AE Capital: Utterly Uncorrelated |

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AE Capital: Utterly Uncorrelated

Differentiated, eclectic macro manager, delivering Sharpe near 2

AE Capital defies easy categorization. Its use of quantitative analysis may lead some allocators to bucket it as a CTA, but co-founder Lyle Pakula rejects this as a common definition of a CTA involves the use of technical or price-based signals, such as trend-following/ momentum/breakout, none of which applies to AE. Given AE’s fundamental data inputs, quantitative macro or systematic macro could be more useful labels, but AE Capital employs some discretion, both in identifying themes and at times for risk management purposes, for example intervening to reduce risk four times since inception in 2012. Thematic macro is another possible umbrella, and AE does aim to home in on big-picture, structural shifts that can drive markets over multi-year time frames; but AE also does much shorter-term, intraday, trading based partly on sentiment. Hybrid macro, or eclectic macro, could be possible descriptions. Any attempt to statistically infer an appropriate style group from returns-based analysis has, so far, been fruitless. AE has displayed no correlation to hedge fund or global indices, nor to any other individual fund, based on daily data, according to one allocator who has trawled through the databases.

Clearly, then, AE is doing something very different and being rewarded for originality, with a Sharpe ratio around two since 2012 and an appealingly asymmetric return pattern – up months have been bigger numbers than down months. While many fund managers question whether a Sharpe above one is sustainable through a full cycle, Pakula strikingly argues that the climate for their strategy has actually been challenging since 2012. Hence he is striving for a still higher Sharpe. Attribution has been broad-based amongst the seven G7 currency majors (USD, EUR, GBP, JPY, CAD, AUD, NZD) that AE trades, both versus the US dollar and against each other, through 21 crosses such as AUD/JPY.

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About The Hedge Fund Journal

INFORMING THE HEDGE FUND COMMUNITY With access to some of the industry’s biggest names and an astute and talented group of writers and contributors, The Hedge Fund Journal has established itself as a trusted source of information on the hedge fund industry. Highlights of Issue 108: BlueCrest - Equity strategy excels in 2015 Volatility & Uncertainty to Define 2016 - Major challenges facing market participants On Origins of Alpha - Is the stock market a quasi Ponzi scheme? InfraHedge - The largest MAP-infrastructure provider