By Andrew Nyquist
In late 2011, I was fortunate to connect with Sascha Freimueller and Ryan Held, two very bright, experienced industry professionals that were in the process of founding their own hedge fund, now known as Dufour Capital. As you can imagine, I jumped at the opportunity to further educate readers (and myself) by way of interviewing them. And as you’ll see in the interview below, the industry is diverse and ever changing, which provides for a very challenging landscape. To better navigate this terrain, Dufour Capital puts flexibility and “alternative investing” at the heart of its plan, believing a blend of these two characteristics will produce superior results.
“We were not only convinced about our innovative investment solutions, but also believed it to be the right time in terms of our skills and experiences to start Dufour Capital.” ~Founders Sascha Freimueller and Ryan Held
So if you ever wondered what it takes to start a hedge fund, different hedge fund strategies, or even just what the heck a hedge fund is, fear not, we cover it all in this SIM interview edition of Take 5. Enjoy.
Andrew Nyquist: Where did you go to college and what is your educational background?
Dufour Capital: We both have science and business educational backgrounds.
Sascha hold a BS in Physical Chemistry and an MBA degree from UAS Zurich, and is a graduate from Harvard’s General Management Program.
Ryan holds a PhD in Physics from the Swiss Federal Institute of Technology (ETH) in Zurich and an MBA from ESADE University in Barcelona.
Andrew: What firms/funds have you worked for and how has each stop helped you with your planning and opening of Dufour Capital?
Dufour Capital: Before founding Dufour Capital, we both worked at RMF and Man Group’s Fund of Hedge Fund division in Switzerland. Man Group is one of the world’s largest hedge funds and headquartered in London, UK.
Sascha was a Senior Business Officer and responsible for corporate risk management and strategic business planning. Ryan was a Senior Quantitative Analyst and in charge of all quantitative aspects of the firm’s global asset allocation. He was also engaged in joint research projects with Man’s AHL, a multi billon CTA.
As office colleagues we not only worked together as part of the day to day job, but we often met to exchange ideas of future opportunities in business and investment management. We gained insight in many different investment strategies and market demands from private and institutional clients. Our desire to become entrepreneurs and to put our ideas into practice has independently grown over several years and is also deeply rooted in our family’s tradition. We were not only convinced about our innovative investment solutions, but also believed it to be the right time in terms of our skills and experiences to start Dufour Capital.
Before joining RMF/Man we both had many years of professional experience working in science (ETH and Yale), finance and consulting.
Andrew: Can you tell readers in simple terms what a hedge fund is? Or at least as you see it?
Dufour Capital: In very simple terms; a hedge fund typically aims for achieving absolute returns independent from market conditions. To achieve this, hedge funds not just simply go long their investments (as traditional managers) but also apply leverage and/or take on short positions.
There are many different types of hedge fund strategies covering a wide range of trading strategies and asset classes.
Andrew: Without giving away any secrets, what sets Dufour apart from other hedge funds? And further, in simple terms, what is your approach to alternative investing?
Dufour Capital: Before explaining our approach to alternative investing we would like to point out that Dufour Capital is different to a traditional hedge fund. We do not consider ourselves a classical hedge fund, but rather an innovative asset manager.
We invest actively and use techniques typically applied by hedge funds. We apply trend-following techniques and macro-economic views to manage our portfolios in a systematic and dynamic way. Our proprietary quantitative models allow us to identify longer term trends in various markets and asset classes. Based on this information we construct dynamic portfolio solutions for our investors.
The main driver of our return source is an active and dynamic asset allocation which adapts quickly to changing market environments. In a crisis, we can e.g. be fully in cash, while in a bull market we shift our portfolios to a high concentration in equities. In addition, we have a strong risk management overlay implemented that protects our portfolio against large draw-downs.
Unlike many hedge funds, we do not go short or take leverage. Another difference is that we offer a very transparent setup and are not secretive about our investment solutions. Transparency is achieved by managing the money on a managed account setup, i.e. transactions are carried out directly on the client’s account. The client can therefore monitor his portfolio anytime.
In addition, the solutions that we are providing are highly liquid. We just use ETFs to implement our strategies. ETFs are ideal building blocks to compose in an efficient way portfolios that take advantage of global trends across different asset classes. Given that, we can implement our strategy with only a handful of ETFs, our portfolios are easy to grasp and can be understood by the clients.
As mentioned above, we both used to work for a fund of hedge fund, i.e. we were managing rather passively active managers. What we are doing now is the opposite in the sense that we manage actively passive vehicles….!
Andrew: Any thoughts on the current state of the markets (equities, commodities, currencies, debt, etc…)?
Dufour Capital: The current markets are challenging for investing. While the overall status of the global economy has been stabilized and enhanced following significant government interventions around the world, uncertainties are high and the economy remains fragile.
In such an environment, we expect ongoing changes between different market sentiments (risk on/risk off). This means that risks and opportunities of all major asset classes have continually to be assessed. The asset allocation needs to be quickly adjusted if necessary to avoid large draw downs and profit from available opportunities.
Currently, our biggest portfolio positions are equity related positions following strong trends in all regions since last autumn. However, we still have a significant cash buffer and will increase gradually our investment degree if the environment is stabilizing more. Especially longer term policy actions that address the challenges of the whole deleveraging process should become clearer.
About Dufour Capital
Dufour Capital was founded in early 2011 and is licensed as an independent asset manager in Switzerland.
No position in any of the securities mentioned at the time of publication.
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of his employer or any other person or entity.