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 While a 60 percent-plus fall in Brent crude has poleaxed markets and
revived the specter of global recession, Stockholm-based Lynx Asset
Management is one of a group of computer-driven fund firms which
have been quietly cashing in.
The $6 billion asset manager is one of the world's many "trend
following" hedge funds which use sophisticated algorithms to
identify money-spinning investment opportunities in assets such as
oil, stocks and currencies.
Claiming no great prescience about an asset's future value, the
managers let their programs assess price, volume and other
historical data to figure out when to buy and sell. The longer a
trend continues, the more money they can make.
Bets on energy - crude oil, natural gas and refined products -
helped add between 2 percent and 3 percent to Lynx's total
performance in 2014 and 2015. It invests across 70 markets.
"It was a good trend to profit from last year, of course, and we
made good money from the falling oil price," said co-founder Svante
Bergstrom.
Others to benefit include $300 million Swiss-based Progressive
Capital Partners, whose Tulip fund got a 26 percent boost in 2015
from its energy bets, and which is up more than 10 percent in 2016,
performance data seen by Reuters showed.
The "trend followers" occupy a specialized niche in the systematic
trading sector, where the biggest players include David Harding's
London-based Winton Capital Management, which manages more than $30
billion, $141 billion U.S. peer AQR Capital and the AHL unit of
listed hedge fund Man Group.
While Lynx pared back its bet on further oil market falls slightly
in January after a market bounce - Brent crude futures recovered
almost all of a 26 percent fall to a January low, prompting some
short-term models to flip and bet on prices rising - Bergstrom said
the broader downtrend remained intact.
That reversal had crimped monthly returns for the sector as a whole.
Chicago-based Hedge Fund Research's Systematic Diversified CTA index
was up 5.3 percent at Jan. 20, only to slip back to plus 2.22
percent by Jan. 28.
"It went one way for a while, and then another way, but the net
result was a plus," said Grant Smith, director of research at
U.S.-based Millburn, whose Millburn Commodity Program manages $100
million, around 40 percent of which is in energy markets.
As groups the world over decry or cheer the lower energy prices,
depending on whether they need to buy or sell it - although all hope
the collapse doesn't presage a fresh financial crisis - Lynx's 64
staff have profited in an atmosphere more akin to a university
campus than a stuffy Wall Street investment house.
And that's just the way the self-confessed number-cruncher Bergstrom
likes it.
"We try to keep it a very academic environment where people discuss
ideas and they work on long-term research programs and so on ...
it's a friendly environment that we think it's important to offer."
HIRING
It seems to be working.
Five hundred people applied for a recent job advert to join Lynx's
team spread across four floors of a modern office in the central
district of Norrmalmstorg - the priciest stop on the local version
of property board game Monopoly.
All of which is a far cry from the less salubrious residence
Bergstrom and founding partners shared after spinning out from the
proprietary trading desk of regional lender Nordbanken in 1999 with
just $500,000 in assets.
"We had a very small office in the attic of one of the buildings
here in the center. A small office, but sufficient for the three of
us," said Bergstrom, who began his professional life as a
stockbroker. "It was easier starting a hedge fund 15 years ago, of
course."
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Since then, and particularly since joining forces with hedge fund
multi-manager platform Brummer & Partners, the firm has grown to be
one of the biggest systematic trading fund firms in Europe,
investing 24 hours a day on behalf of a range of investors including
pension funds.
A key advantage of using a trend-following strategy was the ditching
of human biases in favor of cold data, said Bergstrom, who balances
his love of numbers with interests in theater and charitable work.
"As a trend follower you don't forecast when a trend will reverse.
My experience from having worked in the financial markets for many
years is that the trend tends to continue much longer than you
expected."
That ability to avoid selling too early has helped Lynx to be 3.14
percent ahead in the year to Jan. 26, performance data seen by
Reuters showed.
STAR-LESS
And unlike star "discretionary" managers such as Astenbeck Capital's
Andy Hall or Andurand Capital's Pierre Andurand, who use daily human
analysis of factors such as geopolitics and oil inventories to get
an edge, Lynx is rather more hands-off.
The firm's investment committee, which consists of Bergstrom, his
fellow partners - all of whom studied Engineering Physics - and key
team heads talk regularly but meet just twice a year to implement
changes to their models.
"The models will change the portfolios by themselves. Depending on
how the markets behave, we will buy and sell in the markets and
shift positions in the fund."
"If there is a strong trend coming from one sector or one specific
market, our models will pick up on that and allocate risk to that
trend. We don't have to discuss that."
With no real stars and a collegial atmosphere, the firm has little
trouble attracting staff - something Bergstrom also puts down to the
fund's base far away from the regional hub of London, where most
fund managers choose to live.
A total of 39 firms running 75 funds are active in Sweden, with
combined assets of $38 billion, industry data tracker Preqin said,
in a global industry of nearly $3 trillion.
"Being in Stockholm rather than London or New York makes it easier
to keep people. The financial industry in Stockholm is much smaller
and, if you're a skilled quant guy, Lynx is probably one of those
places you'd want to be.
"The good thing with that is we can have a very open environment,
where we discuss different aspects of our program together with the
research team. We can be quite open about the models and how the
investment process works and we know we will not lose that
information to one of our peers in the industry."
(Additional reporting by Maiya Keidan in London and Luc Cohen in New
York; editing by Sinead Cruise and Andrew Roche)
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