PRINT THIS PAGE Institutional Investor Profile: John Angell, Regional Head, London, RMF Investment Management17/06/2008. Source: AltAssets.
John Angell on strategic hedge fund selection, on due diligence, on seeking new alternatives, on distressed credit opportunities and on the growing profile of the hedge fund industry.
 RMF, established in 1992, is part of alternative investment management company Man Group. RMF focuses principally on managing funds of hedge funds.
John Angell is the head of RMF in London and is a member of the RMF management committee. Previously, he was at Schroder Investment Management for 14 years, most recently as head of UK equity products and senior UK equity fund manager. Angell also established Schroders' South African fund management business and was its managing director for two years from 1998. He is a member of the UK Society of Investment Professionals (UKSIP).
Can you give me some background on RMF?
'RMF was established in 1992 and has been managing funds of hedge funds, primarily for institutional clients since that date. RMF was acquired by the Man Group in 2002.'
How much capital do you have under management?
'We run $28bn across a whole range of different hedge fund styles and strategies.'
How much of that is on the fund of hedge funds side?
'A total of $27bn. We also have a successful long only convertible bond business.'
How many products do you manage?
'We have a range of different products many of which are tailored to individual clients, for a combination of different styles and strategies. Our product range is designed to be modular and is consistent with our investment process. We divide the hedge fund world up into five major styles: equity hedged, global macro, relative value, event-driven and managed futures. Each style contains a number of strategies, for example equity hedged is divided into long/short Europe, long/short US and long/short Asia.
As a result we have funds that are highly diversified across all styles and strategies, such as RMF Four Seasons ($2.5bn) and RMF Absolute Return Strategies I ($2bn). We also have funds that are diversified, across styles and strategies but with higher manager concentration, such as Man RMF Diversified ($700m). In order to provide a wide product platform we also have funds dedicated to one particular style, for example RMF Event Driven ($2.5bn) and also to the strategies beneath that, e.g. distressed investing is a strategy within the event driven style and we have a dedicated fund, RMF Distressed Strategies ($1bn) which invests solely in those managers.
As a result we can efficiently put together a range of dedicated portfolios containing the appropriate mix of styles and strategies for a particular requirement.'
How do you decide on where to invest?
'There are two key elements in this. One is the strategy - the decision of what type of hedge fund you are going to invest in - whether equity hedge, global macro or other style. The second question is within those individual strategies, which are the best hedge funds available that we can access to implement those individual strategies.
Within the strategic selection, it is about having a full understanding of what styles of strategies have achieved and what they might be able to achieve. We undertake significant quantitative analysis of individual styles and strategies to assess the appropriate long-term blend of styles. We will then use our considerable qualitative analysis to vary that mix over shorter time scales depending on the outlook for the different styles and strategies.'
How do you ensure you keep abreast of developments in the hedge fund world?
'In 2002 we established a team focused on new alternatives, searching out and identifying the alpha opportunity in markets, both established and developing, where hedge funds involvement is at an early stage.
For example, a year after the creation of the team (in 2003) we launched a fund of hedge funds based on discretionary commodity managers. We launched it with less than $50m, but we had secured capacity with a number of top quality managers. These were managers with a huge amount of experience working in trading or hedging at banks or producers, but not necessarily within a hedge fund. By researching and understanding the opportunity at an early stage and by securing capacity with the best managers we have grown so that we now manage over $2bn in commodity hedge funds.
The team is tasked with fully understanding the space and considering whether there is a real alpha opportunity. We are continually looking at a whole range of possibilities, which could be interesting, but the real question is whether you can actually extract true alpha in a meaningful way.'
Ultimately, what comes first, the manager or the strategy?
'It is a combination of both. If we do not think there are any opportunities in convertible bond arbitrage, then we will not put convertible bond arbitrage managers in the portfolio, no matter how good an individual manager may be.'
How do you conduct your due diligence?
'One of the benefits of having been in the business for 16 years, of managing $28bn, is that our range of network and contacts and understanding of the industry is second to none. That means that our ability to speak to and get access to the best hedge funds is very good.
We have performed due diligence on well over 2,000 hedge funds. In addition to our team of 30 dedicated, qualitative hedge fund analysts, we also have a further 16 analysts, many with PhDs, who are focused solely on quantitative analysis. We have a further 16 analysts on the risk management side. They are responsible for assessing the risks of the portfolios and processes we follow at RMF and also the risk management and operational risk issues of the underlying hedge funds.
For us, the process of selecting managers starts with the qualitative overview - seeking to understand a manager's strategy, the people and the quantitative aspects. If we want to take it further we will do more quantitative work and further in-depth qualitative analysis including questionnaires and further meetings. To take it further we will bring in our operational due diligence team and look closely at the back office - the reason for this is that managers may be great traders but they may not have experience of running a business. An oft quoted survey showed that 50 per cent of all hedge fund failures have been due to operational rather than investment reasons.
The overall output from the process is a detailed understanding and objective analysis from five different areas: qualitative, quantitive, risk management, operational risk management and finally legal. This is expressed as a 1 to 5 ranking.
All this information is then presented to our manager board, which comprises our six most senior investment personnel, who will make the final decision on whether the fund is approved for investment.'
What are areas of interest going forward?
'The credit crunch has impacted many markets in different ways. One thing that has happened has been the re-emergence of volatility in markets. We see volatility as an interesting area as those managers who can exploit the heightened levels of volatility and the variation of the volatility will do well. Also as the credit crunch starts to impact upon the real economy, we expect managers to find significant opportunities in the distressed credit area over the coming years.
On the relative value/arbitrage side, there are opportunities are emerging as dislocations between similar instruments increase. The challenge for the hedge funds looking to exploit these dislocations is to insure that they understand the liquidity of the instruments that they are invested in and that they have the finances in place to ensure that they do not have to unwind their positions if the trade goes against them in the short term. Opportunities are emerging. We are looking forward with quite a lot of confidence.'
What is the biggest issue facing the hedge fund industry right now?
'One of the issues which the hedge fund industry faces is that as it grows in size and popularity, it will move more into the public domain and that increased profile needs to be managed. One of the initiatives that the industry has followed is the setting of standards. The Hedge Fund Working Group - a group of leading hedge fund businesses - has carefully assessed what would be appropriate, and has published a set of standards for hedge funds to sign up to. This should go a long way to give the outside world some comfort and insight as to what hedge funds do and how they are managed.
In terms of RMF and the challenges we face, the challenge will always be to perform for our clients. To perform you have got to have the right resources in place, the right people and the right commitment. There will also be new challenges and new sources of return and I believe we are well set to find these.'
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