Wealth & Finance International
A Unique Investment Approach Runestone Capital was founded to freely express their investment views, without the restrictions of a large institution. The firm specialises in quantitative and qualitative strategies based on volatility. An interview with the Rune Madsen reveals more about the firm’s proprietary models and unique investment strategy.
he firm’s back-tested and proprietary active management models are designed for institutional and private investors seeking alpha-driven returns. Due to the strong conviction of Rune Madsen and Rasmus Andersen in proprietary models, they funded the firm with their entire net worth. They manage the Runestone Capital Fund, the soon to be launched Runestone Capital U.S. Fund and Runestone Capital Limited. The strategy is absolute return that aims to generate in excess of 20% net annualised returns over a cycle, regardless of market conditions.
sible for the success of the firm due to their sheer hard work. Peter Clarke the former CEO of Man group is a senior advisor and investor. His excellent insight and experience has been extremely helpful to the firm and the CIO’s are very grateful for his valued contributions. Client feedback The feedback from Runestone Capital’s customers is that the fund is highly unique and that they would like to learn more. There are many misconceptions on how volatility funds work, as it is a newer asset class than others Rune adds. He then adds that further research on volatility as an asset class has emerged and the paper by Eurekahedge is a good source of information about the group as a whole Link.
“The strategy buys or sells US equity index volatility on a one-day forward basis based on statistical probabilities. It has been back tested from January 1st 2006 and been in fund format since May 2015, it has shown uncorrelated returns to the S&P 500, US Treasuries and the VIX (volatility) itself. The fund does not have a pre-set bias of either long or short volatility, which allows it to perform in a wide array of market conditions.
“As time passes investors have started to open their eyes to our fund and related funds as some of us deliver non-correlated returns with a positive performance skew. Our fund has grown from being an interesting idea to a tangible product as it has delivered great results in different market environments.”
“When the fund was launched, we argued the strategy would generate strong results, not dependent on certain market conditions. Given the highly unique strategy investors were intrigued, but due to a smaller size fund and unfamiliarity with the strategy investors took a wait and see approach. Now that the strategy has proven to match our return targets and back tested results, investor perception has improved and asset growth increased.
Opportunities in 2017 and beyond The last word goes to Rune Madsen, who underlines that the opportunities are vast both currently and in the future, as the firm invests in volatility and there are always movements in this area, even during periods of low volatility. “We will not always make positive returns but the opportunity set is always there to a larger or smaller degree. This means we will continue to research both new and legacy models to stay on top of the game. Our models have been the same since 2006, but we have added some new models in more recent times.” He says.
“With the funds strong results in a less than benign environment, the fund won 8 investor awards and was ranked top 5 in 3 global hedge fund categories by Preqin see page 9&12 Link.
A recent example of how the strategy can perform in different market conditions is to look at the first two months of 2016 and 2017. In 2016 the S&P 500 fell 5.1% compared to with a 5.9% gain in 2017. The fund delivered positive 1.9% and 1.4% respectively despite very different equity market conditions. 2 months is a short time period and one should not draw strong conclusions on that basis, but it goes to at least demonstrate the robustness of the strategy being able to produce positive results in very different market conditions.
“Despite the investment success the results are not an outlier in historical perspective, we see past and current success to continue. Due to the non-biased nature of the fund, meaning it can generate positive returns in both higher as well lower volatility, the fund has recorded 80% positive months since inception.” The fund is run by Rune Madsen and Rasmus Andersen. They are both CIO’s and in addition Rune runs the business aspect. The day to day operations are research, implementation of the strategy and business development. Together, they have built the entire firm from scratch including their models and systems, so the founders are solely respon-
“We are launching a US line of the fund, which should be live in the next few months. A seasoned former J.P. Morgan banker in New York will join us to spearhead the launch. We have also teamed up with