This $5.5 Billion Hedge Fund Doesn’t Care About Political Risk

  • IPM’s Systematic Macro fund has real, ruble among top bets
  • IPM fund net long in global stocks, short in global bonds

Swedish hedge fund Informed Portfolio Management is disregarding risks from a potential Brexit and political turmoil from Brazil to South Africa.

The manager of a total $5.5 billion says its $2.1 billion Systematic Macro fund’s approach of looking at fundamentals and placing narrow bets on how assets perform against each other means it has the Russian ruble and the Brazilian real as some of its top picks, according to an interview in Stockholm last week with Chief Executive Officer Stefan Nydahl and Serge Houles, the fund’s head of investment strategy.

“Political turmoil can sometimes create opportunities as that can push the currency away from its fundamental value, and we can hold on to the position until it returns to it,” Nydahl said.

According to Houles, its bet on the Brazilian real was a loser for a “long time” during the turmoil that culminated in the past week’s decision to impeach President Dilma Rousseff but that has now turned around. In part what the fund looks for in currency bets is purchasing power parity and the relative carry, which also makes the Ruble attractive.

“We are completely detached from sharp short-term price movements,” Houles said. “It’s all about fundamental factors and as long as they remain in favor of our position, we will keep it.”

The approach is paying off so far this year, with a return of 14.6 percent on its Systemic Macro portfolio, versus 4.4 percent last year.

IPM’s simulations also show that a Brexit, or the U.K. leaving the European Union, would only have minor impact on its portfolio, given its current risk profile and it’s therefore not making any changes to guard against the fallout.

“Given that, and as long as we don’t have any hard facts on the table, there’s no point for us to try to forecast the outcome of the event,” Nydahl said.

The fund is also ignoring the potential risk of intervention in the yen and could also turn heads with its bets on traditional so-called haven currencies such as the yen and Swiss franc even as it also anticipates rising equity prices. On top of that, it’s paying no heed to those saying the Swedish currency will appreciate more as the largest Nordic economy outperforms most developed countries and as inflation has started to pick up.

For IPM, those facts also matter little since its investments are done on a relative basis and pits assets against each other.

“Instead of having a view on where rates or a certain currency is going, we bet on how the yen will perform against the pound or the Swedish krona,” said Nydahl, who joined IPM in 2015 after previously working at Brummer Group and Sweden’s central bank. “So we don’t have to be right on the Japanese economy in absolute terms.”

That seems to have paid off. Among major currencies, the yen is the biggest gainer against the krona over the past year, surging almost 10 percent. Only two other currencies, the Danish krone and the dollar, managed to eke out gains against the Swedish currency over the same period.

The bet against the Swedish currency is based on an analysis of a worsening trade balance. “The Swedish krona was too expensive for too long, which has worsened Sweden’s terms of trade,” said Houles.

The fund in April also abandoned a position from January and went long in stocks and short in bonds amid a view that inflation is set to pick up.

“For bonds some of the positive inflation boost comes from the upturn in metal prices,” Houles said. “And risk appetite also turned less negative for stocks and less positive for bonds. So now we are around 30 percent net long stocks and around 35 percent net short bonds.”

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