Most Consistent Event-Driven Hedge Fund 2016
Company: Tyrus Capital
Name: Tony Chedraoui
2009 was only a year after the global financial crisis sent shockwaves throughout the corporate landscape. However, it was during this period that Tyrus Capital launched their flagship fund, the Tyrus Capital Event Fund, with $1.5bn making it the biggest hedge fund launch of the year. We spoke to Tony Chedraoui, CIO and Founder of Tyrus Capital, about how the business thrived during these turbulent times and what his plans are for the future.
Tyrus Capital started ‘day one’ with 12 employees who had previously worked closely with Chedraoui in his capacity as Global Head of Event-Driven Strategies at Deephaven. The Tyrus Capital Event Fund is a continuation of the Deephaven European Event Fund, and what helped make it so successful, according to Chedraoui, “was that the Deephaven European Event Fund generated returns of more than 15% for investors in 2008, while importantly retaining the portfolio’s high liquidity structure”. Achieving such impressive results in the height of an economic downturn - unsurprisingly - led to strong interest from many investors.
The Tyrus Capital Event Fund looks to generate attractive risk-adjusted returns through an equity based event-driven strategy, with an emphasis on announced deals in developed markets. The Fund seeks to implement an investment strategy that is not dependent on the general economic environment, but to produce returns that are correlated to specific event trades rather than to broader markets and therefore the Fund tends to be less impacted by major volatility moves. The team’s focus is on portfolio construction in order to try to avoid the Fund being affected by dislocation in tough markets and aims to build a portfolio that limits downside risk, whilst creating upside optionality linked either to a specific event or to a more general theme. Chedraoui explains that, as CIO, he has overall responsibility for portfolio construction. “I typically structure the portfolio with a limited number of positions at any point in time to enable the team to monitor the portfolio closely and to limit correlation within it. I use daily proprietary reports to monitor and analyse various risk factors, and tools, created by the Firm to spot trends and stock movements. The portfolio management system provides numerous risk monitoring tools, including the ability to stress test the portfolio on a regular basis. Stop loss limits are used where deemed appropriate and liquidity of individual positions is monitored, which helps to ensure that exposure levels can be increased or reduced rapidly. Typically, we use minimal leverage”.
When discussing the Tyrus Capital Event Fund, Chedraoui firmly believes that structured trades are unique to the Firm and set the team apart from many other event-driven specialists by offering upside optionality, while protecting the downside risks, and remaining liquid. “In particular we seek to capture upside optionality from mispriced companies that boast a global franchise, but are tarred with a peripheral European valuation. Both the analysis and negotiation for these trades rely heavily on the Firm’s internal legal specialists who have built up considerable experience over the years. We have closed over 20 of these transactions since 2006, and I believe that we have never lost money on any”.
Each of the individuals involved in the investment process brings an important set of skills to the team and to the review of potential opportunities. Detailed knowledge gained from experience in corporate finance, investment banking, law, regulation, derivatives and equity and debt investing ensures that the team is able to assess and structure trades that are designed to meet the required criteria.
Today, Tyrus Capital has 34 employees across offices in Monaco and London and is probably the largest equity event-driven fund in Europe with an AUM of c. $2.5bn. The Tyrus Capital Event Fund has a proven independent track record of over 6 years, and a team that has worked together for a number of years on both the investment and business side, which Chedraoui believes is “key to our success”.
“In addition, at Tyrus Capital, we offer co-investment opportunities to existing investors in the Tyrus Capital Funds, allowing them to potentially enhance their returns from their relationship with the Firm, and we have a Private Equity Secondaries Fund targeting asymmetric risk-return opportunities in PE, with limited downside targeting attractive secondary PE-returns but with a much shorter investment horizon” says Chedraoui.
Chedraoui has always believed in investing in the Firm’s operational infrastructure and as a result Tyrus Capital has built a top-tier award winning institutional business platform which has impressed many operational due diligence experts. Mark Madden (COO) and his team, set out from launch to deliver an infrastructure which not only gives the investment team all the relevant capabilities that they need, but that is also robust enough to survive almost any realistic business continuity event. The team uses its intellectual capital to build proprietary systems around the traditional vendor portfolio management systems to provide automated reconciliation tools. These create alerts enabling the operations team to focus on exceptions, trade breaks and operational risks in real time, while screen-based dashboards give the transparency needed to monitor every relevant aspect of the business, including the IT and operational infrastructure. “This is something that is constantly evolving and improving at Tyrus Capital with a high level of investment in this infrastructure” says Chedraoui.
On his hiring plans, Chedraoui says “Tyrus Capital hires very selectively, looking for individuals with commitment, hunger for success, motivation, a positive attitude, good ethics, expertise in a specific area and a thrill for excellence who above all are good team players”.
“I am continuing to build out the investment team based on my conviction that investment banking skills offer a critical advantage when analysing announced deals. Therefore we generally hire people who have worked in investment banking and who are known to us for a long time - most of them will also have had experience of working in well-established funds. In keeping with my focus on legal analysis and determination to build a robust compliance framework, I have added further lawyers to both the business and investment teams, and Tyrus Capital now counts no fewer than 8 lawyers among its 34 staff”.
When asked what his philosophy would be for choosing funds to invest in, Chedraoui says he would look for the following attributes:
· A proven track record
· No significant negative performance years
· No large drawdowns
· Capital commitments from key employees
· Team continuity, low staff turnover
· Willingness to build a partnership with investors over the long term
Looking forward into 2016 and beyond, Chedraoui says “My focus this year will remain on the Tyrus Capital Event Fund and on continuing to produce attractive risk adjusted returns for our investors, whilst building out the team further. We will maintain the pace of development of our state of the art IT technology – it is our ambition to set a new level of excellence in the industry in this area. On the client side, we will further our strategy of seeking select investors to partner with over the long term, investors who are looking for exposure to a differentiated product, including structured trades, which we believe that we provide”.
“Tyrus Capital will continue to place a strong emphasis on maintaining a high quality business with best in class operational infrastructure, risk management systems, client service and a commitment to ethical standards and to a culture of compliance to complement its differentiated investment activities”.