All of the funds are domiciled outside the UK, listed on the Irish Stock Exchange and therefore may be appropriate for a SIPP, expert or institutional investment. The minimum investment is $100,000.
We spoke to Rupert Foster, manager of the Matrix Asia Fund and started by asking him to explain the background of the company.
A: "Matrix as a business started in 1987 providing products in the UK to the UK financial adviser market. Over time it has diversified to become a small investment bank and over the last few years has expanded into investment management as well.
"The first part of the investment management was property funds and now it has spread into the more traditional forms of investment management, such as fund of funds, single stock hedge funds and prime rate money management.
"The hedge fund side, Matrix Alternative Asset Management (MAAM), started about eighteen months ago. Matrix decided to seed capital for MAAM of around $100m, which was a very serious commitment and they have proceeded to seed three funds so far and there will be a fourth in the autumn. There will then be a little bit of a break and then a fifth fund at some stage.
It is a platform model so Matrix provides operational and marketing support. As fund managers of each fund we are bonded into the MAAM business but the economics is more like a platform vehicle.
"The idea is to collect together a variety of interesting people who do things together. At any time there would be a multi-strategy fund that would sit over the top of it, which would be another marketing tool.
"The particular set of skills that Matrix can bring is that as the hedge fund industry in the UK continues to institutionalise and mature the IFA market will become more and more relevant for single stock strategy hedge funds. Currently it is only the fund of funds structure or a multi strategy fund that can now come in but I think that will progress down the line to single strategy managers. So there is a very good network there to be set up and that will be a platform tool down the line.
"That is the origin and the three funds exist – this is the third and the other two have been going about a year."
Rupert Foster
Q: What was the motivation behind creating single strategy hedge funds as oppose to any other type of hedge funds?
A: "My personal view is that the model of having single strategy hedge funds under a multi-strategy down the road is the sort of model that one might follow. The other model that you can follow is a very large pool of capital with bits cut out for individual managers, which is only really viable for the really large players. If you are starting out this is the sort of model you would employ and then you build up."
Q: What was the motivation behind setting up the Europe and New Europe funds?
A: "The Europe fund is run by Hubert van den Burgh. He has had stellar performance for various periods so it has been quite volatile but this year it has been doing pretty good. It is flat for the year, which in a European context is very good. The assets are much the same - around $20m - but with strong expectations. Hubert has quite an aggressive trading style and it has served him well in various market conditions.
"The second Matrix fund is the New Europe fund, run by David Thornton who has 25 years of experience. The fund was strong last year - up 17 per cent - but this year has been down about 15 per cent to 20 per cent - largely because it is placing a large bet on Russia, and that has been non-beneficial. It is a very fundamental fund run in a similar way to my fund – the Asia fund – although it takes a much bigger net bet than I do in current market conditions."
Q: What was the motivation behind setting up the Asia fund?
A: "From a Matrix perspective they are very keen to have exposure to Asia because of the very positive long term fundamentals in Asia but a long/short fund is playing essentially a call option on the positives. Also, Asian markets are not that developed so they have great potential for long/short which is what this fund is. And my style is very much long/short – it is not a long only fund that does a bit of shorting on the side, it is very much to run it as a long/short fund. That is my background.
"From my perspective I am a Japanese specialist by background for the last twelve or thirteen years, and this fund is an expansion out. It is pan-Asian – it does invest in Japan and there is no particular focus in Japan but Japan is still currently the largest market in Asia. I am taking quite a lot of the skills I have learnt in Japan and I have been running a Japanese equity long short fund for the last five years.
"I have a lot of experience in how to short, when to short, and single stock shorting. I am bringing that skill set into an Asian context where generally Asian funds have historically been long products and they have been playing the very beneficial structures that have existed economically in Asia. And they batten down the hatches in the bad times and hope to roll through the whole process, but if you take part in the upside you are ok.
"I am going to adopt a slightly more aggressive approach to try and make money in down periods, which we are in at the moment, for example the fund is quite noticeably net short currently. "
Q: And it is pan-Asia?
A: "My background is that I was at Merrill Lynch in 1994 as a graduate trainee till 2001. I then launched a single strategy hedge fund with an ex-colleague from Merrill Lynch at a company called FM Capital which we set up. We then launched the Japan Pragmatist fund, which ran from 2002 to 2006 and got to peak assets at about $350m.
"It was a balanced, low volatility – quite diverse with 60 to 80 positions and quite low risk portfolio but it had a compound return of about 15 per cent in the first three years. It was nominated as fund of the year in 2005. We had the best Sharpe ratio anyone has ever had in Japan – it was about 5.5 in 2005, and was a very stock-specific and a fundamental approach. We then had a poor 2006 when we were down 12 – 13 per cent in the first six months. We lost assets from about $350m to around $150m but then Juliet - my co-manager - and I decided to break apart.
"I didn’t want to run that rather defensive strategy any more. I wanted to run a much more aggressive strategy, which is what this fund – the Matrix Asia fund - is all about. We gave back about $120m at the end of 2006 and then I originally tried to reboot the Matrix Asia model as a Japanese fund last year but there was very little demand for it. Then I was approached by Matrix and we entered discussions and decided to expand it out into a pan-Asia model."
Q: What type of investors have you attracted?
A: "Historically we had UBS, Man, that is some of the very large institutional fund of funds investors. We also had insurance companies, and pension funds so we had the spread. We also had some of the lower quality fund of funds with the slightly more strategic timed markets approach rather than pick managers they were trying to time markets.
"The problem that you have in Asia is that with lots of fund of funds people often invest for macro reasons. They are not choosing managers – they are just choosing markets and hoping they pick the right manager. And they pull out of markets when they think they are tough. That may well be happening in the Asian space at the moment.
"I think generally that fund of funds are sticking with Asia because they can see the long term benefits but we’ll see how it pans out over the next six months. If we continue to see poor performance it will be interesting to see whether people will throw in the towel. Generally when fund of funds finally throw in the towel it will be a good sign for any market!"
Q: What investors have you attracted for the Matrix Asia fund?
A: "We are starting with the seed capital that Matrix has provided which is about $20m. I am in discussion with lots of my ex-investors and I would imagine over the next three or four months we will raise about $40m to $50m on the back of them. I think that because I am expanding out of just doing Japan to the whole of Asia there is an attitude of let’s see for a couple of months that you are ticking along ok before we put our money in, and I can totally understand that.
"I had quite a number of decent investors who have been in the fund for quite a long time and they know me quite well, one would hope if the numbers are good…And these market conditions are actually good for me, and for this approach that I am adopting will try and make money when markets go down and so you can differentiate yourself."
Q: What types of investors?
A: "Higher quality fund of funds, based in the UK, Hong Kong, Japan and America, some private individuals, high net worth individuals, and a couple of private offices that are also likely to come in but they are on the smaller size. The fund is marketed on a global basis. As I have run a Japan fund previously I have always done a lot of Asian marketing generally but we’ve also sold big and well in America and in Europe. I’ve seen five potential Hong Kong investors in the last month out of about twenty meetings."
Q: Do you think they are attracted by the reputation of Matrix or that of your previous fund?
A: "I have a longer term history in hedge funds than Matrix does so I would say that my reputation is a bigger factor. Some of them are old investors that I had with the fund I was running previously. I had meetings with 300 or 400 potential investors while I was running the fund over the years. I think the desire to make money in current market conditions is particularly interesting to some people. Other people are just attempting to lose as little money as possible, so that is a slightly different strategy."
Q: What is your investment strategy?
A: "At the base where does the alpha generation come from? At core this is a primary -research driven model. I came from Mercury Asset Management originally which is a primary-research driven old style fund management operation. I am a very strong believer in talking to companies is where you can build high proper conviction. Conviction is vitally important to hedge fund investment. What you want to do is create a portfolio that you can have the highest conviction about so that you can ride through the emotional rollercoaster that is investing in a world where lots is going on.
"There only a certain amount of good ideas that you can have. That is why I was very keen to reduce the amount of positions from the 60 or 80 that we historically had in the Japan Pragmatist fund to 30 or 50. In that fund we made none of our money in our smaller holdings – we made all of our money in our larger holdings. We made all of it in the holdings that we held for a long time, meaning three months and out and we generally made long and short and market timing. In the last two years we made more value add on the short than the long.
"So that is why I like shorting. There is the evidence to support that, better at longer term larger positions both long and short. It is totally logical as I am not a proprietary trader by background. I am a fund manager so that is my stylistic approach. But I think that in the hedge fund world it takes time to learn. The hedge fund world finds out pretty quick what you are like – it is very unforgiving – so you find out what you are good at and once you’ve worked out what you are good at you should stick to that and not try and do stuff which nakedly you are no good at. For me that is short term trading or more diverse spreading-out strategies or any very aggressive technical approach which hasn’t historically worked.
"I spend as much of time as possible talking to companies. I do that mostly on the phone from London which is actually much more useful than travelling around in the region, which is a very time assuming approach. I do visit the region but I am also visiting analysts and what you are trying to build is an expert knowledge in as many companies as possible, or maintain knowledge that you already have.
"The problem with going to do a new region is that you start from base camp but I have lots of experience in Japan. Taiwan, Korea, China and most of Hong Kong have very similar structures in terms of industry coverage and types of industry development as Japan."
Q: Are there any sectors you concentrate on specifically?
A: "No there are some that I feel strongly in and certain I feel weaker in. Historically I have made a lot more money in retail, services, technology. telecoms, pharmaceuticals, food, and some areas of electrical machinery. I have made less in basic materials and shipping, for example, where I don’t feel quite as confident.
"I was speaking recently to a couple of internet companies in China and there is lots of commonality about business model, business growth between Japan and China in terms of the internet model. The big difference in China is that the number of users is growing by 25 per cent a year, whereas in Japan everyone is plugged into the internet already. There is no growth in the users. But beyond the that the type of structures that is driving development is very similar so it is quite easy to read through."
Q: Are there any strategies you are avoiding?
A: "I don’t do a lot of pair trades. I don’t do a lot of short term trading. On the short side I try not to bucket trade. Bucket trade is something that goes down because of quarterly earning miss or some sort of scare story briefly but then it returns to its trend. Those are very difficult trades to do and you have to be a proprietary trader to do them and the key to shorting is to avoid bucket trading. In a bear market – which we are in at the moment – you would say the same about some long trades, you don’t want to get sucked into long bucket trades i.e reverse bucket trades. When you have short term movements it is very difficult to target prices. "
Q: What have been the key drivers of asset growth for Matrix’s hedge funds historically and what do you imagine will be for the latest fund that you are running?
A: "It is still early days. It will come through what everyone is trying to get access to, that is from longer term high quality investors such as pension funds and institutional investors, insurance companies, or very high net worth individuals, family offices and charities. In the meantime one delves into the fund of funds world."
Q: What will you be doing differently from other Asian funds?
A: "The trade in Asia that people have been very active in doing over the years is to be long in quite large companies that are exposed to very positive circular trends. That has been the model up till now. What I am doing differently now is saying I will very heavily short small caps but also I am very relaxed with single stock shorting on one level. I don’t use futures or options. I think you can have the conviction with a single stock, and getting out there and talking to companies and really being aggressive about phoning everyone up, finding out information and taking decisions on the back of that.
"The only other feature about the investment process that may be different from some is that my concern is to be as overt as possible to try and stop one’s emotions getting involved. How you do that is to write everything down and review things on a continual basis. I apply to the research process a tmq filter, which stands for thematic, macro and quant, which involves reviewing continually on a weekly, monthly and quarterly basis. On the macro basis we look at the same charts, which I started up about ten years ago at Mercury and adapted that for the long/short world and now I’ve adapted it for the asian world.
"It is a way of continually revisiting assumptions and presumptions about what the market is doing and applying, as much as possible, an institutional approach to hedge fund management. In the end it will hopefully be beneficial by us getting institutional clients."
Q: What do you see for the fund looking forward?
A: "The aim for the fund in terms of asset size is to grow to £500m in three years time depending on liquidity in the market. To have a strong value proposition to investors you need to have a compound of 15 plus. If we had that it would mean we would always be able to raise money and providing a valuable product for our clients. When you start a fund the aim is to get to 15. With markets in Asia one possibly needs to be 20 plus to be really competitive, in Japan I think it is more like 15. Then one markets the product. With my particular style you are trying to make money in all market conditions."
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Source: Financial Express Analytics