Benedicte Gravrand, Opalesque London: The Earth Element Fund strategy started trading on 8 Dec 2008 with a limited number of early stage investors. The Fund is managed by Four Elements Capital, a dedicated commodity research house, who held the soft launch for the flagship fund in line with schedule.
The Earth Element Fund targets an absolute return of over 20% per annum. The strategy uses both fundamental and quantitative analysis, taking long and short positions on a large set of commodity futures contracts across all major sectors. The Fund invests in commodities only and follows a systematic investment process offering USD and EUR share classes.
The Fund will be open from January with monthly liquidity and has a US$500m capacity. Four Elements Capital Pte Ltd was incorporated in Singapore on the 14 October 2008 (see our previous exclusive here).
Four Elements Capital’s CIO Lionel Semonin told Opalesque in an earlier interview that the firm would provide investment decisions on a diverse set of commodities including Energy, Metal and Agriculture. The managers will not just be looking at arbitrage opportunities but mainly at both fundamental and quantitative factors for directional plays on commodities – i.e. investing long and short at a moment in time in a large set of commodities. The rationale behind the investment in the fund is to provide investors with alternative investment on underlying commodities.
“There has been a big trend in the last few years of getting in the long only commodity space as a diversification through futures; we saw a rising interest in commodities and many new long-only indices,” he said. “Commodities returns provide diversification whether they are long-only or long/short positions from other equity or bond portfolios; our approach is to provide long/short commodity positions in a single strategy approach (i.e. relative value between commodities).”
Four Elements’ edge is its ability to predict future movements of commodities through both quantitative and fundamental single-commodity analysis. Leila Kuhlenthal (Performance Attribution and Investor Relations) added that the fund will invest in exchange-traded futures, limiting the Fund’s counterparty risk.
Semonin stressed that Four Elements is an asset management company that is focused on research, research being half of the firm’s people resources. One researcher focuses on agriculture, the other on metals and energy.
Because the firm invests in a diverse set of commodities and has multiple sources of alpha per commodity, its systematic process is essential to process all the information on a large set of commodities. However, a key differentiating feature for the Fund is that the managers process both fundamental and quantitative data.
Being in Singapore allows the managers to handle the fund from an efficient environment with a strong infrastructure, Semonin said. The time zone allows them to be active before market participants in London and New York start, which gives them an advantage when significant events have happened while the market is closed.
Commodities have become consumption-led and the consumption from Asian countries is also giving Four Elements a differential factor in its fundamental approach. Kuhlenthal added that commodities had become an increasingly important investment for investors in Asia, and being in Singapore allows Four Elements to be accessible to those clients. Also, from the perspective of access to exchanges, the CME “gateway” is in Singapore, and this allows them to trade real-time in the U.S. exchange (the infrastructure being very reliable).
Article Source: http://www.fourelementscapital.com