Swedish Veteran Manager Goes Passive After Closing Hedge Fund

(Bloomberg) -- The era of men in their 50s managing money based on their whims is coming to an end.

That’s the opinion of Swedish hedge fund manager Torbjorn Olofsson, who says the future will see passive and rule-based strategies replacing underperforming actively managed funds across Sweden and Europe.

After closing down his Ambrosia hedge fund in July, Olofsson, 53, is returning with a vehicle that will invest across global asset classes. It launched this week and has evolved out of how he would like to look after his own money. It will have one passive leg based on exchange-traded funds and another based on algorithms.

“I had a long-term investment horizon, I didn’t want to pay high fees for active management which often underperforms index funds,” he said in an interview in Stockholm. “And I didn’t want to spend too much time on it as I already spent so much time in the markets in my job.”

The fund, named Kvartil Allokering Balans, will have a similar risk profile as a traditional life insurance portfolio with 60 percent stocks and 40 percent bonds. It aims to deliver returns that are in the top fourth of its peers and charge fees that are in the bottom fourth (its management fee is 20 to 30 basis points, depending on the size of the investment).

Back-Testing

Back-testing using historical data showed that the strategy has performed better than Swedish life insurers, state-owned AP pension funds and most Swedish 60/40 funds. It slid 4.0 percent after fees in October, while an index consisting of 60 percent MSCI ASCWI and 40 percent OMRX Treasury Bond Index slumped 4.5 percent.

Kvartil’s low fees to some extent explain why its passive strategy has beaten most mixed funds, but the rule-based strategy has added returns on top of that, Olofsson said.

“It looks very good overall,” he said.

Olofsson was earlier a partner at Brummer & Partners, working as a portfolio manager for the hedge fund Nektar and as chief investment officer of Nektar Special Opportunity.

Real Assets

The closing of Ambrosia in July came after a wrong bet, he acknowledges.

“We had underestimated how long and to what extent central banks were willing to prop up markets with their easy policy,” he said. “In those conditions, our strategy wasn’t able to generate good enough returns.”

Kvartil’s team will primarily invest in exchange-traded funds that are backed by investments in real asset rather than in derivatives in a bid to minimize risk.

"Exchange-traded funds haven’t been tested in the most difficult market conditions yet and you don’t know what’s going to happen if they were to face large withdrawals," Olofsson said.

Kvartil is targeting high net-worth individuals, municipalities and also small- to medium-sized trust funds. And while Kvartil Allokering Balans is a global allocation fund, the team is considering using the same methodology for narrower strategies at a later stage.

“That’s where we think we can create a niche for ourselves,” he said.

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