LEANDRO GASTALDI
Portfolio Manager, Blue Quadrant Capital Management
How would you describe your investment philosophy as it pertains to managing hedge funds?
Our core investment philosophy can be described as “Macrovalue”, which combines traditional valuation with macroeconomic or industry thematic analysis. This approach allows us to identify companies that are not only undervalued, but also stand to benefit from an expected favourable shift in macroeconomic or industry fundamentals. These long trades are supplemented with CTA-like positions as well as an equity short book and select event-driven opportunities that combine to generate a return profile uncorrelated with traditional equity benchmarks or long-only equity funds.
What process do you follow to decide what instruments you will invest in?
Suitable investment opportunities are identified by screening for companies that trade below our estimate of intrinsic value, which is based on our assessment of fair median value over a complete economic or industry cycle.
Macroeconomic and industry trends are evaluated to estimate the likely timeframe within which these companies may re-rate to fair value. Qualitative factors, including the quality of the company’s management team, are also considered when determining a suitable discount rate for the given level of risk.
Our macroeconomic and industry research sometimes leads to the development of a thematic thesis. We then look for undervalued equities to express this theme. Value traps are avoided by ensuring that the alignment in the macroeconomic, industry and company fundamentals favour a re-rating for selected equities, sooner rather than later.
What do you see as your competitive advantage?
Our relatively small size allows us to take meaningful positions in small caps without facing significant liquidity constraints. We also believe our investment philosophy and style is fairly unique, allowing us to generate uncorrelated returns and thus offering investors useful portfolio diversification.
How do you manage risk in your hedge fund(s)?
We consider risk as the permanent loss of capital. Reasonable short-term volatility is part of normal market movements and part of what is required to achieve long-term real returns. In this regard, we typically target a VaR of between 1x and 2x the VaR of the underlying benchmark. Our value discipline provides a margin of safety in terms of preventing or minimising a permanent loss of capital.
What are some of the biggest risks you see in the current market environment?
The unpredictable political landscape is making it difficult for companies to make long-term business decisions, which may adversely affect growth.
What has been your biggest mistake in managing your hedge fund(s) and what was the impact?
Selling or reducing exposure to successful investments too early.
How do you see the future of the hedge fund industry?
We are positive. Given the rise of passive investment strategies, there is significant value in having access to uncorrelated “satellite” strategies to complement an overall portfolio and provide risk-reducing diversification.
What are your strategies for hedging against market downturns?
We do not specifically hedge or try to anticipate market downturns, given that the fund is not a market neutral fund. However, our investment approach ensures that over time our return profile is likely to be uncorrelated with benchmark equity indices and most long-only equity funds.
How do you measure your investment performance?
We target an absolute return over a period of time, usually two to three years. The absolute return is based on inflation plus a targeted real return.
| About Leandro Gastaldi Leandro is the portfolio manager of the Blue Quadrant Capital Growth Prescient RI Hedge Fund, Blue Quadrant Worldwide Flexible Prescient Fund and Blue Quadrant USD Capital Growth Fund. He has extensive industry experience, having worked as a research analyst and portfolio manager. He joined Anglorand Securities in 2006 and managed the Anglorand Growth Fund between 2007 and 2009, before founding Blue Quadrant Capital Management in 2010. Leandro holds a BCom (Honours) from the University of Cape Town and is a CFA charterholder. |
Blue Quadrant Capital Management (Pty) Ltd (Reg Number: 2009/018608/07) is an authorised financial services provider with a Cat IIA Licence. FSP Number: 42165.
