Hermes BPK Partners
Investment Process and Philosophy
Our investment philosophy is based on the fundamental belief that long-term consistent absolute returns can only be achieved through a combination of a thorough understanding of the drivers of risk of underlying strategies and the management of these risks through a rigorous and active portfolio construction and management process.
The lessons that we have learnt through the 2008 crisis along with previous dislocations over the past 20 years have led us to an investment philosophy that seeks to protect investors from the worst consequences of financial chaos. We are not interested in short-term performance but look to build consistent and stable returns within defined volatility boundaries. In our experience the best way of doing this is through:
- Constructing reasonably concentrated portfolios to ensure that we have a depth of research underpinning high conviction ideas.
- Taking a long-term approach to portfolio construction, dynamically adjusting exposures when we witness fundamental changes in the macro environment or in the performance or process of underlying managers.
- Actively engaging with underlying managers to improve governance standards and the quality of information / transparency that we receive.
- Understanding in depth how managers take risk with a focus on both qualitatively and quantitatively interpreting the drivers of fat tail risks.
- Conducting thorough and detailed operational due diligence to understand the operational risks within a hedge fund, the safeguards to custody of investors' capital and the effectiveness of the processes to ensure correct application of the hedge fund manager's strategy.
- A deep understanding of distressed and event driven funds where we believe there is a clear premium for investing in transaction-based strategies.
- A natural cynicism towards the merits of leverage which leads to portfolios that are better placed to withstand a collapse in liquidity.
