"King of the Shorts" is the name given to them, because of their strategy.
They didn't "just buy in".
From what I understand they've been holding SYR for a while - since at least early 2014 enjoying the upside that the MOU anns provided and the Glencore rumour spike - but below the 5% level that requires disclosure.
This gives an insight on how they operate - although their strategy may have changed somewhat in recent times (this is dated 03/2013).....
Regal Funds Management portfolio manager Andrew West and Ascalon Capital Managers wholesale/retail business manager Dale Robertson spoke to InvestorWeekly's Chris Kennedy about Regal's long-short and market neutral approach to investing.
What is Ascalon's approach to choosing fund managers?
Dale Robertson: We're about partnering with market leading boutique fund managers. We do that via a minority equity stake. We also invest in the underlying strategies of the business. Ascalon's strategy is to partner with managers that are in the high-alpha alternative strategy space which really marries with our philosophy that boutique fund managers are in a better position than a large manager to produce high-alpha strategies.
With Regal's partnership since 2010, our dealings have been about increasing the footprint in the Australian investor space and, in particular with their long-short Australian equity strategy, building a retail footprint.
What is Regal's strategy?
Andrew West: We've always been a specialist long-short equity manager, which differentiates us from the rest of the Australian market a bit which is typically born out of the long-only side of things.
We're a fundamental bottom-up stock picking house using long-short methodologies to create alpha on both sides. So we offer a very different return profile to a typical Australian long-only manager. We've noticed a lot of traction building up now in the long-short equities space from Australian investors, and it's a reflection that they've been forced to recognise something northern hemisphere investors saw probably a decade before.
That is that when you go into a pocket of really low growth which is what we're facing now. GDP growth is probably going to be pretty lacklustre [so] it leaves us in this period where debt levels are high around the world. Governments can't afford to spend - that holds GDP growth down.
What the northern hemisphere found [after the tech crash], and I think Australian investors are noticing as well, is that long-short equity strategies in particular generated really good returns over that period, even though the market went sideways.
We talk about long-short investing as having two boxing gloves - when stocks go up you have opportunities on the long side, and when stocks go down, on the short side. So it's kind of a double alpha strategy. It generates its greatest outperformance when we see these low growth periods.
What types of investors do you target?
AW: Regal's history is only on the wholesale side. Up until now our products have only been available to high net worth investors. Typically, our customers have been northern hemisphere institutions. Now we've partnered with Ascalon and they are marketing the long-short retail fund.
How long have the funds been running?
AW: The retail fund has been running since March 2011 and the wholesale from August 2009. It's built on a history of market neutral investing, which we've been running since 2005.
How does that differ from the long-short strategy?
AW: It means for every dollar put in the fund you're a dollar long and a dollar short. The result of that is no market exposure, or a completely uncorrelated return profile.
What that means is it's a pure alpha strategy; any return you generate is pure alpha because you've got no market return in there. It forces a very pure focus on how you pick stocks to generate that. You need to be buying strong stocks in strong sectors that will outperform the market over the medium term and shorting weak stocks in weak sectors that will underperform over the medium term. It's the balance between those two that creates the return.
That's what we overlay within this long-short equities strategy to create the alpha.
The acid test of a good long-short strategy is when you add shorts into a portfolio you're adding risk, so you've got to get some return out of it otherwise you're simply adding risk into a portfolio and that's not a good outcome.
We generate about half our alpha on the short side and that's often very different to the long-short strategies that are born out of a long-only shop because they have a different mentality on the way they pick stocks and the way they run the money.
Do you look at the same indicators when shorting a stock as when you're taking a long position?
We employ a four-step stock selection process.
It starts with valuation like the rest of the market. We're a value-focused stock picker; when we're looking at shorting a company it's because we believe there's a fundamental overvaluation of that stock.
We then overlay three other factors in the stock selection process, and those other factors are more common to hedge fund investing.
The second factor we look at is the macro environment. We try and align our position with tail winds in the macro environment or head winds if it's on the short side. We're looking to understand the kind of context we're investing in, in terms of what makes up the world and where the pressures are, and that forms a part of the stock picking.
The third step is we're very catalyst-focused. That means - particularly on the short side where by nature there's more money on the long side - it's an anti-consensus position. You've got to be certain that the stock price is going to move in your favour or put the probabilities in your favour as much as you can by identifying events that will likely move the stock price in your favour.
It can be hard catalysts - like expected earnings upgrades and downgrades - or soft catalysts, such as correlations to macro-economic variables that have already changed, likely brokerage recommendation changes, and so on.
When the probability is greater that the stock price will fall, we move the position up. When the probability is lower or there's a pocket between catalysts, we'll often reduce positions. That's part and parcel of this idea of investing. It manages your risk and maximises return on the short side.
The final piece is all about improving your timing and minimising mistakes. You have to be able to articulate your edge in the trade. We have to be sure, because it's anti-consensus, where the market's getting it wrong, otherwise in all probability it's likely to be us. We have to be able to articulate the assumptions the consensus is making in valuing that stock, the assumptions we're making that are different to those, and why we are different.
What parts of the retail market are you targeting?
DR: In terms of the financial planning space, we've got platform access . a lot of planners invest indirectly into the fund via the platform and we have a number of direct unit holders from the financial planning community where they've gone direct into the unit trust.
It is quite a spread of individuals, self-managed super funds, family trusts.
Do you have a view on capacity?
AW: It's a fair way off. We've always said there's a billion dollars in the strategy in the Australian market and the strategy itself is at $70 million - so it's in its infancy right now.
Market neutral was the history of the firm; we always said we thought the capacity was somewhere around a billion dollars. We recently reached there and soft closed the strategy. There's no huge science around the capacity number. We could probably take it further but we're conscious, given the strong funds growth in the last three years, of being certain we could maintain the return profile.
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