3 minute read
Trium Capital LLP
DONALD PEPPER
CO-CEO, TRIUM CAPITAL LLP
Trium is backed by a family office that takes a traditional approach to alternative investing. Namely, the goal is to stay rich and get richer slowly. This guides us to seek portfolio managers whom we expect to be able to compound steadily, with a strong focus on avoiding or dampening down drawdowns. We will not be chasing equities at current valuation levels, nor will we be making any allocation to long-only bonds and credit. Rather, we are seeking fixed income replacement strategies to back with our own capital. These strategies include, firstly, Global Convertible Arbitrage. The strategy has demonstrated excellent downside protection, while generating strong positive returns. The universe of convertible bonds has grown hugely in the past 18 months, creating a substantial opportunity set to generate alpha while hedging equity beta, credit and interest rate risk.
A second of our strategies, Global Discretionary Macro, favours a truly global approach, i.e. including emerging markets (with a focus on Latin America and Eastern Europe) to complement the more-travelled G7 markets. This has led the strategy to have strong returns with a negative correlation to equities over its 10+ year history. We expect 2022 to provide excellent opportunities for the strategy.
We have backed a European-focused discretionary equity market neutral strategy driven by an ESG approach that seeks both to engage constructively with companies to reduce emissions, as well as achieve uncorrelated returns. We provided seed capital for this strategy almost three years ago and it now has over 30 additional investors.
Returns last year were boosted by the allocation to our quantitative (low net) dynamic equity strategy. This strategy has a 19-year heritage, and we see continued opportunity for that strategy in the years ahead.
In addition, we are incubating a very interesting global equity capital markets arbitrage strategy to take advantage of the huge activity and planned activity in ECM and other arbitrage opportunities over the coming years.
Each of these meets the principle of expecting to deliver positive returns over a rolling three-year period, with low correlation to what we expect to be potentially quite volatile markets in 2022.
Trium has pioneered a hedge fund strategy that has utilised ESG as a means to generate expected alpha. Back in late 2018, while Joe Mares (ex-GLG and Moore Capital) developed the strategy, there were a lot of naysayers who stated they believed that incorporating ESG criteria, would reduce returns. I am glad to say that conversation has well and truly moved on. Investors understand that ignoring ESG criteria is not consistent with trustees fulfilling their fiduciary responsibility.
We expect more hedge funds to genuinely embrace ESG principles and use these to drive return generation. This will satisfy the growing demand we are seeing from investors for such strategies.
Our ESG emissions impact strategy is a multi-sector fund that focuses on companies in the sectors accounting for approximately 30 per cent of market capital yet causing approximately 90 per cent of global emissions. The industry and specific expertise of the portfolio manager and his three analysts in these defined sectors allows them to identify companies that are embracing ESG, and who they see as outperformers (in the long book) vs ESG laggards (shorts) we expect to underperform in the cross-section of these sectors. As such, we can establish well-hedged long/short trades where returns are driven by idiosyncratic stock vs stock alpha, rather than being whipsawed by factors (e.g. growth vs value) as some broader generalist hedge funds have been.
We, and the family office backing Trium, are big believers that there is incremental alpha to be harvested by investors willing to back emerging managers. It is important not to confuse “emerging” with “novice”. The typical emerging manager we back has well over a decade of hedge fund portfolio management experience. As they embark on launching their own fund, with their own capital at risk alongside ours, we see extreme levels of focus that, along with more reasonable fees (it is a zero-sum game – lower fees mean higher returns to investors) and lower AUM, we believe will deliver an emerging manager premium.
