Fig.2 Key Differentiator - Dynamic Allocations 120%
100% 80% 60% 40% 20% 0%
Source: SkyBridge
Relative Value Credit (Basel III)
Fixed Income Arbitrage - Prepayment Sensitive MBStt
Event Driven Multi-Strategy
Event Driven Equity Event Driven Corporate Credit Credit Sensitive MBS**
Long/Short Asia/Emerging Markets Long/Short Global (with Subprime Short Overlay) Discretionary Macro Discretionary Macro (Hedge) Credit Sensitive MBS Event Driven Equity (with Gold Overlay) Event Driven Multi-Strategy (with Subprime Short Overlay) Equity/Quantitative Market Neutral Fundamental Equity Market Neutral Relative Value Multi-Strategy
Long/Short Europe
Long/Short Sector Focus Discretionary Macro (Energy) Systematic Macro Event Driven Corporate Credit Event Driven Multi-Strategy Structured Credit Fixed Income Arbitrage Relative Value Credit Statistical Arbitrage
Long/Short Global Long/Short US Discretionary Macro (Gold) Distressed Securities Event Driven Equity Event Driven Multi-Strategy (with Gold Overlay) Convertible Arbitrage Fixed Income Arbitrage - Prepay Sensitive MBS Relative Value Credit (Basel III) Volatility Arbitrage (with Long Volatility Bias)
Disclaimer: “*The tenure of the current portfolio management team commenced in September 2005. The above chart illustrates the dynamic allocations of the SkyBridge Flagship Fund from the first full calendar year of the portfolio management team tenure. Allocations shown reflect rebalancing activity at month-end, but may change at any time. Allocations within the SkyBridge Flagship Fund may not total 100% if it is either utilizing leverage or not fully invested. The percentages above are reflective of the underlying managers held by the SkyBridge Flagship Fund, not of securities held by the underlying managers. Portfolio strategy allocations and strategy classifications are subject to change at any time at the Adviser’s discretion. Classifications are determined solely by the Adviser.
**As of June 2015, assets previously classified as distressed securities will now be classified as Credit Sensitive MBS & Diversified Structured Credit, which are sub-strategies of the Event Driven theme.”
variables such as equity beta. Long short equity strategies also took a back-seat role between 2009 and 2012, but by 2013 Nolte (and Partner Robert Duggan, Senior PM for Directional Equity and Directional Macro) resolved to “equitise the portfolio and move equity beta up from 0.2 towards the top end of our equity beta range of -0.1 to 0.5”. Since then there have been at least two major shifts in equity beta exposure. It was pared back to 0.25 in the second quarter of 2014, but SkyBridge then took the October 2014 selloff as an opportunity to shift back up to 0.3 or 0.4.”We decided that some of the geo-political risks were overblown and that investors were over-reacting to tax inversion as merger deals were still getting done” Nolte reflects.
Indeed, it was SkyBridge’s confidence in corporate activity that lay behind a big push into the event driven space, including activists, which are the province of Partner and Senior PM for event driven
and relative value arbitrage, Troy Gayeski. This allocation peaked at 40% before being scaled back to 20%, but SkyBridge retains high conviction on European event and merger strategies.
“We think Europe could be coming out of recession and a pickup in GDP growth, albeit from modest levels, should be enough to get deal flow moving again” Nolte foresees. An acceleration of restructuring in European companies could be another opportunity. He also thinks a stronger dollar makes some European corporates attractive targets for US buyers. These three drivers illustrate how SkyBridge “likes to play themes from multiple angles rather than betting on binary trades” Nolte explains. Core themes are also expressed through several managers, with event driven managers currently including Nelson Peltz’s Trian, Dan Loeb’s Third Point, John Paulson’s Paulson and Barry Rosenstein’s Jana.
Late 2015 Outlook ‘Event driven’ can be a very broad hedge fund category often including high yield, but SkyBridge devises their own strategy categories, sub-dividing event driven into multiple sub-strategies and looking at high yield separately. In October 2015, SkyBridge was out of US high yield as spreads are too tight, so Nolte does not think investors should expect returns to be more than coupon income in general. “But there may be pockets of value where the dislocation, which related mostly to energy, has artificially widened non-energy names”. Would Nolte return to high yield if spreads return to late 2011 levels? His evenly weighed answer is “probably, so long as the US does not re-enter recession”.
That is a remote prospect, SkyBridge thinks. Their base case is for “modest 2% GDP growth through the election period, which may be a big catalyst
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