CTA firm Altis won over by HK regulatory regime

Jersey-based hedge fund Altis Partners showered praise on Hong Kong’s regulatory regime after setting up its Asia branch office in the city this week.

Altis is a systematic Commodity Trading Adviser (CTA) that trades exchange-traded futures for institutional clients. It started trading in July 2001 out of London with $1.2 million under management, before relocating its headquarters to Jersey in October 2005. It now manages $1.5 billion in assets and employs 47 people across Jersey, London and Hong Kong.

“We selected Hong Kong as our Asia base, and that reflects the regulatory environment that we are comfortable with,” says Stephen Hedgecock, one of the four founders of Altis (along with Alex Brunwin, Natasha Reeve-Gray and Zbigniew Hermaszewski).

“Some people say the regulator is quite strict, but we actually quite like that. The regulator has been extremely engaging and helpful. So I would say that Hong Kong is definitely open for business.”

Hedgecock and Reeve-Gray note that their new office in The Center skyscraper provides a key trading base in an Asia timezone. They now have a chief operations officer, Robin Duxfield; two traders; a marketer; an IT developer; and an assistant. They are seeking to hire someone on the IT data/infrastructure support side.

“With the pre-eminence of China in the world’s arena, it’s quite important for us to be in touch [in Hong Kong] and have an intimate knowledge of other users in the industry in the products we trade,” adds Hedgecock. “It’s good to be on the ground with local brokers here to understand the ebbs and flows.

“It’s alright having a system that trades by wire, but it’s very sensitive to input. So you have to marry liquidity with the ebbs and flows into your modelling. Sometimes raw numbers don’t tell you that much.”

The majority of Altis’s clients are based in Europe and the US, with direct investment from Asia-Pacific making up a meagre 4% (mostly out of Japan). “Our ideal is to grow that to around 10%,” suggests Reeve-Gray.

But Hedgecock is hopeful, explaining that the present environment is favourable for CTA/managed futures funds. “All the way up to 2008 markets were pretty interconnected throughout the whole global economy. Then we have had this dissipation phase, which has obviously been very difficult for us to trade with free money sloshing around the system.

“What’s interesting now is you have got regional disconnects: China with its strong GDP growth, Europe with austerity measures and the US which is still giving away free money. We can create geared portfolios to take advantage of those market imbalances. Plus commodities are on the rise, so there is a lot of theme-based investing going on.”

Hedgecock even welcomes further financial market volatility, explaining that Altis engages in some short-term trading techniques as well as following long-term trends.

“It is quite adaptive, being a long-term position-taker in some of the trending markets, then quite quickly turning into a short-term trader to take advantage of a particular effect,” he says. “In an average account we will probably have 400-450 positions at any one time, so we can take advantage of spread trades and everything else.”

The financial crisis was quite good for CTA/managed futures funds on the whole. Globally, the Eurekahedge CTA/Managed Futures Hedge Fund Index grew 17.5% in 2008 and 2.9% in 2009. So far this year it is up 5.8%.

The Altis Master Fund has returned 438% since inception. Its annualised rate of return for the past two years has been 19.61%, and so far in 2010 it is up 4.41%. Altis offers weekly liquidity updates and charges a 2% management fee and a 20% performance fee.