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Legends Fund Champions Manager Longevity

Theta Capital celebrates 15th anniversary

Theta caters for the full spectrum of investors from the largest institutions to high net worth individuals – including some founders of leading private equity firms in Europe - and retail investors. Larger investors are still offered bespoke individual accounts, housed on Northern Trust’s custody platform, while investors of almost any size can gain exposure to Theta’s favourite hedge funds (most of which are normally closed to investment) through a daily dealing, exchange-listed vehicle.

The perils of performance chasing

Though investors can benefit from the ability to trade the Legends fund of funds daily, and even intra-daily, Theta advocates much longer average holding periods for hedge fund investing: “investors should think in terms of a ten-year horizon,” says Portfolio Manager, Ruud Smets. If high frequency trading and ETFs may be fashionable, Theta has taken a Warren Buffet approach and historically held onto hedge funds for multi-year periods. Indeed, some holdings have been owned from the very start back in 2001, illustrating the long term relationships that Theta has forged with many luminaries of the industry.

Smets believes in a long-haul approach because he observes that most investors are not good at timing allocations and thinks “the number one mistake of hedge fund investing is performance chasing”. It is well known that the money-weighted return on most investment funds is far below the timeweighted return, because more investors buy near the top and sell close to the bottom than do the reverse. Maintaining stable allocations would have served most investors better. Smets freely admits that he is not immune to fretting about short term performance, but, heeding the lessons of behavioural finance, Theta Capital has quantified this potential source of bias by carrying out an audit trail of its own history of allocation decisions. “Where performance was the main reason for subscribing or redeeming, the new fund subsequently under-performed the allocation it replaced by 6-8%,” Smets observes.

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