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- [00:03]
A
Hello and welcome to Moving Markets, the View beyond where we explore the key issues shaping markets today. I'm Bill Fong, head of the Alternative Specialist team at Julius Baer for Asia and the Middle East. After several years of extraordinary gains driven by AI and a handful of megatap technology stocks, recent market volatility has been a reminder that leadership in markets is never permanent. So how should investors navigate this next phase of the market cycle? And why do so many institutional investors turn to market neutral multi manager platforms, especially when investing in Asia? Joining me today is Angus Wai, founder CEO and CIO of Polymer Capital Management, an Asia focused hedge fund. Angus, welcome. Great to have you with us.
- [00:53]
B
Thank you for having me. Today.
- [00:54]
A
With markets becoming more volatile after years of AI led gains, I'm looking forward to hearing your views on the opportunities ahead. But let's start with your journey first. You've played a key role in building institutional hedge fund platforms across Asia. Take us back. Prior to founding Polymer, you held leadership roles at SAC 72 and Folger Hill, now part of Schoenfeld. Please share how you started your career and the key steps that led you to build one of the largest Asia specialist multi manager hedge fund platforms.
- [01:28]
B
I think looking back in my career, every steps really gave me a piece of skills in building this multi manager platform. Currently Polymer Capital. I started off as an auditor with KPMG in Canada and Hong Kong and the experience was great. It was a great training for me to really understand businesses and numbers, budget costs and it was a great experience, a good foundation I would say. And then after that I had the opportunity to join the investment team at Sumitomo Trust, investing in private equity. And it's a place where I had the opportunity to execute deals, acquisitions, talking to business leaders, trying to partner up and I think thinking of Polymer now it is similar to how we're trying to acquire talents, trying to construct a deal that wins for both sides. After Sumitomo Trust I had this life changing opportunity to join SAC which became 0.72 today as their person to grow their business in Asia. And it was a fantastic experience there. Really eye opening, being one of the biggest, best hedge funds on earth and really seeing the blueprint, the beauty of a multimanager platform. And that's where I started this idea of Asia needing to have a dedicated multimanager platform. And it all started from there. After that I had the opportunity to built the Asia business for Forger Health. And during that time actually Folger Health has a bit of a challenge in the US and so I took on the challenge and it turned out to be a great experience to get in the weeds, really understanding, completing the picture of a multimanager platform for me and allowing me to practice that. And fast forward that business was sold to Sean fellow Strategic and I wanted to continue my dream and continue to multi manager platform build out. And I'm thinking like it's my third time doing this, I better be building this for myself. So I was also very fortunate to find a great partner of mine, PAG Group, which is a $55 billion business focusing on private equity, real estate and credit in the region. And we partner up, we share the same vision. We really want to build a multi manager platform catering to the local talents investing in Asia. However, we build it with institutional grade world class standards and producing a product for clients to safely invest in Asia. So fast forward seven years, we're here today with over 300 people.
- [04:24]
A
Could you share some of the key lessons you took away from your time at point 72 and Folger Hill that shaped how you built Polymer?
- [04:33]
B
I learned a lot when I was in 0.72 and it was a fantastic journey. And what I learned was the beauty of the multi manager platform, how it produce high quality, high risk adjusted return. But in addition to that I also learned that there is a massive infrastructure risk, technology, people and institutionalization of the business that is needed in order for this business to be successful. So that carried through to where we are today at Polymer. We built this with the institutional grade world class standard mindset decision to me with an institutional perspective and we do not take shortcuts and quality is not sacrifice over quantity. And this continue to be what we brought with me to Polymer. On the other hand, Folger Hill I think what I've learned was the ability to attract talents. You have to give them a sense of security. Initially when we tried to attract the best talents, it was rather difficult because they were concerned, they were concerned about the business where the US business was struggling. So we had a tough time solving this chicken and egg situation and bringing the best talents. But with the goodwill we built, with the effort we spent, we were able to bring on the first few portfolio managers. They turned out to be amazing and with that more wants to join. So that's why when I started Polymer, we partnered Bag Group. It is very important to make sure that this security is there so we are able to attract the best talents early on without too much work worries.
- [06:20]
A
Besides talent acquisition, any other challenges you'd like to highlight from your earlier positions with point 72 and Folger Hill.
- [06:29]
B
Yeah, actually quite interesting at point 72. I think the challenge is to keep up with the great success of the firm, the growth, the business was doing very well and Asia has to keep up with the growth. And that's where it gets a bit tricky because Asia cannot grow as fast as the US market given the liquidity and capacity. And in that phase we will either have to pressure or get portfolio managers to increase their risk taking or we're going to have to hire a lot of more people to take on more risk. And I think looking back at that time, what I noticed was just the timing will always be wrong. If we ask the PM to deploy, pressure to deploy will always be a negative impact. And also by trying to rush the higher, there will be necessary reduction on quality. So this is something that we brought on again to polymer is to really be super careful on a capital raising strategy. We do not want to be big for the sakes of being big. We don't want to pressure ourselves to hire if there's no good quality portfolio managers and we want to make sure our return is not diluted. So therefore capital management is something that we put extra effort and be super disciplined. And in this case there are actually few years we were soft close until recently this year for new capital.
- [08:06]
A
You mentioned when you're with point 72, that's when you first came up with the idea for Asia focused multi manager platform. For listeners who may be less familiar with what exactly is a multi manager platform that's also market neutral? How's it work in practice?
- [08:24]
B
So on a platform, typically there are separate portfolio managers, multiple of them on the platform operating independently. So they will have their own independent strategy and operate as if their own hedge fund. And each portfolio management team will be able to enjoy the economy of scale, the infrastructure, the resources that is provided to the platform. And as you can imagine it will be much more resourceful than operating on their own. Given that this platform is built for scale and that is from the individual portfolio manager level. But on the platform level what we get is we have multiple diversified investment or alpha generation sources. So when you combine all of them together it becomes a very large engine, allowing for a bit higher consistency and lower volatility and alpha generation controlled. Besides that, we will have a large team, infrastructure team, risk management team to ensure that the portfolio managers stay in their lanes and managing the overall aggregate base risk of the entire fund. So the infrastructure is absolutely important. So for instance, I can share with you that we Trade hundreds, thousands of line items per day. And combining of all that, it's a mass number of volume of trades on a daily basis. So we have to have that transparency, the ability to have real time access to what they're doing on a real time basis to manage the risks and operate and manage the entire portfolio.
- [10:10]
A
Why is it so important to be market neutral?
- [10:13]
B
I think it is important to be market neutral because we can never time the market. Some people can. But in general, what I believe is it is unlikely to get right on market timing. And because of that we do not want to take too much directional risk on markets on any given time. And we will try to generate return for our clients by generating idiosyncratic risk, which means we're here to pick stocks, fundamental good companies and shorting bad companies, putting that effort in extracting this alpha regardless of which direction of the markets.
- [10:55]
A
From a portfolio construction standpoint, why are institutions choosing market neutral Asia pod shops for allocation? Is it mainly about performance or is it about geographic diversification?
- [11:10]
B
I actually think it's both. To answer that question, I will put myself in the investor's role in thinking why invest into Asia dedicated multimasure platform? I think number one thing will be geographical allocation is needed because very likely I like to have Asia in my portfolio that is uncorrelated to the rest of what I hold. Perhaps there are US or Europe and I want to have a more diversified portfolio. Hence I want to have uncorrelated return and Asia is a solution. Now after that I will ask myself what do I want from Asia other than the uncorrelated return? I think I would like to have a return that is consistent and scalable. Consistent is important for investors who doesn't want to wake up in the middle of night and wants to have a very safe investments for much more longer term. And this is what multi manager platform can provide. It's because when you invest in one strategy it is much more volatile. But if you invest in multiple strategies on a platform that is uncorrelated and we group them together, it becomes a lot more consistent. So therefore investors like myself in this strategy would not be needing to time when to invest. Actually, given the consistency and scalability, I will be able to invest at any given point and also be able to sleep well at night. The second point I would like to have is the scalability, which means I do not want one single strategy to take on too much capital and dilute all the alpha returns. I want a strategy that even if it grows the return maintains high so in a multi manager platform we increase our capacity by increasing number of strategies we can hire and bring in more strategies to the platform to introduce capacity. Besides that, because of the data, the technology, we're also able to introduce capacity by using quant overlay for instance. So those are the characteristics and those are probably the reason why I believe investors invest in Asia dedicated multimanager platform.
- [13:37]
A
Maybe you could expand upon that. How do you construct the portfolio to keep it market neutral? You mentioned adding additional capacity but still keeping it diverse across managers styles and markets.
- [13:51]
B
That's a great question. So there are two ways to approach this to ensure we're running in a market neutral portfolio at any given time. The first step is to ensure that individual portfolio managers are operating within the risk limits that we impose in this case will be market neutrality. So as long as majority of them are operating in a market neutral manner, when you aggregate them together, very likely the entire portfolio will be very close to market neutral. So the first level is bottoms up, the second level is top down. There will be potential situation where the fund can be less market neutral given the tilt on the aggregated of all the individual portfolio managers. We will then use our quantitative technology overlay to neutralize those beta if necessary by using our quantitative business. So it will be done systematically. This way we will ensure the portfolio will continue to be operating under market neutral position. Now diversification is something very interesting and very different. Diversification is started off by similar to stock picking is portfolio manager picking. So when we go hire portfolio manager, our hiring team actually work very closely with risk analytics team together to ensure when we bring individual portfolio manager or strategies onto the platform, they are indeed adding diversification and not entirely overlapping. So that allows us through the selection process to make sure our diversification continue to enhance. The second part is to also target it in a targeted way to hire people people or target hired strategies that are diversified from our fund today. So our risk analytics team actually indeed will tell our hiring team where are the areas that we need to further diversify. So they work very closely and this process has been very helpful and very effective for us to maintain that. Now the last part is after they are hired, we need to ensure they do not style drift because they were hired for a reason. Each strategy has a role to play so we constantly manage, constantly measure to ensure the strategy doesn't style drift and continue to add diversification to the business.
- [16:26]
A
Good note. Thanks for sharing that Angus. Let's focus now on the Asia market opportunity. What is it about Asia's markets That convinced you the region deserved its own dedicated platform.
- [16:40]
B
So I think Asia cannot be run with a one size fit all model. It is made up of many different countries. Markets is not one currency is not one culture is not one sets of rules, tax regulations. Every market is different. So we need to understand that there is the need to be flexible in individual portfolio managers need to do what they are best at in those markets. Especially as the markets are not as efficient. Because of that Asia definitely requires to have a product because it is really driven by number one, the demand from the investors. Investors want to have a product in Asia that is giving them a multi major platform characteristics which is consistency and scalability and is also driven by talents who wants to go to a platform that is giving them the best probability of success in Asia, tailoring to their needs, fully understanding the Asian markets. And that is the reason I believe why Asia deserves a dedicated multi manager platform.
- [17:55]
A
And how do you adapt to these nuances in Asia to capture alpha?
- [18:00]
B
Aside from hiring the best talents, very strong quality talents, I think the key is really to give them the highest probability of success. And by that we need to give them the infrastructure, the technology, the resources that are needed to do their job and very Asia dedicated focus. What's also very important is local on the ground decision making. So if you think about Asia, there are a lot of great alpha sources because due to the inefficiency and due to the multi jurisdiction and market participants and market nuances. But these alpha are quite inconsistent. They come and go and they can come in very quickly and they go away and they come again. This inconsistency requires a lot of hard work and requires a lot of quick decision making. Using Polymer for example, having such a large 70 people, risk analytics teams on the ground, fighting the battle side by side and knowing the market with them certainly will enhance that probability of success. Having the management team on the ground and making decisions alongside with the portfolio managers will also enhance that probability success. And also providing the right resources and right tools at the right time. All of those actually is the way to capture this exciting alphas in Asia.
- [19:33]
A
Angus, we've been talking about market neutral strategies. Why should investors consider a dedicated allocation to Asia for this strategy? And is there a role for long onlys as well?
- [19:44]
B
Absolutely. I think it depends on the investor's appetite or the tolerance of volatility or the investment time horizon. So if you think about in Asia there are a lot of alpha sources, there's inefficiency alpha sources which is much more shorter term. It can be an event, it can be some price dislocation, it can be quarterly earnings. But there are also companies that are very strong growth from mid small cap to become champions of the sectors which require a lot longer horizon investments. So depends on the investor's appetite, how much tolerance the investors has in the volatility standpoint. So when you think about market neutral or hedge funds, they tend to be more look forward more capturing some of the more shorter term alpha sources like quantity or daily down to sometimes intraday. And on the other hand for long they are capturing alpha or basically trying to pick up companies that had very long term structural or sectorial growth. So if you actually think about it, in Asia, both alphas are quite juicy and quite attractive. If investors has the appetite for both longer term and shorter term the investment horizon, combining those two can be a very interesting investment strategy. So it really comes down to what the investor's appetite is.
- [21:20]
A
Markets have been particularly volatile in recent weeks driven by a pullback across the AI momentum stocks. What are you seeing on the ground in Asia? And for investors thinking about a strategic allocation, how should they interpret periods like this?
- [21:37]
B
So there's the AI themes that has been working very well, creating quite a bit of momentum returns in the markets, especially in Asia, where it becomes a spotlight for a lot of international investors. And also fueled by a lot of the levered ETFs, retail ETF as well and creating quite an interesting opportunity set. But recently there is absolutely higher volatility and caused by the pullback of deleveraging from the retail flow initially dragging into a bit more institutional unwind. So this phenomenon in Asia actually in my view created a very interesting alpha opportunities. So if you think about alpha opportunities, typically it is actually driven or presented from two scenarios. Number one would be a highly volatile scenario where a lot of the price actions or a lot of people were forced sell. A lot of people had to unwind causing price inefficiency and due to tactical reasons, not fundamental reasons. Now in that situation you can actually pick up prices that are dislocated and looking for reversal to fair value. This is one way of generating alpha return. The other way of generating alpha return is to identify companies early on and be in position. And then once the world or other investors general public has discovered and buy into this thesis, more and more fund flow will come in and therefore you will be also benefited from that alpha opportunity because of being early on discovery of some good companies or shorting some bad companies. Imagine what we just experienced. The volatility had created so much dislocation in the sector that allows quite a bit of opportunities presented for investors. Some companies in the AI sectors are being valued with no growth for the next two years. Now it's a debate, but I think there's absolutely some very interesting opportunities and stocks are mispriced because of this volatility. On the other hand, what happened for the last 12, 18 months was a lot of the attention and fund flow has been very concentrated in one sector and leading to a lot of companies in the healthcare sector, financial sector, consumer sectors are being overlooked. There is no fund flow going to those sectors. Now with what happened recently with the volatility, investors now thinking about wow, actually we need a bit of diversification. Now we're seeing that there is fund flow going into these different sectors. Non AI sectors and companies used to be overlooked are now being looked at. So for our platform, with the exposures and talents already positioned in all the sectors are now able to also seeking these alphas from other sectors because the fund flows and the general public are now looking for a bit more diversification given the volatility. So in my opinion beside the volatility, what we're seeing now is actually abundance of alpha opportunities.
- [25:08]
A
I have to ask this, I think you get this a lot, but for our listeners, many of them are students or early career professionals. For someone who aspires to be a successful pm, what advice would you give that person or say their aggressive tiger mom who wants their child in that position? What advice can you share?
- [25:29]
B
This is the most commonly asked questions in every interview I have with portfolio manager candidates or analysts. And my answer to that is really three points that I would advise. Number one is humility. The market changes, regime comes and goes. No strategy can win forever. I think it is important to continue to evolve, continue to adapt and not believing that you're always right. I think this is a very important feature or characteristics of a good portfolio manager. Secondly, I think you have to invest in process, not just the idea in the world investments. I think it is important to have a process because when you get something wrong, you can go back to the process and you can refine it and you can identify which part of process has gone bad. And this process of refining actually gives you a much stronger investment process over time. Without a process you will never be able to go back and think about how or how did that event happen or why did it didn't work. So having a process, a repeater process and continuous upgrades is what I would suggest. The last point I have which I'd like to share is risk management. Risk management is very important, especially nowadays given the market is very volatile and with a lot of quant flow, retail flow, with a lot of noises in the market. Risk management is something that I think is 50% of the investment process. When you think about winning chances or hit rates, even the best portfolio managers will tell you that at least 45% of the time he or she invests are going to get wrong. So how do you manage the downside? How do you manage the loss? Because it will happen and how do you get back from it? How do you protect before the event and how do you protect after the event when you're in drawdown mode? So risk management is key to the success, in my opinion.
- [27:50]
A
Angus Wai is founder, CEO and CIO of Polymer Capital. Angus, thank you so much for joining us today and sharing your insights on hedge funds and investing.
- [28:02]
B
Thank you so much.
- [28:03]
A
That's all for today's episode of Moving Markets to View Beyond. For more on global markets and the trends shaping portfolios worldwide, be sure to follow the podcast. I'm Bill Fong. Thanks for listening and we'll be back soon with more perspectives on the markets and investing.
- [28:21]
C
The information and opinions expressed in this podcast constitute marketing material and are not the result of independent financial or investment research. Please refer to www.juliusbear.com legal podcasts for further other important legal information.