will underperform, believes Papamarkakis. French president François Hollande wants a push for growth and less focus on austerity measures. "People will question the commitment by the new administration to [fiscal] tightening and at the same time issuance continues to come into the market. So the ability for the market to digest that incredible amount of supply is quite limited."

Outside the EU, Paparmarkakis is watching the Swiss market as well as Norway and Sweden He thinks the Nordics could benefit from the eurozone situation while Norway will profit from high oil prices and a strong domestic economy.

[Pictured: George Papamarkakis, North Asset Management]
"There are a few themes out there. I think the main theme has always been quite opportunistic with quite a short-term trading environment."

Timing in such volatile markets is important. In order to be able to take advantage of opportunities, the fund keeps “enough” unencumbered cash to move quickly when a chance presents itself.

The biggest risk to the fund is a decrease in volatility.

Fund facts
Fund name: MaxQ Fund
Portfolio manager: George Papamarkakis
Management company: North Asset Management
Contact information: Charlotte Hervouet, 50 Hans Crescent, London SW1X 0NA (+44 (0)20 7590 7600; ch@north-int.com; www.northasset.com)
Launch date: December 2, 2002
Assets under management: $130 million (at December 31, 2011)
Net cumulative performance since inception: 114.57% (at April 30, 2012)
Annualised return: 8.45%
Annualised volatility: 13.74%
Sharpe ratio: 0.61
Strategy: global macro
Share classes: euro, US dollar
Administrator: GlobeOp Financial Services
Auditor: BDO
Prime broker: Credit Suisse
Legal counsel: Simmons & Simmons
Domicile: Ireland
Listing: Irish Stock Exchange
Management fee: 2%
Performance fee: 20%
Minimum investment: €/$100,000
Lock-in: none
Redemption/liquidity terms: monthly with 45 days' notice

Hedge Funds Review

Traders' Targets: Portugal And Spain

LONDON—As fears of financial "contagion" resurface in Europe on the back of Ireland's woes, hedge-fund managers are cautiously setting their sights on potential problems in countries such as Portugal and Spain. But they face political and other challenges in placing bearish bets.

The deteriorating economic picture in some corners of Europe clearly has the attention of many hedge-fund managers and other investors who see Ireland's rescue package as little more than a bandage for the continent's woes. They are expecting more bad news to come, predicting that borrowing costs elsewhere will become prohibitive, potentially forcing other countries to also seek a bailout or restructure their debt.

Yet some hedge-fund managers aren't piling wholesale into bearish bets on weak European countries for a variety of practical and political reasons.

One is basic: Predicting if or when a government may request a bailout can be difficult, a problem that is compounded by the time and expense that comes with placing and exiting trades around European sovereign and corporate debt.

Also, the notion of betting against Europe's peripheral economies has also become an emotional topic amid debate about whether such moves have contributed to those countries financial woes, rather than merely reflecting them.

Politicians and regulators in some European countries and the U.S. have called for the banning of certain instruments, such as derivatives known as credit-default swaps. For their part, hedge-fund managers are quick to argue that bearish bets are a result of the economic problems, not the cause, and that much of the negative pressure comes from traditional asset managers, banks and corporate treasurers, seeking to protect themselves.

Nevertheless, some managers are concerned that politicians could move to ban CDS and say they are limiting their exposure to them.

The Irish rescue effort comes on the heels of Greece's acceptance in May of its own international bailout to avoid default. Many hedge-fund managers and investors now see Portugal, with its combination of budget deficits, high government debt and low growth, as the next shoe to drop.

But, investors say, the bigger concern is if funding problems spread to much bigger economies, such as Spain, Italy or even France, where investors fear a bailout would be impractical. The worry, therefore, is that it could lead to a restructuring of debt that would inflict losses on bondholders, many of which are European banks.

Among those examining Spain is George Papamarkakis, at hedge fund North Asset Management LLP, which has long been focused on sovereign issues in Europe. In recent weeks, the roughly $200 million London-based fund has been adding to bearish bets on Spanish government bonds and the local equity-market index, according to Mr. Papamarkakis, who says he isn't using CDS for his Spanish sovereign trade.

With Spain's fundamentals weak, Mr. Papamarkakis says he expects the domestic economy to continue to suffer. And, as the country's cost of borrowing increases, it will become more costly for Spanish banks to borrow money, and therefore other local companies as well. The trade is among the fund's top three positions.

"The elephant in the room is that the [Spanish] real-estate market continues to be over-levered and hasn't corrected," says Mr. Papamarkakis. Such a correction would have an impact on local asset prices and in turn on the local equity markets, he says.

Fortelus Capital Management LLP, a credit and distressed fund with more than $1 billion in assets, also is betting on the increasing likelihood of default in European countries. In recent weeks, it has added to existing bearish bets on the debt and equity of financial, construction, real-estate and industrial companies in Southern Europe, according to a person familiar with the matter. Its strategy includes short positions in CDS and the bonds directly.

Fortelus's view is that the rising cost of borrowing for countries will make it more expensive for banks and other companies to find funding too. The trades account for the largest "short" position for the London-based fund, which typically has more bullish than bearish bets. And, the fund has been shifting its focus in terms of countries as concerns have spread from Ireland to Portugal and Spain, and now to Italy and even France, the person says.

Still, events are proving difficult for hedge funds to predict. Some managers at macro funds, which focus on economic trends in currencies, interest rates and other instruments around the world, were caught out by the euro's sudden downturn earlier this month linked to Ireland's woes. Many managers had been buying the currency during September and October as part of a trade betting that the dollar would weaken on the back of the U.S.'s latest round of quantitative easing.

As a result, some funds have reduced their positions as part of a broader move to take risk off of the table heading into the end of the year, where trading tends to be lighter due to the holiday season.

Still, "the problems in the euro zone are not going to go away just because Ireland has been bailed out," says Christopher Peel, founding partner of London-based BlackSquare Capital LLP, which invests in hedge funds on behalf of clients. "Other countries whose houses are not in order are going to be held to the same scrutiny. I don't think those issues are going to go away, which is why the euro is going to stay under pressure."

By CASSELL BRYAN-LOW