Hedge Fund Intelligence Sir Michael Hintze interview | Page 3

interview
business environment and the geopolitical context that it’s working
in. I’m happy and willing to take measured risks – there is no issue
with that. But I also make sure that we’ve talked to our investors
about those risks. Nevertheless, there are long-tail events which are
often difficult to predict.
If we want to take risks in various parts of our business, we need
to have a very strong control function. That goes back again to
operations. But it’s more than just a risk function; it’s the ability
to actually understand on a daily basis what the P&L is. We also need
to understand what the margin is. In 2008-2009, we were able to
meet investors’ liquidity needs without resorting to side pockets
or suspensions because we knew exactly where we were. So when
people wanted their money back, we were able to provide it.

Q

  ooking back at 2008/2009, were you worried about the
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sub-prime mortgage market?

MH It was always clear to me that sub-prime structures were very
difficult and, to my mind, pretty dangerous because of the potential
for ratings migration. What I didn’t predict was their toxic nature.
Back in 2008/2009, global investible financial assets were valued
at about $120 trillion and now they are around $200 trillion. The
sub-prime portion was about $2 trillion of that. So you think: what
does 2% matter? What I didn’t pick up was that the 2% mattered
very much because of the contagion. And we’re still working our
way through it.

Q

  ow do you see the role of [executive chairman] Marc
H
Hotimsky in terms of your business development plans?

MH Firstly, he hired himself. I’ve known him for a very long while –
since Credit Suisse days. Then he was a very early-stage investor in
our funds as well. Remember when I said Brady Duggan at Credit
Suisse seeded CQS? Well, the guy who actually executed that was
Marc Hotimsky. He was global head of fixed income, and one of the
areas he was responsible for was the leverage funds group. So he was
the guy who allowed us to launch a fund and start trading.
Marc has had invaluable experience building up a business at New
Finance Capital, which was subsequently bought by Schroders. He is
now applying those skills for us in his role as chairman of the executive committee. He is doing critical work in terms of institutionalising the business and broadening the teams with new talent.

Q

  as there an executive chairman prior to Marc?
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MH No. We are also reviewing corporate governance, which Marc is
very much a part of and which Sir Michael Peat is helping steer. I’ve
known him from another life as well and, in addition to being an
excellent adviser, he has impeccable credentials, having retired from
the Royal Household in 2011.
The alignment of interests within the firm and between the manager and investor is a key for us to get right.

Q

  ou have a tremendous passion for trading and you play a
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very important trading role in the firm, especially running the

36 Global Review Autumn 2013

flagship Directional Opportunities Fund. Can you describe your
trading function in the firm?
MH I am the chief executive and I am fortunate to have very good
teams which allow me to fulfil the chief executive function. The
main roles which I perform are that of SIO [senior investment
officer], which provides a context across the business and, then, I’m
specifically managing the Directional Opportunities Fund.

Q

  ou like to trade through August and most of Christmas when
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many others in the investment man agement world have gone
away. Do you continue to do that?

MH Yes. Much to my wife’s chagrin.

Q

 Is the Directional Opportunities Fund still soft-closed?


MH It’s a bit over $2 billion but we do need to manage the size
because, at the end of the day, we’re not asset gatherers but alpha
producers. And we have always tried hard to think carefully about
capacity management.

Q

 Just a little over two years ago, the fund held about $1 billion

in assets.

MH Exactly. Of course, performance has helped. The other beneficial
factor is that we have been able to identify opportunities, often in areas
that banks have had to shy away from due to Dodd-Frank and Basel III.

Q

 How are you currently positioning the fund, because you had

an extraordinarily good year in 2012 – up almost 36% and
this year up already by 6.7%?

MH I don’t have as much equity exposure as I would like and it would
probably be nice to have had more. Having said that, I’m still very
much of the view that the most prudent risk/return way to trade
QE is through credit – in the single B or BB space. This has been
a consistent theme for me. Towards the end of last year, I began
extending the duration out to two to three years – compared to one
year to 18 months before that. I’ve also balanced the fund a lot more.
I’ve put in place more hedges in investment-grade credits, in triple B
and single A names.

Q

  here do you see the main opportunities or risks for CQS
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in terms of developing and running multi-asset investment
strategies, such as new areas in which to expand and exploit
global growth in the firm’s investment base? For example, a
couple of years ago, CQS expanded its presence in the US,
setting up the New York office and making some serious hires.

MH The New York office was an important move for us. We’ve taken
on more space and we’re seeking more traders there.
If you look closely at our product offering, it’s going along two
paths. One path is commingled funds and the other is bespoke

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