The Uni Global Alternative Risk Premia Fund is best described as a liquid alternatives quant fund. It contains a collection of 12 risk premia strategies. Currently the portfolio is split evenly between equity factor investing (similar to smart beta), yield capture (carry strategies) and macro-directional (trend following and forex value strategies).
“A lot of the strategies [in the fund] are what hedge funds had been running before and charging two-and-20 and not performing well,” Lee said, referring to the 2% annual management fee plus 20% performance fee commonly charged by hedge funds.
She said her fund is different from hedge products in several ways. The fee is 75bps with no performance fee. It also has daily liquidity and full portfolio transparency, she said.
There is no benchmark, but the target is cash plus 7%. Launched in mid-December 2016, the fund to date has passed its target (7.92%). However, the sector average for the same period is 10.9%, according to FE data.
The portfolio is managed through an automated quant model that prices assets daily and computes target allocation based on market prices. To keep turnover under control, it doesn’t trade on every signal, Lee said.
The model also uses now-casting technology, which provides real-time indicators of data such as GDP or CPI. “It gives a better sense of where we are in a macro-cycle.”
The fund manager does not intervene in the automated daily decisions. “Hedge funds suffered when they had that discretionary element,” Lee said.
Alpha comes from capturing the risk premium in each component.
Leverage plays a role and the manager targets a percent of volatility. The maximum leverage the fund can take, adding long and short positions together, is 6x. However, Lee said the fund has around 3x leverage and volatility has been kept to about 4.5 since inception. The category volatility average is lower at 3.4 for the same period, according to FE data.
The fund is designed to be market neutral through all environments. In equity markets, the aim is for a beta of 0.3.
The higher yielding risk premia involve carry trades such as emerging markets forex, bonds, credit, volatility and dividends.
“We don’t shy away from carry strategies in particular. You get a steady stream of returns. In a stand-alone strategy, a shock in the market can cause a sudden loss. That’s why we have 12 risk premia in the fund.”
No market shock yet
Lee admits that most alternative risk premia managers (ARP) are relatively new and untested by a big market shock.
“In a big recessionary market or strong market stress episode when asset prices are falling everywhere, you would expect to lose money in some of these strategies. [ARP funds] can lose money, but if you have a well-balanced portfolio you lose less than the market.”
ARP funds are relatively new to Asia compared to Europe or the US, Lee said. “A lot is about education and with each risk premium, we explain to the investors they can expect this much return for taking on this much risk.”
But she believes investors are warming to the strategy, “especially when you say you don’t have to pay 2-and-20”.
The performance of the fund since its launch in mid-December 2016 versus the sector average.