Getting the mix right
It’s not all bad news in the hedge fund world. PMA Investment Advisors has been producing strong returns from a mix of FX and credit exposures. Farhat Malik, chief executive of PMA, explains the secret of the firm’s success.
Q1. Institutional investors are increasingly looking for new sources of return and ways of managing risk - why do you think they should invest in this fund?
PMA has created the first proven all weather institutional hedge fund platform in Asia. Our firm is built on a solid foundation of comprehensive management oversight and independent compliance and risk control functions. PMA is also the only hedge fund in Asia to be SAS 70 certified. This certification is clear evidence of our commitment to operational excellence.
Six years of consistent positive returns at PMA have proven that our business model works. Our extensive on-the-ground knowledge and understanding of the markets in Asia has enabled some of our funds to deliver annualized returns of over 20%.
Year to date, some of our flagship funds are well into the double-digit range. Because these funds are designed to be uncorrelated to the market movements, the current turbulence has less impact on us.
Q2. Your sector focus and asset mix has clearly been a good combination this year. Do you think that will continue? Why?
We currently focus on asymmetric payoff trade opportunities and will remain conscious of risk in our macro environment. Our institutional platform model allows us to continue to position ourselves to outperform even in tough environments like these.
Q3. Are you likely to perform better under certain market conditions, or does your style allow for an all-weather approach?
Our firm was built for an all-weather approach. We have a number of funds within three broad asset classes: equity, credit, and FX-rates. Each asset class has its own respective CIO with his own segregated team. Although the CIOs exchange views and ideas constantly, they each maintain discipline within their style. In other words, there is no style drift. This allows for a clean multi-engine investment approach.
Q4. Can you provide an example of a core fund component that typifies the opportunity your style is designed to highlight?
All of our credit funds are positive this year and last, and one of our credit funds, the Temple Fund, is up well over 10% year to date, and last year it was up approximately 19%. Our Credit CIO and his team have successfully managed through the market upheavals of 1997. Now they are seeing another difficult period and they are able to anchor back to their experiences. This experience is the reason why the current credit funds are positioned to weather the current environment so that we remain on track to meet our objectives on behalf of investors in 2008.
Our flagship FX-rates fund, the Harvester fund, is up well over 15% year to date and annualizing at 20%. The information edge the team has relating to investments allows them to position the fund so that there is a focus on asymmetric payoff trade opportunities. Further, the liquidity in this fund is extremely high and very favorable towards investors. In times like these, we believe liquidity is extremely important for investors.
Across our strategies and funds, the CIOs do not concentrate into only a small number of positions in order for a fund to perform. We believe in a diversity of trades within each fund. Also, our risk control teams have extremely strong oversight on the management of such funds so that limits are adhered to all times.
Q7. In the current market turmoil, have you taken any portfolio stance in direct response to that?
In the current environment, the portfolios are executing their mandates. However, it is worth mentioning that we also have a multi-strategy fund (Asian Opportunities Fund) feeding into all the underlying funds. In environments such as these, the asset allocation committee for this multi-strategy fund is able to meet quickly to reduce exposure to equities or any other uncorrelated investment strategy if we feel it is necessary. Year to date, despite significant equity exposure, our multi strategy fund is positive whilst the MSCI Asia Pacific ex Japan Index is down 34%.
Q8. Describe the appeal of your fund to an institutional investor, particularly a pension fund.
PMA provides high quality of returns and high transparency on a robust risk control platform. We have provided consistent returns since we started six years ago. We have also created the first proven institutional hedge fund platform in Asia which focuses on transparent business practices that inspire confidence among investors. PMA provides daily NAV from independent administrators and implements an independent risk control system with a direct reporting line to the CEO and investors. Mostly notably, PMA is the only hedge fund in Asia to be SAS 70 certified.
Our clients are blue chip global institutional clients who do not prefer products that position themselves in “the one bet,” so at PMA, we make a whole range of small bets. For example, the Harvester Fund’s investments are widespread across Asia so that performance does not hinge on individual calls. We believe diversity of trades within a fund is paramount in order to reduce potential losses.