Trip Report Hong Kong May 2018

Despite a strong equity market year in Asia in 2017, valuations do not look stretched after a difficult 2018 ytd

Manager are cautious as the political landscape becomes more unpredictable and a trade war between China and the USA seems to unfold

The development of the Chinese financial markets creates more opportunities through the inclusion of Chinese stocks in global market indices and the launch of CDRs as local trading instruments

M&A activity in Asia has increased from about 15% to 20% of global volume since the financial crisis 10 years ago

Long-term interest rates are expected to trend higher, but it is happening slower than the hikes on the short end which could result in a rather dangerous inverse interest rate term structure

The trade war and sanctions have had an impact on currencies which led to the depreciation of the Chinese RMB and other Asian currencies as a consequence

The USD is expected to remain strong until growth in the US starts to slow which would release some pressure from EM currencies


Trip Report London May 2018

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Thoughts from leaders and Macros playing defense

Some prominent hedge fund managers attending an industry conference considered that given their growing AUM, performance and research are key to drive their business. The motto was “be different” (as this is where alpha is) and/or be large to have resources to constantly find new alpha sources.

Computational power is definitely a game changer for the industry. It allows quants to take very fast investment decisions out of an exponentially increasing amount of data and thus to seize part of the discretionary managers’ edge.

While there will always be humans behind machines, quantitative strategies should continue to grow in AUM and in their ability to take investment decisions.

Most Macro managers visited thought that we are currently in an environment characterized by two conflicting forces:
- Synchronized global growth with US still in a leading position
- Main central banks exiting or going to exit their QE programs

Managers considered the US economy as holding up (although it will probably drive the next recession) and expected higher DM interest rates later this year. There was no clear consensus on the USD due to different views on the impact of higher US interest rates, current accounts, trade war, etc. Most managers were short S&P 500, either as a hedge or against longs in EM equity indices.

Many managers were in trading rather than in investing mode and while overall not necessarily bearish, they were certainly more on the defensive side. The recent political developments in Italy added shorter-term concerns and triggered further risk reduction among some managers.


Trip Report New York May 2018

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In Search of High Quality Growth and Pricing Power:

The balance sheet reduction by the Treasury and the rate normalization process by the Fed have been well telegraphed and interest rate risk is more or less priced in today

Yet investors are underpricing the tax plan of the Trump administration which will lead to higher U.S. deficits and more Treasury issuance, adding a lot to the supply of bonds and creating a potential USD shortage in the world

Ironically, the opportunity set in the high yield bond space has changed for the better, as large amounts of capital are leaving the space – leading to wide single name dispersion, high spreads and much better shorting opportunities

The backdrop for M&A remains constructive and deal activity robust, as we see a bifurcation of the M&A space in “commoditized” deals with little risk and low spreads and deals with high regulatory risks and attractive spreads up to 20%

U.S. equity managers are increasingly favoring companies with pricing power and high quality growth rates in the tech and healthcare space over defensive and interest-rate sensitive “bond proxies” in low growth industries such a consumer staples, utilities, and REITs

Younger equity managers are increasingly relying on AI and on real time data analytics to underpin their investment theses, to verify trends between quarterly results and to risk manage quarterly earnings

Biotech could be somewhat recession-proof, as the pace of innovation is high, valuations are largely reasonable, and M&A activity has heated up


Trip Report London March 2018

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The trip to London focussed on multi-manager funds, macro / trading funds and alternative risk premia funds

Multi-manager funds have proven themselves to be alternatives to fund of hedge funds because of their diverse nature and centralized risk management while size, culture and risk framework are differentiating factors

Macro / trading hedge funds view the sharp sell-off in February mostly as technical or behavioural in nature as macro-economic fundamentals did not warrant the speed and magnitude of the market’s reaction

Hedge funds reduced directionality across all strategies, as gross and net exposures have come off recent highs, while the outlook is more muddled, mostly due to policy and geo-political uncertainty on the rise

Alternative beta is gaining traction as a less costly way to access alternative risk premia, which have academically been an element of certain hedge fund strategies




Trip Report New York November 2017

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Most managers are trimming their equity exposures as the current rally is pushing valuations to high levels and it becomes easier to find attractive shorts

USD 1.5 trillion bond supply will have to be absorbed by private investors in 2018 which will lead to higher yields and a steeper yield curve

Short-term interest rates in the US should be 300 basis points higher compared to previous cycles, but this may not happen this time as the governments remain the largest debtors

Long-term interest rates however will be driven higher by up-trending inflation numbers which will also support higher commodity prices

Convertible bonds had a difficult time in the extreme low volatility environment of 2017, but could revive in a more volatile 2018

Geopolitical tensions are increasing in the Middle East, but also between Russia, China, Europe and the USA on trade issues

The USD is expected to strengthen on an inflation surprise that can be expected in 2018, but will longer-term weaken based on strongly increasing debt deficits in the coming years


Trip Report Hong Kong November 2017

Deregulation creates plenty of new opportunities in China, Hong Kong, India, and Japan (such as the Connect stock trades; the opening of the domestic bond market in China; the introduction of single stock futures in India; or the focus on shareholder value in Japan, etc.)

Dispersion in Asian stocks is on average about 1’000 bps higher than in developed markets and MiFID II will further reduce research coverage of small and mid caps, favouring active managers with stock picking skills

The current market environment in China is very conducive for stock pickers, as dispersion is high, industries are consolidating and the economy is reflating, while national champions are being created

Environmental protection is a top priority of the Chinese government and has shifted the focus from growth to environmental concerns and capacity rationalization, promising a better structural balance in various sectors and leading to a reflationary momentum in the economy

Despite the recent equity market rally Chinese stocks still offer decent upside return over the medium term, as market’s equity premium continues to be high by historical standards and markets have not yet fully factored in the potential fruits from structural reforms and the trend to better capital discipline and usage

China is now opening up the domestic bond markets to foreign investors who will, initially, primarily target high quality bonds and, possibly, “fallen angels”, but not yet high yield bonds as long as liquidity does not improve and regular defaults do not create forced sellers and dislocations

If you would like to receive the entire Trip Report, including the Manager Reports of the 13 visited funds, please drop an email to Markus Moser (


Conference Trip Report Toyko Oktober 2017

Well organized and well attended conference with 65 hedge funds presenting and 150 investors attending.

Shinzo Abe’s re-election was very welcomed by the markets, as the Nikkei gained 16 days in a row – the longest streak ever – and reached a 26-year high.

Since Abenomics started, most of the stock market advance has been driven by earnings growth while multiples have contracted.

Japanese companies are adopting a more investor friendly western style approach with a strong focus on profitability and return on equity.

There are very strong secular growth opportunities in Japan that can be found in the small and mid-cap space.

The re-election of President Xi Jinping at the recently concluded 19th Party Congress bodes well for a continuation of reform in the Chinese economy.

The Chinese government re-emphasized its commitment to focus on the quality of economic growth, reform the state-owned sector, continue to open up the economy, invest in innovation and combat pollution and climate change.

If you would like to receive the entire Trip Report, including the Manager Reports of the 19 visited funds, please drop an email to Markus Moser (


Trip Report New York September 2017

The imminent balance sheet reduction and the rate normalization process by the Fed will usher in a new interest rate and volatility regime, while synchronized global growth, strong corporate earnings and the prospects of a meaningful U.S. tax reform keep equity markets afloat for now

The Fed will be facing an unpleasant choice if tax reform, fiscal spending, deregulation, increasing funding costs and higher commodity prices create inflation on the back of an U.S. economy running at full employment

We are in the later stages of the credit cycle and spreads in HY bonds are approaching all-time tights, driven by a relentless hunt for yield, pushing more investors in riskier and less liquid assets with asymmetrical risk/reward profiles

High yield and distressed managers are struggling in this environment, as shorting nearly anything in credit has been difficult this year

U.S. equity managers are constructive, as the global macro backdrop looks good, tax reform will happen, earnings and consumer spending are up, wage growth is muted, and markets are not excessively overvalued at 18x earnings

Biotech managers are upbeat about their sector, as the pace of innovation remains high, outflows have stopped, valuations are attractive (below the S&P 500 level), while the new head of the FDA is very accommodative and M&A activity is picking up

Technology managers are excited about the confluence of trends and the disruptive impact that they will have on almost all industries, creating a universe of secular winners and losers, even though some managers are concerned about valuations and investment behavior (“buy the dips”)

If you would like to receive the entire Trip Report, including the Manager Reports of the visited funds, please drop an email to Markus Moser (


Trip Report London September 2017

Most managers are cautious about equities as the current rally is pushing valuations to dangerous levels

CTAs are very long the equity markets meaning it would not take much to see a meaningful correctio

Some managers are convinced that fixed income is in a topping process and will re-price to higher yields in the not too distant future

Financials have reached a tipping point in Europe and would benefit from rising interest rates

The outlook for electricity is fast improving and we could see further tightening of power prices in 2018

The Republicans are under immense pressure to come up with a tax reform ahead of the mid-term election in 2018 and some compromise is likely to be reached by the end of this year

More interest rate hikes are expected in the US which will support the USD, but the EUR will probably hold the 1.15 level

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Trip Report Singapore Mai 2017

The business sentiment for Asia is positive as the region is growing fast and the debt problem is currently not a concern

In 2017, China appreciated its currency against the USD in order to avoid increased pressure from the US and prevent further capital outflows

The Chinese government adjusted very quickly to the new US policy and was able to get out of the crossfire

China will re-shuffle their Politburo in October 2017 and will do anything to keep the economy strong and markets calm until thenIn Japan, GDP growth is robust, wage growth is accelerating due to a labor shortage and consumption is picking up

The ASEAN region is still at an early development stage and could do very well over the coming 10 years with Vietnam as its most promising member currently

Most managers are quite cautious as some market correction is overdue, the geopolitical risks are under appreciated and the central banks will reduce their market support in due course