Prologue Capital gets high on inflation

Hedge fund Prologue Capital is in Hong Kong to explain to investors its method of managing fixed income with an inflation angle.
Prologue Capital gets high on inflation

"Hang on a tick while I touch up the Prologue," Frankie Howerd, Up Pompeii.

'Inflation' and 'hedge' would normally appear in the same sentence in a discussion about the merits of buying, say, gold to protect against rising prices.

But Prologue Capital -- a hedge fund that focuses on inflation-linked strategies -- takes a rather more sophisticated approach to its investments.  

Based in London and Connecticut, the firm runs a fixed-income strategy of almost $1 billion that it launched in 2006. The strategy has a global macro overlay and an expression which focuses on inflation-linked investments.

Chief executive David Lofthouse co-founded Prologue with Graham Walsh in 2006.

"The edge with our strategy is that we can buy instruments that have an inflation link and then distil out the inflation component [which they keep], and hedge out the other components, such as the interest rates," says Lofthouse.

Before forming Prologue, he had been global head of inflation trading at Goldman Sachs in London, where he traded traditional sovereign-issued, inflation-linked securities as well as inflation-linked derivatives and options products.

Prior to that, he worked at Greenwich Capital in Connecticut for nine years, where he headed inflation trading and was also head trader for long-duration arbitrage and zero-coupon bonds.

The Greenwich Capital heritage is common to other members of the team, including trader David Leibowitz, who accompanied Lofthouse on this trip to Asia. They are here to talk to potential new investors, learn some more about the trade ideas of Asian allocators and maybe even find a local distributor of their fund.

The fund did not gate during the financial crisis, and its AUM of $750 million at that time was redeemed down to $600 million. Since then, it has rebuilt assets, assisted by positive annual performances of 19% in 2008 and 12% in 2009.

The fund has a 2% management fee and 20% performance fee. An investor is allowed to redeem 25% of his investment each month.

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