PR OFILE
It was darkest before dawn and the best moment came soon after in late 1998, when RMF founder, Rainer Mark Frey, was genuinely excited by the idea, and offered $40 million of seed capital (a decent sized ticket in the late 1990s when the average launch was smaller than today) and some working capital, in return for a 25% stake in Aspect. Today, the firm is almost entirely owned by its current employees, a small number of former ones and just one small external shareholder.
Transparency Aspect’s transparency was quite novel in the 1990s but proved to be crucial to secure the seed capital, which partly came from a Swiss insurer that had rejected other managers due to insufficient transparency: opacity ruled out backing a fashionable fixed income arbitrage strategy (LTCM) that infamously blew up in 1998. “Quant investing can be a black box, but we think it is crucially important to bring transparency, explanation and understanding,” says Todd.
This open dialogue becomes especially important during the performance drawdowns that inevitably go hand in hand with liquid and mainly directional trading strategies. Aspect’s flagship strategy, Aspect Diversified, has recently recovered from its longest and deepest drawdown, which occurred between March 2016 and September 2021. This period showcased the quality of communication inside and outside the company. “High and consistent transparency and communication, and client service are critical to keep investors on side. We have a fiduciary duty to work in partnership with investors, who have sometimes been invested for more than 20 years. Investors have seen good times and bad times for performance before. Well informed and sophisticated investors understand the episodic nature of performance and its utility in portfolios. As we have become better at explaining the strategy, we have seen less performance- chasing after a good run, and investors do not expect it to be a source of fast money profits. The level of client retention was high,” says Lueck.
Staff morale also remained buoyant since they, too, understand the intermittent performance pattern of the strategy and are appropriately incentivised. “We have always had a long-term vision for the business and a long-term view about investments. In a competitive marketplace for talent, we offer competitive salaries irrespective of investment performance. Staff do participate in performance fees in a year like 2022, but remuneration is collaborative rather than formulaic and is not a function of independent or siloed efforts. We have
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a strong balance sheet, and the financial position of the company is presented to all staff on a quarterly basis,” says Todd.
Transparency was always a prerequisite for institutionalisation of the investor base, which had been retail oriented in the early years after Man Group acquired AHL. The arguably somewhat opaque strategy was initially marketed to retail investors through capital guaranteed structured products. Aspect was early to recognize that the strategy should be marketed and structured in a transparent way that was attractive to institutional investors (and Man Group itself also migrated its investor base to institutions). Naturally, institutions sought competitive and transparent fee structures as well as a solid balance sheet, a 24-hour trading desk, and robust disaster recovery systems, amongst other criteria.
Trend and non-trend strategies After institutionalisation, the next key milestone in Aspect’s development came in 2004 when the flagship strategy evolved from pure trend following to a mix of 80% trend and 20% non- trend “modulating factors”. “In the early 2000s
the volatility of trend following increased, and some investors were not comfortable with this versus return expectations. Hence, we started the modulating, complementary strategies, to smooth out returns and make it easier for investors to maintain longer holding periods,” recalls Todd.
The rationale for adding non-trend strategies was not to replace or dilute trend following but rather to complement it and give investors a wider menu of strategy options to mix and match according to their own unique utility functions, including return targets, diversification objectives and risk tolerances. This journey has logically culminated in multi- strategy portfolios, which can complement and diversify both conventional asset classes and trend following strategies.
Today, Aspect’s three main strategy pillars are trend following, systematic macro, and multi-strategy or customized products, and each of these verticals (which have been explored in earlier articles in The Hedge Fund Journal) houses a variety of offerings.
Trend following can still be accessed on a pure play basis without modulating factors, through Aspect
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