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Patrick, what are the origins of Atlas and how long has it been investing in hedge funds?
The Group?s origins can be traced through the history of its three principal components. The Atlas name dates from the founding of Atlas Capital Limited in 1994 by my life-long friend, Hugues Lamotte, former head of Wertheim Europe. Following a long career at Paribas, culminating in being head of capital markets, I joined Hugues in 1996. The other entities which have contributed to our evolution and with which we later merged have longer histories. Soditic Asset Management in Geneva ? now Atlas Capital SA ? was established in 1985 as a specialist private client investment manager. Its founders remain active as my fellow directors of the Atlas Capital Group. The third strand of our history is represented by Deltec Bank & Trust, one of the oldest private banks in Nassau, with which we merged in 2001. It retains its historical name. The former chairman of Deltec?s international business, Peter Stormonth Darling, is now chairman of the Atlas Capital Group.
The principals of Atlas have been familiar with hedge fund strategies and managers for many years and together make up its Investment Committee which leads and directs the investment process we apply to our clients portfolios and our own range of funds-of-funds. Unusually for an alternative investment manager, early growth in our assets under management was accounted for by institutional investors. As a result of growth and the corporate developments I have outlined, the Group currently has assets under management of some $3.7 billion. Some $1.1 billion of the total is accounted for by our own range of fund-of-funds products which cover a broad spectrum of alternative strategies.
Can you tell us more recent developments in the Group?s activities and products?
2003 was a year of consolidation for both Atlas Capital?s institutional and private client businesses. The work undertaken has ensured that our investment capability and processes are sufficiently scaleable in terms of both internal resources and external manager capacity to meet the demands of our expanding business. I would highlight the following specific developments: the launch of two innovative products and the formal rating of Atlas by Fitch Ratings.
The Optimum Alternative Fund, a very low risk product designed to give investors the broadest possible actively managed exposure to alternative strategies, was launched in August 2003. Its portfolio, the asset allocation of which reflects the output of Atlas?s forward looking style optimization, is invested in our specialist funds-of-funds. Optimum has returned over 2% in its first four months, is growing rapidly and has over ?40 million in assets. The second fund, I would like to mention, is quite different: a joint venture between us and Weston Capital, the Weston-Atlas Partners Fund. It is an early-stage manager incubator which will have a life of seven years. It had its first closing this month and, due to investor demand, will have a second closing in April/May 2004.
Fitch Ratings conducted an exhaustive assessment of Atlas?s institutional investment management capability and in November 2003 published its report and rating, the first of an alternative investment manager. A rating from Fitch has achieved high industry-recognition and we are delighted to have had the quality of our organization and capability so positively endorsed.
What differentiates your investment approach and process?
Atlas?s commitment to analysing and understanding investment styles, and building portfolios that take advantage of it, gives an added dimension to our approach and differentiates us from our peers. Identifying good hedge fund managers is dependent on the skill and strength in depth of one?s investment team and, in both respects, Atlas is more than competitive with its peers. Our investment team of some 30 professionals is larger than that fielded by most firms and gives us a broader and deeper coverage of the universe of alternative investment styles and managers.
What is your outlook for hedge fund strategies and where do you foresee the best returns?
The significant imbalances in the economic environment present both risks and opportunities but the outlook for now is benign ? if mixed for both hedge fund strategies and their component styles. More fundamentally driven equity markets favour hedged equities in general but the risk of significant swings in sentiment lead us to focus on managers adopting a flexible and opportunistic approach. In terms of regions, we expect Japan and emerging markets to outperform. In each, we have specialist funds-of-funds which did well in 2003. The outlook for arbitrage strategies is mixed; we expect event-driven to outperform, a strategy in which, again, we have a specialized vehicle. Trading strategies offer an attractive hedge against a sudden move in US interest rates, which remains a significant risk.
How do you foresee the industry evolving? What are the principal challenges it faces?
Institutionalisation and consolidation are manifest trends; the alternative investment business is becoming mainstream. 20% of all hedge fund investments are accounted for by hedge funds-of-funds and 50% of new money is going that route. I foresee, therefore, the emergence of firms classified primarily as either asset gatherers or asset managers. But innovation and ?creative destruction?, too, will continue to characterize that area of investment management led by individual talent, entrepreneuralism and skill.
In addition, I see an evolution in investment management away from the traditional classification of managers by asset class ? equities and bonds ? towards, first, a more predictable classification in terms of implementation - passive, relative return and absolute return ? and, secondly, a more fruitful classification, in terms of its utility to active asset allocation, of managers in terms of their style, geographic focus and asset class. Of these dimensions, style is the most under-exploited, the potential of which we seek to unlock through our specialized approach to research.
The primary drivers of expansion of the alternative investment sector will be the return environment and the growing appetite for more specialist products in alternative investment space. While I expect an expanding universe of managers to allow for the fuller exploitation of inefficiencies, the principal challenge for the fund-of-funds manager will continue to be the identification and maintenance of capacity with managers and the provision of the transparency and liquidity demanded by increasingly knowledgeable investors.
Link to Atlas Group website here
Close-Up: Patrick Stevenson, Chief Executive of the Atlas Capital Group
