The Billion Dollar Interview:
Adam Levinson, Chief Investment Officer of Fortress Asia Macro Fund,
Co-Chief Investment Officer of Fortress Macro Fund
Fortress Investment Group manages US$47 billion in variety of strategies, primarily focused on alternatives. Two hedge fund strategies – Fortress Asia Macro Fund and Fortress Convex Asia Funds are run out of Singapore.
Eurekahedge: Why do you run an Asia Macro fund? How does this differ from the flagship Fortress Macro Fund?
The Asia-pacific region is expected to continue to be the greatest source of global economic growth and represents a meaningful source of cyclical themes. We believe the relevance of Asian economic inputs and outputs for the globe will only grow over time. Focusing on Asia should increasingly be a more important part of any investor’s investment process.
EH: How has performance been for Fortress Macro Fund and the Fortress Asia Macro Fund year-to-date through May 31st 2012?
The Fortress Macro fund is up 4.23%, while the Fortress Asia Macro Fund is up 5.93% net of fees (EH: The Eurekahedge Macro Hedge Fund Index was up 0.39% over the same period.)
EH: Please tell us a little more about the fund’s strategies and objectives.
We seek to generate superior total returns by taking advantage of fundamental trends thematically linked to the Asia-Pacific region. We aim to do so by combining regional presence here in Singapore and our global network for a 24/7 global macro trading approach. We combine fundamental macro and micro research to increase conviction on cyclical themes and to identify trading opportunities.
EH: Can you provide an example of a unique theme driven trade that worked well for you?
We have traded the Japanese yen well on additional asset purchase announcements. We continue to believe linkage between the Bank of Japan’s willingness to further ease and how politicians deal with fiscal deterioration remain key themes into 2012H2. Also based on our thesis of ‘Japanification’ of European financial institutions we have successfully traded front end European rates. In Singapore, the Monetary Authority of Singapore (MAS), during its semi-annual meeting, changed the slope of the basket which we correctly predicted on different inflationary dynamics versus its underlying.
EH: Are researchers native to the Fortress Asia Macro Fund or part of a global pool within Fortress? If the latter does that result in overlapping portfolios in the fund?
It’s a mix of both. We use global resources available to us from the Macro fund but also have dedicated resources in Asia, such as our Asia economist and our analysts in equity modules.
EH: Tell us a little about how your researchers generate these ideas.
We utilise both top down as well as bottom up research. One unique practice we have here would be a process where we meet every five weeks and ask everyone in the investment team to produce a limited list of highest conviction trades that they recommend from their modules. This is then tracked and performance of the recommendation - with no amendments allowed - is part of the appraisal process.
EH: That sounds great - so you create competition, motivation and an escalation of new ideas. How long have you known the Fortress Asian Macro team?
I’ve known Thomas Barket since 1993, Don Hanna since 1994 and Gerard Gwee since 1996.
EH: What percentage of the decisions are taken on by Thomas, Gerard and the rest of the investment team? Allocations are revised on a monthly basis. Allocation and ‘tilt’ of the portfolio at a fund level is solely decided by myself. So far, I have managed the majority of the AUM.
EH: What is the biggest risk to the fund and do you have a global risk management team that manages the total risk exposure of all assets within Fortress’s Liquid Markets group?
Our risk is managed across all assets by our dedicated firm wide risk management team. We do make every effort to communicate to our investors of our biggest risks to the portfolio on a regular basis.
EH: How do you juggle short term liquidity demands from investors versus your long term trading ideas that take a while to ‘bed down’ and generate portfolio returns? Is there any way to screen them to avoid knee jerk withdrawals and hedge fund traders?
In a hedge fund construct it is important to have flexibility to trade the path to resolution. The need for constant vigilance and focus on new investment paradigm is important. We constantly discuss tactical opportunities (paragraphs) versus structural opportunities (chapters) and pay much attention to the balance of the two versus the current market environment and maintain highly liquid nature of the portfolio.
EH: Let’s move on and take a look at the global economy. Europe and the US are massively in debt and concern of sustainability has been increasing. Post the 2008 financial crisis Europe decided to cut government spending and to take the path of austerity which is causing significant pain. Whereas the US has decided to increase government spending and print money giving the illusion that things are much rosier stateside. Who has got it right and who has got it wrong?
The US is in a better shape today as result of properly and adequately capitalising the banking sector. Europe on the other hand, continues to operate incrementally with liquidity schemes and band-aids to kick the can further down – it also risks the aforementioned ‘Japanification’.
EH: Recent Chinese macro data has intensified debate about whether recent weak performance reflects a structural change in Chinese growth - the feared middle income trap/hard landing - or if it’s the result of explicit policies to slow property and infrastructure investment that can be reversed. How do you view this debate and what implications does it have of Chinese growth related assets?
That's a tangled question, with elements of truth in both arguments. Right now, though, my view is that China's weaker growth is a combination of internal policies that slowed infrastructure and property spending combined with an external slowdown that's been larger than officials expected.
There's also a secular trend toward lower GDP growth as China's labour force growth slows and its ability to grow international market share in exports wanes. But that's a long term trend, not one that can't be offset this year by easier macro policies.
What's unlikely is a hard landing in the near term. That would require Chinese policy makers to hold policies tight. Our reading, though, is that they are already loosening.
Loosening should help Chinese growth related assets, especially ones linked to domestic demand like consumer companies and property names. It should also cushion commodity producers and their currencies as easier fiscal policy revives their demand outlook.
EH: Let’s finish up by taking a look at asset-raising. You launched the Asian fund and grew that to US$250 million through performance and inflows. Where and when do you anticipate your first soft close?
We anticipate on soft closing by the end of the year. Although it might be possible to grow this to a larger size in the future, we would pause to ensure performance is not hampered in any way by growing assets too aggressively. Our main motivation is to achieve the best risk adjusted returns for our investors.
EH: Lastly, do you have any marketing trips coming up?
I will be in New York in June and July and will be happy to spend time with investors in the region.