In ancient Greece, Thalia was the goddess of rich and luxurious banquets. In modern Switzerland, it is an alternative asset management company, founded in 2003 by BSI SA and Generali Investments. Within this international group, Thalia represents the link between traditional asset management and alternative investments, providing innovative solutions for investing in hedge funds to institutions, family offices and high-net-worth individuals.

With its headquarters in Lugano, Switzerland, as of May 2012 the company currently manages assets over $2.1bn and employs 25 seasoned professionals, of which 16 are dedicated to hedge fund due diligence, portfolio management and risk management. The company offers a wide range of single strategy funds of hedge funds, two multi-strategy vehicles and a number of bespoke funds of hedge fund (FOHF) solutions, under the Theia Sicav SIF structure, a proprietary platform domiciled in Luxembourg for the management of personalised portfolios.

Qualitative above quantitative
Thalia has developed its own approach to hedge fund investing, based primarily on qualitative analysis. “We believe that a successful FOHFs portfolio cannot be constructed by relying on quantitative tools alone; but it must be honed out of conviction,” says Margrethe Rokkum-Testi, Thalia’s CIO. “There is investment talent to be found in the hedge fund industry, and the choice of whom to invest in should be based mainly on qualitative factors.” These include understanding the hedge fund manager’s professional and personal abilities, the alignment of interest, the investment strategy and process, and how risk management fits into the process.

The qualitative assessment is the first step in a ‘three pronged process’, which subsequently involves operational due diligence (ODD) and risk management (RM) assessment, before a fund can be admitted into the investment universe. The investment process is organised in a series of monthly meetings: the work in progress (WIP) shortlist meeting, where analysts discuss funds they are currently assessing, or shortlist a fund for further analysis by ODD and RM. Once ODD and RM have given their approval, the fund may be presented to the Investment Universe Committee, where if approved, it becomes eligible for investment. The same committee can limit further investment in funds that are currently on a ‘watch list’. The final investment decision is made in one of many monthly investment committees dedicated to the various vehicles.

Another distinctive feature is that Thalia rarely takes a top-down approach to investing in hedge funds. The company prefers to build comprehensive portfolios with a three to five year investment horizon, aiming for strong risk-adjusted returns. “We try to avoid over-managing the portfolio, as we can mismanage risk by adding or taking off risk at the same time our underlying managers are doing so,” adds Rokkum-Testi.

But perhaps Thalia’s most defining competitive edge is that the company offers single strategy funds of hedge funds, each managed by a dedicated portfolio manager who is also a senior analyst, with a specific knowledge in one strategy, or family of strategies. “We feel that analysts are privy to information and insight when investing with hedge fund managers, and that this unique advantage should be used to complement portfolio decisions at the fund of funds level,” says Rokkum-Testi. “That is why we do not really make a clear distinction between analysts and portfolio managers.”

Personalisation and transparency
The investment process translates into a comprehensive off-the-shelf product range composed of two multi-strategy FOHFs under the BSI label, in addition to the Generali Hedge Fund Sicav, an umbrella fund of six single strategy FOHFs investing in the most important hedge fund strategies, including fixed income, event driven, global macro and long/short equities with a geographical focus. This also includes two multi-strategy FOHFs investing in Emerging Markets and in the arbitrage area, respectively. “Thanks to its fairly unique investment idea, the Generali Hedge Fund Sicav are the ideal building blocks for asset allocation purposes, and for the further construction of personalised portfolios,” said Rokkum-Testi.

However, off-the-shelf FOHFs are not ideal for every client. “Small to medium- sized institutions and ultra-high-net-worth individuals should pursue a bespoke approach to investing in hedge funds” adds Rokkum-Testi. “This way they can dictate the investment guidelines, get complete transparency, be part of the investment process, and have complete control over cash accounts,” she says, “but it is wise to work with an experienced partner who will have more knowledge and experience.” That is where Thalia comes in; investing in hedge funds can be complex and requires a number of skills that a lot of institutional and private investors simply do not have in-house. “I believe that bespoke solutions investing in hedge funds are the future in our industry, as clients don’t want to invest in commingled funds, and are looking for transparent and tailor-made solutions able to take into account their specific needs in terms of risk/return profile, liquidity, and investment horizon”, concludes Rokkum-Testi.

This philosophy of transparency is at the core of the Thalia Investor Day, the company’s annual conference held in a prestigious location in Lugano. At each event, a number of successful hedge fund managers from around the world are invited as keynote speakers to discuss and expose some of the most pertinent issues in the world of hedge fund investment. The events, which are by invitation only, serve not only as a platform for Thalia to demonstrate and expose their level of understanding and the quality of their managers in which they invest, but it is also a deeply educational experience. “The events are educational, offering clients and potential clients, who are perhaps somewhat removed from day-to-day investment management, the chance to get a better understanding of hedge funds in general,” says Rokkum-Testi.

Macro investing
In 2004 Thalia launched its Global Macro Fund of Hedge Funds under the Generali Hedge Fund Sicav umbrella. The fund currently invests in around 13 managers and has a size of $130m. The fund is available in two distinct share classes, US dollars and fully hedged euros.

The GHFS Global Macro is invested in some of the most established and respected funds in this area, as well as some smaller and promising managers. To maximise diversification and achieve the best possible risk-return, it aims to have a good balance between discretionary and systematic managers, at the same time as developed against emerging markets managers.

The portfolio construction proved very effective over a time when similar FOHFs were struggling to keep their heads above water. “The hedge fund managers with whom we invest have the ability to be very flexible in their allocations across different instruments. This ability, coupled with their top-down views, allows them to opportunistically allocate money according to various market conditions, while benefiting from different market drivers” says Deputy CIO Thomas Castri.

Further commenting on the strategy, Castri says “Our managers don’t get wound up in securities selection so much, rather they focus on the most liquid assets, such as futures, interest rates swaps, currency markets and some commodity markets. They can be quick and effective in changing their views. This gives them the advantage to react to market movements very effectively and very quickly.”

In the aftermath of the financial crisis in 2008, and with the deleveraging of the financial institutions globally that followed the crash, banks have constantly reduced the amount of proprietary capital dedicated to investments for their own book. “The new Volcker Rule, part of the American Dodd-Frank reform, has limited this enormously,” says Castri. “Banks cannot perform the same trades they used to”. This has led to banks  foregoing profits and hedge funds, in particular in the Global Macro space, have been the best equipped to pick up the business being turned down by banks.

Going forward, the outlook remains very constructive for this strategy. With the continuation of uncertainties around macro-economic developments, global macro managers continue to take advantage of the ensuing volatility and price misalignments. Rokkum-Testi says: “Opportunities abound; the only scarcity is in investment talent. A large part of what we do is identifying that talent.”