Swedish asset manager Strukturinvest Fondkommission is expanding its offering with two US$100m credit hedge fund products. The launch will be supported by Graham Baughan, formerly chief operating officer at Asa Bay Capital Management, and Karen Wright, formerly treasurer at Aegon, with Northern Trust depositary and fund administrator. The Hamilton Global Credit Opportunities and Glacier Impact funds will feature alpha overlays and macro hedging and use short/long bonds, CDS, bond-based TRS and ETFs, as well as rates, foreign exchange and equity futures for hedging and relative value trading.

The Stockholm-based investment manager is the third most active provider in the Swedish structured products market, with a 15% market share across SEK1.5bn (€151m) in sales this year. SRP spoke to Sean George, chief investment officer at Strukturinvest, about the new products, plans to expand the range of financial investment solutions and how hedge funds can help to diversify investment portfolios.

The creation

We took a look at what fixed-income funds are offering in Sweden, and it was alarming that almost all of them were long only. We also noticed that some of the "hedge funds/alternative funds" were really Ucits funds in sheep's clothing, charging higher fees, but structurally unable to generate what we would consider hedge fund-like returns.

It's only natural that the hedge component should reduce volatility and also add to returns. Simply put, you would never buy a car without brakes, why should your investments not have deceleration protection? And, of course, if you have good brakes and know how to use them, you can also drive that car a bit faster.

Looking at the motivation behind starting an environment and social governance (ESG) focused fund, Ulf was active in that area at AP4 in a profitable way, and it is time to prove that ESG works in the possibly harshest investment: hedge-fund strategies. Second, the activist part of an ESG mandate is much better expressed in a hedge fund where one can lever up the provisioning of finance to 'goods' and allow yourself to be short 'bads'. Especially the latter is a bit of a frustration in climate finance. Surely, it must be better, from an impact standpoint, to be short a company that emits 1 billion tonnes of greenhouse gases, than buy a green bond that saves 10 million tonnes of emissions? But barely anyone does that, despite it being argued - and we agree - that it can be very profitable.

The products

Hamiltonian GCO is a traditional global credit opportunity fund. We will scan for opportunities in the big corporate bond markets, from long, short and relative value perspectives. Our edge is that we have a very broad experience: we have done everything from low quality high-yield bonds to AAA-rated supranational paper, we have worked all the big bond markets, done both cash and derivatives, worked flow-trading desks to long-term investment portfolios, traded fundamentally, quantitatively and technically. We will take this breadth and apply in a well-diversified portfolio, and with that we should achieve 5%-7% net returns for HGCO.

Glacier Impact, our second fund due in the first quarter of 2018, will be the first climate-focused, fixed-income hedge fund to be launched. The fund will target 4%-5% returns and a significant contribution to combat climate change, and is predominantly targeted at institutional clients. It will take green investing to hedge fund level, which is a way not only to generate better returns than traditional long-only green bond funds, but also a much better way to have an impact in ESG. The fund will operate on much of strategies that have been roadtested while trading the credit books at AP4, and share some alpha overlays with the HGCO.

What's the appeal for investors?

The offering is to give domestic investors access to a more sophisticated style of managing credit. For example, our strategy should be able to withstand both easing and tightening interest rate cycles. The tailwind of lower interest rates has now disappeared, and the appeal of interest rate uncorrelated funds should grow significantly. When everything is going up by 7% a year - as has been the case pretty much all through the 10s - uncorrelated alpha at 5% might not look that exciting. But, when bonds funds start consistently lining up negative returns as rates start rising, or just bob around at 0% where yields are today, that alpha should be very attractive.

Offering funds is part of our long-term expansion plan. We aim to offer not only structured products but a wide range of financial investment solutions as well as various kinds of custody accounts, a modern IT platform and educational material. In the beginning of 2017, Strukturinvest acquired part of Carnegie's business related to structured products and custody accounts, and since then the number of account holders has nearly doubled.

The funds should be seen as a complement to structured products and other financial instruments, and a way to increase the diversification in a portfolio.

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