Best Volatility Hedge Fund Manager - UK & Best Market Neutral Hedge Fund: Paris Capital Relative Value Fund
Company: Paris Capital Advisors
Name: Thomas Korossy
Web Address: www.parisca.com
Address: 25 Cresswell Place, London SW10 9 RB
Telephone: +44 207 730 8030
Paris Capital Advisors is a Hedge Fund Manager that focuses on quantitative trading strategies in global option markets. Our targeted investors are pension and endowment funds, private banks, fund of fund managers as well as high net worth individuals.
The Paris Capital Relative Value Master Fund Ltd (the “Fund”) is a market neutral fund which aims to generate repeatable and uncorrelated returns to global equity markets and has an inbuilt downside protection against major market corrections.
The Fund trades exclusively in short dated listed index options (and futures) and implements a unique combination of Alpha and Protection strategies. The highly liquid strategies are transparent and easy to understand, have rigorous risk management via trading algorithms and a low risk of regulatory, reputational or operational issues.
Risk Management and Systematic Execution
“A key feature of quantitative systematically executed strategies is the fact that the future trading activities are clearly defined and can therefore be analysed against historical or simulated market data” explains Thomas Korossy from Paris Capital Advisors. “This allows a better definition of risk taking and the optimisation of the risk-return profile through detailed analysis of the life strategies (and their various combinations)” he continues.
“The sizing of the individual Alpha strategies targets roughly equal risk contributions, with an emphasis on an anticipated max drawdown of the fund of less than 10%. The sizing of the Protection strategies is based on the overall risk of the alpha strategies.
“The fund is delta hedged on a daily basis; volatility exposure is low and typically positive during high volatility periods. Any maximum VAR limit excess triggers automatic risk reduction, the sub strategies have individual loss limits. Major risk management decisions are built into the design of the individual strategies through clearly defined execution rules (timing, size, ratio, roll, etc) and a defined process to increase or decrease risk, depending on stress levels in the market. Each strategy has pre-defined exit (and re-entry) triggers. The systematic execution process tries to ensure consistent implementation of the defined strategies and avoid emotional trading decisions especially in stress situations” he explains.
“The objective of the Alpha strategies is to generate income through systematically exploiting particularities in global options markets, which are - like other financial markets - driven by human behavior, and therefore not always efficient” reveals Carlo Georg from Paris Capital Advisors.
“The Fund implements a diverse set of strategies designed for different geographies (US, Europe, Asia, Japan), products (index options and futures, VIX options and futures) and market environments (trending, mean reverting, momentum, crash). The Alpha strategies analyse the interdependence of implied and realised volatilities, options with different strike prices or tenors (term structure and skew) and different markets or products. Each of the strategies have in-built protection through combination of long/short positions or refined entry/exit signals” Georg continues.
Korossy then reveals that the objective of the Protection strategies is “to provide downside protection against major market corrections through a net long downside volatility exposure (convexity). The Protection strategies are designed to be self-financing, with an expected (almost) flat performance in ‘normal’ years and a potential for large returns in conditions experienced in 2008 or 2011. The protection strategies balance any short option positions of the alpha strategies and protect the Fund even if the exit signals of the individual Alpha Strategies don’t pick up the next market crash.”
Working in such a competitive industry, it is worth asking how does Paris Capital Advisors differentiate their business from that of your competitors.”The Paris Capital Relative Value Fund has a clearly defined investment strategy that is different to most existing hedge fund strategies. Its investment returns are uncorrelated with major equity markets partly due to the fund’s in-build crash protection strategy” emphasises Korossy.
Approach to staff and clients
When it comes to Paris Capital Advisors approach to people, what excatly do they look for when it comes to choosing both staff and clients? “The two principals of Paris Capital Partners have extensive experience in trading and asset management businesses in Europe, the US and Asia. They have been working together for over 20 years in London, New York, Hong Kong and Tokyo, holding senior management positions at KBC Financial Products (KBC FP) and its sister company KBC Alternative Investment Management (KBC AIM), where AUM peaked at over $5 billion in global relative value and derivative based strategies. Prior to KBC the principals worked together at D. E. Shaw and Citibank in senior positions in London, New York and Hong Kong” Georg answers.
“2015 was a good year for the strategy, as after 3 years of quantitative easing, volatility finally returned back to equity markets.” concludes Korossy.