Adopting systematic principles
Ariqon Asset Management board member Stefan Ferstl has outlined his firm’s approach using systematic investment principles.
Ariqon Asset Management, based in Vienna, manages funds across the bond, equity and liquid alternative asset classes, with total assets of some €240m divided into four funds of funds. Within these Fofs, the AUM is predominantly invested in actively managed funds (85%), but with a portion (15%) allocated to ETFs, explains Stefan Ferstl, CEO and fund manager.
“We seek out funds more on an ad hoc basis as it is necessary to include the current market situation and many different factors in the research process,” Ferstl says.
“Furthermore, there are always changes in the fund offered, eg, based on mergers, newly registered funds in Austria and so on. Every new fund has to pass a strict due diligence process before we decide to invest.”
Currently, searches are driven by client demand for unconstrained bonds and liquid alternatives. “We cover these topics with two of our funds of funds,” Ferstl notes.
Ariqon Konservativ is an unconstrained bond fund of funds with the ability to invest in the full range of bond funds including absolute return bond funds. Ariqon Alternative Strategies is a liquid alternative fund of funds applying all regulated hedge fund strategies. Therefore, we are also looking for unconstrained bond funds and liquid alternative funds at the moment.”
People, process, positioning
Overall the selection process at the asset manager starts with screenings of peer groups in the Morningstar database according to an in-house model, which looks also at shorter periods such as two, three, six and 12 months. The model also considers returns and volatility. From there, Ariqon AM moves to qualitative screening of people, process, positioning and other elements. Telephone calls and meetings with fund managers and product specialists form part of this approach.
Following the quantitative and qualitative screenings, the selection process then moves on to further checks on eligibility within Austria, Ucits status, liquidity and tax status among other factors. Funds are also checked for suitability within the Fofs. Thereafter, the candidate funds are looked at in context of existing portfolios.
“The addition of new positions is always risk based, which means that we have a strict eye on the market beta when we make investment decisions,” Ferstl says.
“When we look at managers or management groups we don’t have certain preferences, so we are open to big houses and boutiques as well. “For us it is important how managers think and whether they have a transparent and comprehensible investment process.”
Key red flags include inadequate levels of transparency in the investment strategy and fund management, failure to deliver necessary reports, and a negative result when completing the approval process.
The question of limiting losses and managing returns through market phases is driving interest among clients in absolute return funds, but the Fofs offered only consider onshore funds. The area of hedge funds is approached by using only regulated funds, which means daily liquid Ucits, Ferstl adds: “We see no advantage in using unregulated hedge funds.
“In our mind it is essential that managers have a proven risk management process embedded in the investment process. Managers without any risk control system are unpredictable in their behaviour in difficult market phases.”
Looking ahead over the next five years, Ferstl says Ariqon has a feeling that individual solutions will not be as important as proven long-term track records in existing strategies. “The key factors for HNWIs will be transparency, liquidity and onshore regulation. This can mainly be guaranteed with Ucits funds.”