Alternative Investments—Hedge Funds
Park Place Capital
From left: Peter Schell, the Director of Research who drives the research process and generates
the flow of investment opportunities; Jean-Marc Fraysse, the CIO/Portfolio Manager who has
the final say on what goes in or out of the portfolios; and Steven Solmonson, Park Place's
responsible for risk management, client relations and operations.
Superior analysis of information and the ability to act upon it could account for part of Park Place 's competitive strength. Steven Solmonson of Park Place explains: "Simply put, our strengths are our people, processes and performance. We are all dedicated industry veterans, who love what we do and enjoy working together. Our investment process is rigorous and effective, and yet, adaptable to variable market conditions."
"Since 1992," he further adds, "our investment strategy has remained unchanged. We are a long/short European equities manager seeking Alpha. Although mid-caps are our sweet spot, our investment process is designed to cover the approximately 3000 Western European Equities. Large caps and small caps are definitely included and have a place in our portfolios. All said, having a well-tuned investment process is key, but there is never a substitute for doing your homework, staying on your toes and putting in the hours."
Although most of the quantitative data is available to all, it is the qualitative factors that enable Park Place to define a stock's potential. Such factors include the investee company's decision-making and strategy implementation processes; its management's strengths and weaknesses; and strategies being pursued by its suppliers and competitors. To this end, Park Place 's partners and analysts conduct an average of 250 company visits a year, mostly on a one-on-one basis. "These meetings," says Solmonson, "not only give us valuable insights into a company's business strategy and plans, but also provide critical feedback on the management's views on prevailing economic trends and developments."
Park Place is run by its four partners, who all have a distinct role within the organisation. Jean-Marc Fraysse is the company's CIO/Portfolio Manager and has the final say on what goes in or out of the portfolios. Peter Schell is the Director of Research and the one who drives the research process, generating the flow of promising investment opportunities. As President of the firm, Steven Solmonson manages the business-side, focusing on risk management, client relations and operations. Although no longer involved in the day to day management of the portfolios or business operations, the firm's founder, Giuseppe Ciardi, serves as Chairman, attending monthly partner meetings and actively lending support whenever needed.
The company's two funds: Park Place Europe and Polaris Prime Europe are structured as master-feeders and are open to non-US & US non-taxable investors as well as US taxable investors. They both use the same administrator, clearing broker and auditor. Despite their common lineage, their portfolio construction and composition differs. Park Place Europe generally gives greater weighting to large caps as well as greater emphasis to diversification. In comparison to Polaris, Park Place Europe not only employs lower concentrations and exposure limits, but may also employ more restrictive drawdown guidelines. It may use index futures for hedging, while Polaris does not.
Park Place Europe targets an annual rate of return (ROR) of between 10 to 20%, while Polaris targets an ROR of 15% to 30%. PPE may short index futures to moderate exposure, while Polaris does not. There is generally a considerable overlap of the equities held in both portfolios, yet the weightings are likely to differ considerably at times, and small/mid caps are part of both portfolios, but generally are given greater prominence in Polaris. Accordingly, depending upon their own investment objectives, investors are able to allocate to either fund, or prorate a customer-specific allocation to both funds. With the exclusion of private investors, investors in both funds range from large fund-of-funds, boutiques, professional investment consultants and pension managers to family offices.
Although all successful investment strategies are research-intensive, they cannot withstand the market forces without adequate risk management. Solmonson explains, "There is market risk, there is portfolio-composition risk and there is stock-specific risk. We are vigilant about monitoring exposures. Portfolio exposures take account of four key factors: One, market volatility and two, market momentum, both of which are extrinsic, as well as portfolio diversification and portfolio beta, which are intrinsic. In addition, every holding is subject to a size limit. We do not use fixed stop-loss limits, instead we have pre-determined alarms that trigger a mandatory review if hit. We are not punters and we are not looking for a single quick home run. We want to see returns being generated across the board and, as you see in our material, we closely monitor and report our exposures and attributions by industry, country and market cap. Our infrastructure is quite robust and we supplement our in-house systems with our prime broker's risk analysis system. We measure our long and short alpha on a live-mark-to-market basis, and similarly know which holdings can have the greatest impact on the portfolios' Beta and VaR.
"Looking back," Solmonson adds, "our greatest achievement has probably been our ability to reinvigorate the firm in late 2002. While the market indices were down by about 30% that year, our flagship fund posted its first and, hopefully its last, negative annual return: down 10%. Yes, market conditions were horrific; but given our job to achieve absolute returns, we missed an opportunity and should have posted a positive return of 10% instead. It was a wake-up call. One might say we had lost our lustre. We put together a business plan, which included some difficult steps. We needed to get smaller and focus our energies on our two main funds: Park Place Europe and the slightly more aggressive, Polaris Prime Europe. Most importantly, we needed to address the team itself and make some changes. I called Peter Schell, who had been a member of the firm from 1998 to 2000, but had left to start his own fund. I asked if he might consider coming back. To my delight he was interested, but informed me that he was already discussing an opportunity to link-up with Jean-Marc Fraysse, who at that time was planning to leave Cazenove. Aware of Jean-Marc's exceptional record as one of London's top fund managers, I could hardly believe what I had heard; knowing that Peter & Jean-Marc, who have been life-long friends, would make the perfect duo. We mapped out an orderly transition, advised investors and in January 2003, the new, improved and rejuvenated Park Place was born. In the ensuing years we have come back to the top of the league tables. Oddly, some might say that our performance is a great accomplishment but, from my point of view, the real achievement is really the means by which we got there."
Park Place's objectives are clear: although the company is moving to broaden its investor base, it intends to remain small, since the partners believe that continued performance, especially on the short-side, suffers with size.