AlphaGen Volantis

Best Performing UK Long/Short Equity Fund

Originally published in the April/May 2013 issue

The AlphaGen Volantis team has been together for a decade, mostly at Gartmore until it was acquired in 2011 by Henderson. Since the launch of the flagship Volantis market neutral fund in 2002 the fund has impressive annualised returns of 15% with low volatility and low equity market correlation. The team, led by Rob Giles and Adam McConkey, put this success down to the discipline of their process which centres around proprietary ‘deep dive’ due diligence and research. Of course the characteristics of the asset class are extremely attractive to those who know their way around the space.

McConkey says, “It is inherently inefficient. Institutional-quality market participation has declined over time and analytical coverage is low. This is exactly what you want as a hedge fund manager. The probability of being right, long and short, is stacked in your favour if you are looking where others don't and bringing some good investment process to bear”.

Notable successes in 2012 included a long-standing holding in Sepura which doubled during the year and a relatively new position in Quintain Estates which produced a similar return.

Secondly, retaining strong disciplines at the fund level is important. For instance, in an inefficient asset class and volatile markets there is no need to make aggressive market calls or introduce unnecessary gearing. Throughout the fund's life the fund has stuck to its definition of market neutrality, a beta adjust net long of less than 30% and a relatively low gross.

The team are also precious about sustaining the track record in respecting the constraints on fund size imposed by investing in UK smaller companies. This is most keenly felt in running a short book. As a consequence the fund is hard closed, as it has been for much of its life.

Instead, the team has preferred to innovate with new products when the time is opportune. The conviction ideas are reflected in the much shorter list portfolio that is UK Best Ideas, which was launched in 2006 as a sister to Volantis. It has been very successful, delivering a 130% return since inception.

In May 2013 the team will launch its first fund since 2006, the Volantis Catalyst Fund. This fund is being launched to take advantage of specific opportunities in the less liquid end of the UK small cap space where companies may benefit from having the Volantis Capital team on board as a major shareholder.

The outlook remains very bright according to McConkey, who says, “We will continue very much in the same vein: very stock-specific from the bottom up, while turning the dial down if we see choppier waters ahead. We have had a good start to 2013. And at the stock-specific level there are names we are very excited about. Nanoco, for example, is a global leader in the manufactureof quantum dots which, among other things, will be incorporated into the next generation of televisions, significantly enhancing the viewing experience and reducing energy consumption. It’s also unfashionable to say it, but there are pockets of the UK economy which are in much better health than the media would have us all believe. We have enjoyed some very healthy returns from the housing sector and the IPO of Crest Nicholson has been a particular success. Dare we say it, but government policy in this space looks very supportive. That said, we live in a world that has been turned upside down… The financial economy leads rather than reflects the real economy. What happens in financial markets is having a direct and often rapid impact on investor, consumer and corporate decision-making in the short term which is why returns are likely to come in bursts, and accrue disproportionately for patient investors in stock specifics”.