This Paris-Based Hedge Fund Has Thrived in Market Rout

(Bloomberg) -- It looks like the revenge of long-short equity strategies has begun.

While global equity markets tumbled in February as a rapid rally in government bond yields fueled panic among investors and sparked a jump in volatility, Silver Time Partners was thriving.

The Paris-based quantitative hedge fund, which in December predicted a revival of long-short equity trading strategies as central banks start to pump out liquidity, has seen its two alternative funds beat the market, with year-to-date gains through Feb. 23 of 2.3 percent and 1.4 percent, respectively, compared with the Stoxx Europe 600 Index’s 2.1 percent drop.

“The significant number of weakening long-term trends in the large and mid-cap space our models have noticed in December continued to deteriorate in the first quarter,” Romain Stephan, founding partner of Silver Time, said in an interview. “There’s been a reality check forcing investors to realize the limits of being passive with plenty of ETFs.”

Overall, long-short equity funds have managed to perform well during the latest correction, according to Philippe Ferreira, senior cross-asset strategist at Lyxor Asset Management.

“With the return of volatility, the environment is getting quite favorable for these funds, and it’s being reflected in brisk inflows we have seen going into this strategy recently,” Ferreira said.

After years of complacency, investors are showing little patience with companies that publish disappointing updates, punishing shares of groups including Capita Plc, AA Plc, Technicolor SA, Suez, NetEnt AB, and Hennes & Mauritz AB. Silver Time has had short positions on these for some time, Stephan said, while being long on stocks including Eramet, Ferrari NV, AMS AG and Aixtron SE, all up more than 20 percent since the start of the year.

The pain for investors has also been coming from a top-down angle, Stephan said, pointing out that the latest surge in volatility is a game changer for portfolio managers.

“In the end, not only are passive investors suffering in the downturn, but traditional fundamental investors are also starting to experience drawdowns in some of the stocks they believed were very strong,” he said. “Quantitative discipline could make a real difference in 2018.”

To contact the reporter on this story: Blaise Robinson in Paris at brobinson58@bloomberg.net.

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, John Viljoen, Paul Jarvis

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