Alternative Market Briefing

"Capital has a price again" - FERI's hedge fund day maps where alpha comes from now

Thursday, September 17, 2026

Matthias Knab, Opalesque for New Managers:

FERI AG hosted its 15th Hedge Fund Investment Day (FERI Hedgefonds Investmenttag) on 17 September at its headquarters in Bad Homburg, with the program also streamed live to online participants. Moderated by Marcus Storr, Managing Director of Alternative Investments at FERI, the day combined FERI's own hedge fund research with international managers from Melbourne, Tokyo and Geneva and a panel of German long/short managers.

Across very different strategies, one thread ran through the sessions: in a world where capital once again carries a real cost, returns increasingly have to come from selection, structure and catalysts rather than from simply owning market beta.

Quant versus fundamental: Spain or Argentina?

Dr. Thomas Maier, Head of Hedge Funds at FERI, opened the content program with a question that sits at the heart of many allocation debates: are quantitative and fundamental hedge funds a contradiction or a complement? He framed it in football terms. Quant strategies play like Spain - a system of permanent pressing and short passes, built on large amounts of data turned systematically into investment decisions, typically with many positions, liquid stocks, higher leverage and often a market neutral stance. Fundamental managers play like Argentina, where much depends on individual stars: concentrated, discretionary ideas, flexible net exposure, and idiosyncratic risk that can go badly wrong when "Messi has a bad day."

FERI draws the line by asking whether a human or a model sits at the center of the investment decision (not the trading or execution process). Labels, Maier warned, are often misleading: in market neutral strategies roughly half of processes are systematic, the HFR category "quantitative directional" is in fact only 41% systematic, and the word "quantitative" appears more often in the descriptions of discretionary funds than the other way round - frequently to suggest that a process is scalable and repeatable.

On FERI's cross-sectional analysis, fundamental funds show higher raw excess returns, but only because they carry more beta. After adjusting for market exposure, alpha and risk-adjusted results are broadly equal; both styles are valid and create value over time, but their risk profiles differ. Quants proved more robust and easier to implement across jurisdictions, as their inherent diversification sits comfortably within UCITS rules, while concentrated fundamental managers tend to suffer a performance haircut in UCITS format. "More rules for Messi," as Maier put it, favor the system players.

Two findings carry direct implications for portfolio construction. First, the dispersion of results between managers within a style is around 60 times larger than the difference between the two styles - manager selection, not style selection, is where alpha is found. Second, while quant and fundamental indices are positively correlated (market neutral quants often retain a small residual beta), correlations between individual managers are low, and the lowest correlations - and best diversification - come from pairing a quant manager with a fundamental one.

Fundamental managers score with a "flexibility premium": in crises such as 2008, 2011 and 2022 they reduced exposure and raised cash, something systematic processes do not do. Quants, in turn, carry crowding risk, illustrated by the August 2007 quant meltdown, when quant funds lost simultaneously even as the S&P 500 was partly positive. Maier outlined how FERI addresses this in its FERI Systematic Market Neutral fund: dynamic rather than static factor allocation, a "micro-macro fusion" that adds macroeconomic factors to company data, and systematic avoidance of crowded trades using bank crowding and securities lending data. The real edge of good quant models, he argued, is not the absence of emotion but that they harvest the emotions of market participants while keeping the decision-maker's own emotions out of the process.

He closed with a footballing appeal: Germany's national team has plenty of well-behaved, successful system players - what it needs again are characters with rough edges who can make the difference.

Talaria Capital: getting paid up front for taking equity risk

Hugh Selby-Smith, CIO of Melbourne-based Talaria Capital, which manages around $2.3bn to $2.4bn, opened on a personal note. One side of his family were Quakers, whose ethos sees wealth as a force for positive change for individuals and communities; the other side were speculators in the gold and silver rushes. Talaria's stated purpose, he said, is to help people and communities enjoy a better financial future.

His investment philosophy starts from the premise that every pool of savings, from an endowment to a 25-year-old saver, is ultimately matching liabilities. That requires multiple levers of return, losing less when markets fall so that gains are retained and compound, and achieving outcomes with high certainty and liquidity. He reminded the audience that the S&P 500 went nowhere in nominal terms from 2000 to 2012, and that telling luck from skill is extremely hard: randomly generated 30-stock portfolios produce a wide spread of outcomes with no skill at all, and even the best stock pickers are wrong about 40 times out of 100.

Selby-Smith also challenged how diversified investors really are. By his estimate, around $90 of every $100 in the global savings pool is now statistically correlated with the S&P 500, up sharply over the past decades, while sovereign bonds have been positively correlated with equities for most of the last 125 years. His solution is to focus on alternative risk premia rooted in market structure and investor behavior - in Talaria's case the volatility risk premium, the gap between implied and realized volatility, which he put at around 430 basis points on average. It persists, he argued, because the world is long growth assets and pays to reduce downside skew, and because people are loss-averse - the same instinct that makes families buy travel insurance they rarely claim on.

In practice, for every $100 of client capital Talaria holds roughly $50 in direct equities, $35 backing fully cash-secured put options and $15 in cash. Every holding starts life as a sold put; the firm never buys a stock outright. In a stylized example, with a stock at 100, Talaria commits to buy at 96 in two months and receives a premium of 3. Either the stock falls and Talaria owns it at an effective 93, or it rallies and the put is rewritten - as long as there is at least 20% upside from strike to fair value - with the premium kept either way. Talaria targets 15% or more annualized on these commitments and expects to be exercised about 30% of the time.

The premium provides a stable return stream: around 505 basis points last year, and roughly 650 basis points in a normal year including dividends and interest on cash. Crucially, it rises when uncertainty rises - about 1,850 basis points in 2008 and 1,150 basis points in 2020 - which helps explain a downside capture of roughly 0.2 over some 20 years. Selby-Smith said many allocators use the strategy to free up risk budget for other exposures.

Security selection is classic bottom-up value work. The universe is limited to around 1,650 developed-market-listed stocks with at least $30m daily turnover, screened within each sector and region to avoid unintended biases. A nine-person team of generalists spends five to seven weeks per idea normalizing cash returns - separating maintenance from growth capex, spreading restructuring, litigation and pension costs over ten years, and comparing against the nearest peers - with particular attention to balance sheets, since selling puts is effectively writing insurance. The portfolio holds 25 to 35 stocks for about three and a half years on average, adding around ten new ideas a year.

Simplex Asset Management: Japan's governance reset goes bottom-up

Hiroaki Eto, Partner and Portfolio Manager at Tokyo-based Simplex Asset Management, described two decades of constructive engagement in Japanese equities. Simplex was founded in 1999 as an independent hedge fund manager focused on bonds; after years of zero rates it shifted into Japanese equities in the mid-2000s, when thousands of listed companies traded below their net cash. Today Simplex runs around $3bn in the strategy for Japanese pensions and universities as well as overseas institutions, including FERI.

Eto sees Japan's market in a catch-up process driven by three forces. Inflation has returned after three decades of deflation while policy rates remain well below inflation, pushing households out of cash, which still makes up around half of their financial assets against only about 10% in equities. Tax-free investment accounts under the government's "asset management nation" agenda reinforce that shift. The third and most important driver is the awakening of corporate governance.

He traced the policy timeline from the collapse of the 1989 bubble and the bank debt clean-up of the mid-2000s through Abenomics (2012), the Stewardship Code (2014) and the Corporate Governance Code (2015), with its emphasis on cost of capital, independent directors and unwinding cross-shareholdings. Berkshire Hathaway's investments in the trading houses followed in 2020, then the Tokyo Stock Exchange's 2023 request that companies trading below book value address it, spin-off tax deferral, and new government M&A guidelines requiring boards to take bona fide acquisition proposals seriously - which has opened the door to unsolicited bids. Eto recalled that Simplex once invited a former German chancellor to Tokyo to explain how Germany's tax exemption on sales of corporate cross-holdings helped unlock the old "Deutschland AG" - a lesson Japan has since absorbed.

What is new is pressure from the bottom up. When memory chipmaker Kioxia became Japan's most valuable company earlier this year, overtaking Toyota, employees with equity-linked pay saw what share prices can mean for personal wealth, and demand for similar incentives is spreading.

The opportunity set remains large. By Eto's count around 1,500 companies still trade below book value and some 840 below five times EV/EBITDA, which is why private equity is so active in Japan. Simplex works along a three-step framework: from "poor to normal" via buybacks, unwinding cross-shareholdings or management buyouts; from "normal to good" via divesting non-core assets, M&A and margin improvement; and from "good to great" via spin-offs of low-valued businesses, concentrating capital on growth and adopting global best practice. With TOPIX return on equity around half that of the S&P 500, largely due to low margins and low leverage, Eto expects the next and larger leg of re-rating to come from operating margin gains and industry consolidation, arguing that Japan simply has too many listed players in sectors such as machinery.

His case studies included a 14% stake in Toei Animation, the studio behind Dragon Ball and One Piece, which traded near net cash; Simplex connected management with Chinese partners, creating new licensing income, higher dividends and buybacks, before exiting when strategic interest emerged at a premium. At Showa Aircraft Industry, whose Tokyo land holdings were worth more than its market cap, Simplex built a roughly 10% stake and worked with the majority parent, Mitsui E&S, which needed capital; the company was ultimately taken private by a private equity fund and the site is being redeveloped. Further examples covered an industrial company trading below book despite double-digit margins, fragmented home improvement retail, and life insurers trading at deep discounts to embedded value. The portfolio is concentrated in around 20 names, with the top five accounting for roughly half.

Panel: equity long/short "Made in Germany"

The afternoon panel, moderated by Dr. Christopher Krauss, Co-Founder and Managing Director of Artellium, brought together three German-managed long/short strategies - and, together with the moderator's own firm, the line-up mapped neatly onto the quant-versus-fundamental spectrum Maier had described in the morning.

Krauss co-founded Nuremberg-based Artellium in 2017 with Dr. Thomas Fischer; both came out of research at FAU Erlangen-Nuremberg on machine learning and statistical arbitrage and are among the most cited authors in the field. Artellium's models generate daily relative-value forecasts for thousands of securities, which the FP Artellium Evolution fund uses to buy relatively undervalued and short relatively overvalued stocks in a market neutral portfolio with tight controls on sector, style and single-stock exposure.

Jonas Hoersch, Head of Liquid Alternatives at Union Investment, co-manages UniInstitutional Equities Market Neutral, a discretionary European pair-trading strategy focused on industrials and financials, with Hoersch leading industrials coverage. The portfolio typically holds around 100 roughly equally weighted long/short spreads. The fund has won The Hedge Fund Journal's UCITS Hedge awards three years running, most recently for 2025 and the two and three years to December 2025, with annualized volatility of around 1.8% and a worst drawdown over five years of 1.7%. Hoersch joined Union in 2024 after long/short roles at Walleye Capital and Millennium in London.

FERI represented both ends of the spectrum. The FERI Systematic Market Neutral fund, managed by Thomas Gerner, ranks the roughly 1,300 MSCI World constituents on micro- and macroeconomic factors, buys the top 10% and shorts the bottom 10%; it won the 2026 UCITS Hedge Award for Best New Launch in systematic global equity market neutral. The FERI Global Select Long Short fund, managed by Tao Wan, takes a very different route: from a universe of more than 4,000 long/short managers, a selection process using some 400 parameters picks four to six offshore managers, whose top long and short ideas in liquid large caps form the basis of the portfolio - a way of bringing offshore hedge fund alpha into a UCITS wrapper. Both FERI funds launched at the end of 2025.

Alba Investment Partners: in credit, capital has a price again

The final presentation came from Luigi Mantrino, Founding Partner and CIO of Geneva-based Alba Investment Partners, which he founded in 2024 with Guillaume Di Liberatore and Stefano Tittarelli after nearly a decade running credit together at B-FLEXION, one of Europe's largest single-family offices. Their Alba Credit Opportunities fund, launched in 2025, is an event-driven long/short strategy in performing investment grade and high yield credit.

Mantrino's central argument is a regime change. In the era of zero rates and quantitative easing, easy market access kept defaults and distressed exchanges low and compressed dispersion between bonds outside of crises - an environment in which beta was the right strategy. Headline high yield spreads today are again near multi-year tights, suggesting little to gain in credit. Yet bond-level dispersion has risen steadily since 2022 and stayed high, as higher rates work their way through capital structures at different speeds depending on leverage, fixed versus floating debt and maturity profiles - real estate being the first casualty. Contrary to common belief, the dispersion is not confined to CCCs but visible across BB and single-B ratings and within sectors, and distressed exchanges have returned to levels last seen after the financial crisis.

Mantrino argued that the 2010 to 2022 period was the real outlier and today's environment is a return to normal - which also means a return to pre-crisis strategies. Dispersion alone is not a trade, though; it takes a catalyst to close a dislocation. Alba's framework spans corporate events (M&A, asset sales, equity raises), credit events such as liability management and tender offers, fallen angels and rising stars, index inclusion, deleveraging and turnarounds, cross-issuer relative value, capital structure arbitrage and thematic drivers from AI disruption to regulation and geopolitics. Political instability, technological disruption and more permissive antitrust enforcement in the US are keeping events "firing on all cylinders," and the 2028 and 2029 maturity walls are heavy with single-B issuers that borrowed at 5% to 6% and may now have to refinance at 9% to 10% or more.

He illustrated the process with Organon. Shortly after the fund's launch in 2025, Alba's dislocation screener flagged Organon bonds trading far wider than similarly rated healthcare peers. The Merck spin-off combined attractive businesses - women's health, biosimilars and cash-generative established brands - with a balance sheet built on 2021-vintage debt that had to be refinanced in a higher-for-longer world. Alba mapped out the likely catalysts: cost cuts, a dividend cut, sales of non-core assets and, ultimately, a strategic buyer. It entered the unsecured bonds, which offered the best profile; the dividend cut followed, and later the sale of the JADA business. When the basis between unsecured and secured debt compressed to levels that no longer paid for the extra risk, Alba rotated to reduce downside. As takeover headlines emerged, the team assigned the highest probability to Sun Pharma, used the spread widening that followed the outbreak of the US-Iran conflict to add with conviction, and saw Sun Pharma agree to acquire Organon shortly afterwards. A small position remains, as the market still prices a completion probability of around 70% to 75% against Alba's view of close to 95%.

With US and euro high yield delivering total returns of less than 2% year-to-date through August, Mantrino concluded that the source of return has changed and portfolios must change with it: long/short over long-only, "diversified concentration" over broad diversification, and event identification over pure exposure. Passive, he said, was the right answer to the old paradigm, when beta was the return - but it will not be the right answer for the new one.

Common threads

Taken together, the presentations made a consistent case for skill-based, structurally diversifying return sources at a time when traditional portfolios are more concentrated in the same risk than many investors realize: manager selection over style selection in Maier's analysis, getting paid for volatility at Talaria, governance-driven catalysts in Japan at Simplex, and dispersion plus events in credit at Alba.

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