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May 2021 | Issue 234
Fairwater eyes tranches and options as prospects ‘multiply’
Sayed Kadiri headshot
Sayed Kadiri
Fairwater Capital is looking to capitalise on rising credit volatility by crafting a strategy that makes full use of the growing number of products in the credit derivatives industry.
The London-based firm has hired Eric de Sangues, former portfolio manager in JP Morgan’s chief investment office, as head of structured credit to spearhead this charge.
“The credit derivatives universe is expanding,” says de Sangues. “Volumes are increasing and the suite of products is growing as we now have a range of ETFs and total return swaps, which is opening up additional relative value opportunities. This growth comes as opportunities in the credit market multiply.”
De Sangues, who previously served as a senior portfolio manager at Chenavari, says Fairwater will make full use of the breadth of the credit derivatives market, investing in index tranches, indices, credit options, as well as ETFs and total return swaps. The firm has won a separately managed account through which it will kickstart its strategy, with plans for a commingled fund launch later this year.
Fairwater was established by Orlando Gemes in 2015 and has largely built its business on listed real estate securities and significant risk transfers.
“The vast majority of funds are positioned long risk, short volatility”
Orlando Gemes, Chief investment officer | Fairwater Capital
But Gemes says it has long been an ambition to expand into credit derivatives given some of the lessons he learned in the early part of his career when working at Fortis. “Both Eric [de Sangues] and I managed CPPI [constant proportion portfolio insurance] structures in the mid-2000s and recognised the frailty of leveraged long structures,” he says.
Gemes went on serve as head of structured credit at Hermes Investment Managers in 2012 when the firm was majority-owned by UK media operator BT’s pension fund. This gave him access to the pension’s allocators and shaped his thinking for how credit strategies can fit with an institutional investor’s asset-liability profile with an emphasis on positive convexity and avoiding tail risks.
“The European sovereign crisis, late-2018 crash and covid sell-off last year have underlined how the vast majority of funds are positioned long risk, short volatility and are highly correlated with each other,” he says.
Fairwater will target liquid opportunities to begin with and will adopt a market-neutral approach. De Sangues thinks there are gaps in the tranche and options market to exploit. “These are markets gripped by fear. The way the skew is priced in credit options highlights this.”
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Global credit funds & CLO's
May 2021 | Issue 234
Published in London & New York.
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