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Alternative Market Briefing

Helm: It is more important than ever that investors seek out uncorrelated sources of alpha

Monday, May 30, 2022

amb
Rajat Suri
B. G., Opalesque Geneva:

A contrarian global equity strategy managed out of New York is poised to seize opportunities in China, Chile, and Turkey, as its goal is to capture recoveries that follow price dislocations. Furthermore, the manager believes we are on the cusp of a new investment regime where typical portfolios will offer little protection.

Helm Investment Partners Fund, L.P. (Helm I.P.), a Cayman hedge fund, invests in securities of the largest and strongest domestic companies listed in out-of-favour countries that are recovering from a temporary political or macroeconomic dislocation. By capitalizing on such situations in Brazil (2016), Greece (2019), and South Africa (2021), the strategy has generated a successful six-year track record (consistently ranked #1 in terms of alpha generation).

The manager believes these specific situations represent some of the least competitive hunting grounds in which to identify and invest in high-quality, industry-leading franchises, at extremely attractive valuations, often 3-4 x earnings.

The predictability of market recoveries that follow large price dislocations allows for (1) a very dependable investment cycle and (2) the potential for outsized returns that are uncorrelated with broader equity markets.

"Countries don't disappear, and they tend to bounce back with a great deal of predictability," Rajat Suri, partner at Helm, tells Opalesque. "By having a disciplined investment process that captures these recoveries, we believe we can compound wealth at a very high rate and offer clients a differentiated exposure to markets traditional funds cannot easily access."

Rajat Suri will present in the popular Small Managers - BIG ALPHA, Episode 8 webinar on June 8th (details below).

The strategy, the partners

Helm IP's strategy has been successfully applied in multiple markets across Latam, Asia and EMEA. It is highly active and typically invests in approximately 15 to 25 industry leaders across two to four markets at a time. It is sector agnostic but tends to find the best opportunities in consumer, banks, telcos, and utilities.

It is absolute return-oriented and makes opportunistic use of portfolio hedges and cash (typically 10-20%). As of the end of April 2022, it had annualised a 13.6% net return with a beta of 0.4x in almost six years since inception, nearly double the return of the benchmark.

"The strategy does particularly well defending in bear markets with a downside capture of just 50%," says Suri.

The partners of Helm are Philip Reade (ex-Tarpon, ex-Marathon), Thomaz Malavazzi (ex-Tarpon, ex-HSBC), and Rajat Suri (ex-Qatar Investment Authority, ex-Credit Suisse). They launched Helm Investment Partners LLC in 2016 when they saw a clear gap in the marketplace for a more contrarian and opportunistic global equity strategy.

Current dislocation is creating more attractive entry points

Having anticipated inflationary pressures for some time, the strategy was positioned defensively in April by avoiding the most speculative parts of the market and holding excess cash.

Helm's risk management discipline caused the firm to reduce exposure (cash at 40%) and stay concentrated in commodity-oriented markets like Brazil and South Africa, as well as the broader global energy complex. These areas seem well positioned for the current environment given high profitability/cash flows, attractive valuations and the protection they offer against inflation and further geopolitical disruptions.

"Looking out a few months, current dislocation is creating more attractive entry points in several other markets Helm is tracking," says Suri. "Beyond Brazil and South Africa, other areas of interest include China (reversal in policy direction), Chile (failed constitutional amendment), and Turkey (political change), each of which has its own idiosyncratic recovery narrative as well as very discounted valuations."

The manager believes we are on the cusp of a new investment regime, similar to what we saw after the tech-bubble burst.

"The combination of rising inflation and higher bond yields have historically implied a rupture in the typical negative correlation between equities and bonds, i.e. risk-parity," Suri adds. "Therefore, the typical portfolio of 60/40 equities/bonds will offer little protection to investors and, in such a scenario, it is more important than ever that investors seek out uncorrelated sources of alpha. Helm's country recovery strategy seeks to do just that."

At the end of April 2022, the MSCI World index was down 13%:




Upcoming webinar:

Small Managers - BIG ALPHA

Episode 8 of this groundbreaking webinar series presents another carefully screened panel of investment managers. In one hour, you'll meet them all, get to know their top quartile strategies, and since this is an interactive session, you will be able to ask your questions.

Craig Reeves, Prestige Funds
Roy Niederhoffer, RG Niederhoffer Capital Management
Neal Berger, Eagle's View Asset Management
• Rajat Suri, Helm Investment Partners

When: Wednesday, June 8th at 11am ET / 4pm UK time / 5pm CET

Free registration: www.opalesque.com/webinar/


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