Runestone Capital IF17006
Most Innovative Hedge Fund: Runestone Capital Fund
Runestone Capital Runestone Capital is a London based investment management firm offering a range of dynamic investment products. We invited Co-Founder Rune Madsen to tell us more about the firm and its award winning fund.
Company: Runestone Capital Address: 239 Kensington High Street, London, W8 6SN, UK Phone: +44 20 7316 3084 Email: email@example.com Website: runestonecap.com
Established in 2014 to freely express its Founder’s individual investment strategies without the restrictions of an investment bank, Runestone Capital is committed to innovation in the hedge fund industry. Rune, who co-founded the firm, outlines how it came to develop its innovative strategy and how this has shaped its success so far. “During our previous careers the Founders of Runestone Capital always thrived on creating individual strategies and models that generated differentiated and unique results to our clients. Based on conviction in our back-tested, proprietary models going back nine years, we solely funded the firm with our own capital. We saw our proprietary strategy as the greatest opportunity we have ever seen in our investment careers, hence the creation of Runestone Capital. The strategy starting point was to test hypothesizes, which we had observed over our careers and as we did this more variables and hypothesizes came to light and was tested. “The Runestone Capital Fund’s strategy goal is to generated above 20 net annualized return over cycle through the investment in US equity volatility products in the US based on statistical probabilities. The investment horizon is a one-day forward. The fund is not a tail event or a short volatility fund as it is non biased on being long or short volatility. It is designed to work over a wide array of market conditions. “Despite the very different market environments we have seen since the fund launch in May 2015 it has due to its unbiased nature traded up in 75% of the months and reached high water mark in 45%, with the lowest rolling 12-month return being +10.1%. The fund trades VIX related products in a systematic way. This has made the fund able to eliminate human biases and evaluate huge amount of data in real time. We have not found any link to equity market level, direction or valuation to be parameters that affects the results. This makes the fund a true alternative asset. As an example, the same market in one period versus another will produce different fund returns as the variables in the models will have changed despite the equity market being the same.” It is this strategy, and the vast expertise of its Portfolio Managers on which it is based, as Rune explains. “Personally, I believe that our fund is innovative as it is not based on traditional rules and concepts. The
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strategy is based on objective market research in an asset class that is not crowded, which has proven to produce great risk adjusted returns. The fund does not make predictions where global financial markets might move over the medium term nor does it make predictions of what fair valuations are. We have a strategy that has proven to produce substantial results in a wide array of market conditions. Our empirical research has shown that the fund works well as a risk diversifier in a balanced portfolio due to its non-correlated characteristics. “In addition, the transparency of the overall strategy is straightforward as it will either be long or short exposure in volatility based on our models. It is however, impossible to know in advance on which day the strategy will be long or short as low volatility does not automatically mean long volatility and vice versa. Positions are adjusted daily based on statistical probabilities. Our conviction is so high that we invested all our liquid net worth into the strategy and left lucrative jobs to start the fund, highlighting our commitment to our investors and the products we provide them with.” Moving forward, Rune believes that the fund will succeed thanks to its creative strategy and the unique expertise he and his fellow Founder have to offer. “Looking to the future, we believe the performance goal will be reached as the strategy is well designed to work over a cycle and it has shown similar results in the live period versus the back test and we are confident this will continue. Positive results have occurred both in equity markets that traded down, up and in choppy markets without a clear trend. The performance range during negative equity markets are wider than flat to up markets, but so is the average return during these market conditions. Whilst we cannot guarantee that performance will return to the same level as the historical average, however, we believe our strategy going forward will perform according to our performance goals as structurally nothing has materially changed and the models are adaptive of change. “Overall, the market conditions in the future may be very different from today, last week or 3 years ago. This is why we emphasize the overall investment process rather than focusing on short term results. This process has delivered strong results in both the back tests as well as the live period and we feel confident that will continue going forward.”