The strategy typically uses less than half of its own, and less than one-third of that of UCITS’, budget for statistical risk. Other risk controls include limiting leverage to five times each side referenced to 10 year Treasury-equivalent duration, and position level stop losses.
As with the VaR constraints, these parameters are seldom approached: two times each side is more usual for gearing, and active daily management tends to exit trades before stops are hit. Some 80% of risk had been removed by the time the worst monthly drawdown (in 2006) reached 5%.
As a former UK Government Treasury economist, and ex-fixed income specialist, manager Adrian Owens forms views based primarily on fundamental economic analysis, rather than interest rate carry or investor sentiment.
The strategy is dominated by developed market G13 currencies and government bonds, along with more liquid emerging currencies including those of Mexico, South Africa and Turkey. Investors get full transparency, and a current example is long Zloty to profit from Poland’s economic recovery; buying the Zloty against other emerging currencies avoids a pro-risk appetite bias.
Similarly, short currency positions including both high yielders, such as the Australian Dollar, and low yielders, like the Swiss Franc, which minimises carry trade exposure.
Whereas the offshore fund has monthly liquidity the UCITS has weekly, as do some platform feeders that predate the UCITS launch in November 2009. The only relevant UCITS restriction is that it can only short bonds by selling futures or paying swaps, as opposed to shorting cash bonds. Tracking error between the UCITS and offshore funds peaked around 1% when large inflows into the UCITS took time to invest, but the discrepancy has been minimal since its asset levels stabilised at $900 million; GAM is not actively marketing this $2bn strategy, with some feeders formally shut, but is still open minded about sticky institutional investors.
Stability also characterises the team, who have been together through three owners: first Julius Baer, then Augustus and now GAM. Owens joined Julius Baer in 1995.
Key details
Fund name: GAM Star Global Rates
Management company: GAM
Promoter: GAM
Status: Open
Inception date: 13th November 2009
Strategy
Kind of fund: Hedge Fund
Strategy group: Macro
Sub strategy: Discretionary
Region: Global All
Asset classes: Currencies, interest rates, sovereign bonds
Particulars
Currency: USD, EUR, JPY, GBP, CHF
Share class name: Ordinary Shares USD Class Acc
ISIN: IE00B5BJ0779
Bloomberg ticker: GAMSGLU ID
Domicile: Ireland
Listing: Irish Stock Exchange
Fund structure: Investment Company with Variable Capital
NAV calculation: Daily
Liquidity: Daily
Notice (banking days): 3
Minimum investment: 20,000,000
Min. investment currency: USD
Income: Accumulative
Fees
Entry fee: 5%
Exit fee: 4%
Management fee: 1.15%
Performance fee: 20%
High water mark: Yes
Hurdle rate: Yes
Hurdle: Libor USD 3m
Analysis
2010 return: 8.16%
Annualised return: 8.22%
Annualised volatility (monthly data): 5.82%
Sharpe ratio (2%) (monthly data): 1.07
Correlation to S&P 500 (monthly data): -5.71%
Correlation to iBoxx (monthly data): 46.71%
Service providers
Custodian: J.P. Morgan Bank
Auditor: PricewaterhouseCoopers
Lawyer: Dillon Eustace
