NEWS - 25

Viennese firm seeks hedge fund and fund of fund acquisitions

Sep 17, 2012, By Beverly Chandler

(LEFT TO RIGHT) Jim Cone, Michael Browne, Marc de Kloe, Kathryn Kaminski, Oliver Prock, Anthony Torriani, Matthias Knab

Oliver Prock, chief executive officer and chief investment officer of Vienna and Liechstenstein based Salus Alpha Group AG is in the market to buy other alternatives businesses. In an interview with Opalesque, Prock said: "We are interested in buying other businesses, either funds of funds run by people that are done with the business and want to have a change, or maybe single strategy funds of any type where there is a problem with distribution or marketing."

The firm was founded in 2001 by Prock and a team from Erste Bank in Vienna, where they had been responsible for funds of funds and other alternatives.

Prock says: "We felt that the offshore structures for the domestic market that were being offered would be under siege in the future, so our business plan was to create onshore daily liquid products."

This they did by bringing out a UCITS I hedge fund based fund. "We were the first to offer an alternative UCITS in 2003" Prock says. The firm has now grown to 50 people and funds under management of $1bn, with offices worldwide in Vienna, Liechtenstein, India, Stockholm and Hong Kong among other places.

They now focus on specialised funds, structured products and managed accounts for institutions such as pension funds, insurance companies and family offices. The firm started with the retail product UCITS, "because there was no choice of professional UCITS funds so we started with UCITS for all our clientele", Prock says.

Early days saw the firm offering a fund of funds and in-house managing investment strategies as managed accounts. "We didn’t actively market them" says Prock. "When UCITS I became UCITS III, it became possible to have it in an index format so we moved the in-house strategies from their managed account structure to a publicly available UCITS fund in 2007." Their flagship fund, the Directional Markets fund has been running since 2003, firstly as a managed account and then as a fund from 1st December 2008, with an annualised return of 15% since 2003. It is based on a quantitative research model derived by the firm’s research team in Vienna, Liechtenstein and India and it is registered in Vienna.

"It is a CTA portfolio managed on a quantitative basis, covering bonds, equities, commodities and so on but the difference is that there is no technical analysis involved – it is based purely on statistics and price forecasting" Prock says.

The fund’s prospectus lists assets selected for Salus Alpha Directional Markets as predominantly financial indices employing the commodity trading advisors (CTA) management strategy. Shares in investment funds may amount to a maximum of 10% of Salus Alpha Directional Markets’ fund assets and according to the investment strategy, money market instruments may comprise up to 100% of the fund assets.

The fund has a Sharpe ratio of above 1, meaning that for every 1% of return, the fund is taking less than 1% of risk. It has a 34% correlation with Winton, according to Prock. Salus Alpha has a European passport through its Liechtenstein license and plans, according to Prock, to move into the US sometime in the future.

Salus Alpha sponsored and attended the recent Opalesque Roundtable in Monaco. 

NEWS - 8

Austrian roundtable celebrates extended relationship with alternatives

By Beverly Chandler, Opalesque London, Monday, July 25, 2011

The Opalesque Austria Roundtable, sponsored by Salus Alpha Group and the Opalesque Roundtable Series Sponsor Custom House Group, and held in Vienna at the end of June, opened with a discussion on how lengthy is the country’s history in alternatives.

The panel consisted of Mark Cachia, Head of Alternative Investments, Erste Group; Martin Greil, Co-founder and Secretary General of the Alternative Investment Association VAI; Günther Herndlhofer, Investment Manager, VBV Pension Fund; Oliver Prock, CEO and CIO, Salus Alpha Capital; Marie Milford, Managing Partner & CEO, Asset Allocation Alpha and Günther Kastner, Managing Partner, Absolute Portfolio Management.

Prock opened the discussion pointing out that Austria has a considerable history in alternatives and is often seen from abroad to have a strong leaning towards CTAs and quantitative strategies. However, he said: "Over the more recent years, the industry here has grown and matured, and many different strategies are run out of Austria as of today. Of course, back then the barriers of entry in managed futures were not as high as we find them nowadays. In the early days it was possible in Austria to establish different onshore structures for alternatives. That was quite favorable for the development of a small niche industry here."

Growth in alternatives in Austria also came from institutional investors. "It is also important to notice that the Austrian institutional investors also favored the development of alternatives, which was due to their innovative asset allocation and a focus on performance and diversification. We do a lot of business in Germany, and just as a comparison, their institutions only recently started to include a 5% alternatives basket. The Austrian investors were a little bit ahead of that because they believed in it. People like Maria, at her previous work at PSK, or myself at Erste Bank at that time all had an alternatives allocation. However, the bad thing was that even though all of this favored the development of a local industry, foreign funds definitely got a bigger chunk of the money than the local funds."

Milford agrees, looking back to the mid 1980s to see the roots of the Austrian alternatives industry. "In order to understand where we are today, let me go even a bit further back in time to the mid 1980s when the whole banking industry went through profound changes" she said. "At that time the - let's call them - "old boys" were retiring, and a new breed of CEOs and Boards of Directors emerged, who were instrumental in using and even creating some of the instruments which were new then and are today standard tools and investments. I remember for instance, when I started in the Economics Department, one day I saw my boss drawing squares and arrows, and I asked him: "Walter, what are you doing here?" and he said, "Maria, look, that is very interesting. It is called Swap! You have here a bucket of money and there a bucket, and then you just exchange the interest payments!" And soon after that, he actually traded one of the first swaps in Austria."

Milford remembers stepping into what she calls frontier territory with investing part of the bank’s book into futures. "There were no screens or direct access, we had to send faxes of our orders to JP Morgan in the U.S., and the next day we received the confirmation from them. Maybe this is a feature of Austrian corporate culture. If we had good ideas, we could actually realize them."

Milford was asked by the Board of Directors of her bank to set up a portfolio with each and every risk except fixed income. "They actually expected me to start an equity portfolio. I said that it was not wise to start an equity portfolio at that time. I suggested a move into hedge funds instead, and the two people in charge on the Board thought for some time and came back to me and approved it. You have to be aware that this happened at a time when CalPERS for example didn't even consider investing into hedge funds."

Being ahead of the game, at least in continental Europe, meant that Milford always liked the hedge fund industry for its role as a boutique and niche industry. "Things changed when in 2002/2003 the whole alternatives industry moved out of niche into mainstream, which in the end has become less and less entrepreneurial, in my view. After 2008, things got even worse, and to a certain extent some investors may even be reluctant to invest what should be their alternatives diversification into another mainstream world or mass market" she said.

She believes that the hedge fund industry is split up into two parts. "On one side you have the large mega hedge funds that are preferred by the institutional investor market. I think they are very useful, they are a good thing to invest into, but because they are so large they operate by certain rule: you have to look at yearend figures, and your terms regarding liquidity and transparency have to correspond to what your institutional investor base expects."

"And on the other side there is still a very small market out there that are very interesting, you find still some of the let's call it "old style", or the "old hedge fund boys" who really arbitrage this mainstream market. Because they are free, they do not have to look at year-end and so on, they can be much more niche and opportunistic" Milford says.

"Don't get me wrong, the institutionalized market is a good development and we need investments there. But at the same time, they are not the same as what we have seen 15 years ago or more; these firms are different."