Hedge Funds Review European Fund of Hedge Funds Awards 2015
Abbey Capital's chief executive Tony Gannon fails to recognise the characterisation of systematic funds as black-box managers with impenetrable algorithms. "Some people kid themselves they understand discretionary trading better. I've been doing this for three decades and my view is it's much harder to understand the discretionary macro guy than… a systematic trend-follower," he says.
"I could be in the office of a discretionary macro trader and he gives me 50 reasons why he loves the dollar on a Wednesday, and by the Friday he's actually shorted the dollar." Systematic trend-followers go long the dollar because of a strong trend in the dollar, which is much easier to follow and verify, Gannon says.
Abbey Capital has allocations to a range of commodity trading advisers (CTAs), including value traders and short-term traders. Abbey Capital Futures Strategy Fund, a '40 Act liquid alternative fund of hedge funds (FoHF), won best managed futures/CTA FoHF at the Hedge Funds Review European Fund of Hedge Funds Awards. Launched in July 2014, it currently manages $280 million of assets.
The fund comprises three European managers and six US managers, of which there are a bulk of diversified trend-followers, one foreign exchange manager, a discretionary macro and a systematic macro manager. It uses managed accounts to reduce the cost structure and, unusually among FoHFs, there are no performance fees at the CTA level.
The fund was up 22.82% from Q3 last year to Q2 2015, in a good period for managed futures as a class. Bets on the dollar against the euro and shorting crude oil, as well as its managers' fixed-income positions, propelled the fund's outperformance over the relevant period. The fund returned 1% in the subsequent quarter, when equities dived after the Chinese stock market burst and hedge funds across the board – bar two strategies – lost money.
Gannon has been involved in managed futures since the 1980s. He co-founded Allied Irish Capital Management in 1993, which became one of the largest European CTAs before he left to set up Abbey in 2000.
Having seen investing fads come and go, he is sceptical about big data transforming the fortunes of CTAs as a strategy. "There was massive hype when I was trading about neural networks in around 1989-90," he says, referring to a once-touted branch of machine learning. "That was meant to solve the trading problems of the world, but it didn't really add value. It was really hard to control and to know what was going on with it."
Gannon's prognosis for managed futures is propitious as rates go up, and he sees more trends arising as volatility increases and global monetary policy diverges. As chief executive, he continues to look at Ucits products with interest, but thinks in the past they were a bad fit for CTAs. "The structures are improving in the Ucits world, where it may be possible to create a high-quality managed futures product, but there have been constraints in the past that made that difficult," he says.
Low leverage constraints and bans on commodity derivatives cause teething problems. "It's very hard to create a diversified managed futures product if you can't have reasonable exposure to commodities," he says. "We wouldn't create a Ucits product unless the regulators are comfortable with [them] providing a good diversified managed futures exposure to our clients."