The Interview: Alan Taylor, Vantage Investment Group: "Our ability to anticipate market direction is very accurate"
Alan R. Taylor, co-manager with his brother Russell of the Vantage Index Trader fund, says they are currently looking for opportunities in the decline of the crude oil price and any signs of stabilisation in the housing market, and expect the FTSE 100 and Dow Jones Industrial Average to hit new lows by April before rebounding for the end of the year.
HW: What is the background to your company and funds?
AT: As a group we have been involved in the management of investor money for 11 years. Vantage Investment Group, manager for the Vantage Index Trader fund, was incorporated at the beginning of 2008 after previously trading as a limited partnership.
Our strategy runs largely around active equity hedging, both in UK and the US, assessing movement of macroeconomic data and putting the impact of indices and securities from the industry under the microscope.
As a group we currently manage approximately USD52m, of which USD5.7m is managed within Vantage Index Trader. Our most recent fund, it is managed by Russell Taylor and myself (pictured). We are brothers who have built our fund management businesses up in Norfolk and London over the past 11 years.
HW: Who are your service providers?
AT: The fund accountant and auditor is Lovewell Blake, one of the largest accountancy firms in Norfolk with offices in London, with a history dating back more than 150 years. Our law firm is Cummings Solicitors in London, which specialises in fund management firms. Our fund administrator is Vantage Asset Management GP, the general partner dealing with the running of the fund, and our broker is IG Markets, which with a market capitalisation of GBP1.2bn provides a strong trading platform for the fund.
HW: Have there been any recent events such as launches or changes to the management team?
AT: Not recently, but within the next 24 months we will look to organise full-time investor management services in our London office to cope with expected increased demand for our services.
HW: How and where do you distribute the funds? What is the profile of your current and targeted client base?
AT: Our existing investors are high net worth individuals with some private investment experience; we also manage funds for corporations. We continue to focus on high net worth investors with some investment knowledge, but are also paying attention to the trustees of large corporate pension funds.
However, the fund will not accept more than GBP1m from any one investor to ensure we maintain a diversified investor base that is not dependant upon one individual or company. We shall also cap the fund's net asset value at USD70m, which is relatively small for the hedge fund industry, to ensure we focus on the management of the assets we have rather than constantly looking to expand and dilute ourselves to an unmanageable level.
HW: What investment strategies do your funds cover?
AT: They cover macroeconomic hedge, equity long/short, arbitrage, commodities and foreign exchange strategies.
HW: What is your approach to managing risk?
AT: We limit exposure to conflicted or uncertain areas, maintain strong cash/capital ratios, and apply fixed stop losses while covering positions to limit gain but also loss.
HW: Has your performance been as per budget and expectations? Do you expect your performance or style to change going forward?
AT: Our first priority is the protection and preservation of our investors' original capital. We aim to achieve consistent investment performance with a minimum net objective annual growth rate set at 10 per cent. However, due to the events of the past 18 months our strategy of remaining largely short has resulted in growth in excess of the 10 per cent objective.
HW: What opportunities are you looking at right now?
AT: We are currently looking at crude oil, and have been interested to note how Opec's significant cuts in production have not helped to achieve price stability - we are setting a buying level for oil when it falls to USD25 per barrel. We are also looking at housing pricing data, and paying attention to indications of stabilisation in the housing market in order to take up positions in construction orientated companies.
We remain bearish on banks and retailers. We expect further nationalisations by the end of 2009, and see retailers suffering further from falling consumer spending throughout the year. We are shorting retailers, but staying away from banks due to the uncertainties in that area.
We have been shorting the FTSE 100 and Dow Jones Industrial Average, with expectations of them finding new lows by April of 3400 and 7100, at which point we will close shorts and go long, expecting these indexes to finish the year at 4800 and 9300 respectively. We do not intent to get involved in forex this year; we believe there are plentiful opportunities in the above areas.
HW: How do you intend to take advantage of these opportunities?
AT: Through our usual trading strategies to implement adequate but not over-exposed positions, whilst incorporating stop-losses on securities and covering indexes and commodities with hedged positions.
HW: What differentiates you from other managers in your sector?
AT: Our strategies are not unique, but our ability to anticipate market direction is very accurate. Where we are unique is in our charging structure. We do not apply any fixed initial or annual charges to our investors. We have structured ourselves as a profit-orientated fund management firm and we should be remunerated accordingly.
We therefore only charge for the management of assets upon the profit we achieve above our investors' original investment, when we charge 30 per cent of the growth achieved. We are also one of the few fund firms where the fund managers are also directors and partners of the fund management company and fund. We believe this provides greater responsibility and more sensible decision-making on behalf of our investors. Finally, again unlike other fund management firms, our fund mangers are also the largest cash investors in the fund.
HW: Do you foresee problems in raising mandates from investors through 2009? If so, what are the factors that will drive investors back to your funds?
AT: With such an unprecedented level of mistrust in the banking and fund management sectors as a result of the banks' problems, high-profile trading messes such as that at Société Générale and the Madoff fraud, we see the period up to the end of 2010 as a difficult one in which to gain the trust of new investors to allocate capital to hedge funds. We expect slim new capital inflows over this period.
Therefore our focus will as always be on our existing investors and to concentrate on achieving returns and building up and publishing Vantage's performance figures to build awareness of our fund management services.
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