Speaker 0:
Hello and welcome to this boutique connect session today I'm joined by San Harris, head of fixed income at Capital Welcome, Sana.

Speaker 0:
So, Vera, perhaps you can take us through the Plato hedge fund at Capital and some of the new positions that have been established there and what has been the basis for the new positions established in this

Speaker 1:
fund? Yes. So the, uh, Plato hedge fund that we manage is a multi Strat hedge fund. So that invests both in equity and fix fixed income assets. And being a hedge fund, it is able to take both short and long positions and also employ leverage.

Speaker 1:
Um, some of the trades that we implemented, I mean, over the last three years or so is, uh, going in into covid. We saw,

Speaker 1:
uh,

Speaker 1:
central banks cut interest rates quite a bit, which meant that, uh, we saw steeping of the yield curve. So shorter debt yields fell a lot more than your medium and longer dated bond yields. And so we implemented a lot of steepening scena scenarios there on the fund. Fast forward. About 2.5 or three years now, central banks have obviously reversed, so they've hiked interest rates again even higher than where they were previously. Pre pre covid.

Speaker 1:
And we've seen flattening of the curve now. So that's a strategy that we've we've been employing now, uh, flattening of the curve. But now, going, going forward again. Central banks are heading close to the peak of the hiking cycle. So once again, you would start to see steepening of the curve. So we've slowly started to transition from from the flattening to steepening of the yo curve one, uh, once a year there. So

Speaker 0:
since you employees technical intelligence through the extensive use of machine learning

Speaker 0:
but also combines this with, uh, human analysis I know you use, um, artificial intelligence. What else gives, uh, cent capital the

Speaker 1:
edge?

Speaker 1:
Yes. So, uh, we believe that we have a very strong risk management system. It's, uh, developed and mainly run by by our quants team. And what it does is it monitors the amount of risk premier that that we have in our funds. So our long, long only and also the play to hedge fund that I mentioned earlier on, and it ensures that we are not taking undue risk or

Speaker 1:
concentrated risk exposure in particular sectors or or economic factors. For instance, like the rand oil credit spreads and so it's balanced throughout throughout the fund there. By doing that, we believe that we will be able to achieve our

Speaker 1:
our objective returns over the long term and, uh, meet meet our benchmark requirements

Speaker 0:
there. So, Sylvia, you as a head of fixed income that sent you a capital, what are the new risk and return factors that you're modelling into your analysis? And how do strategies then change between risk on and risk off

Speaker 1:
scenarios? Yes. So according to our research it sent you and

Speaker 1:
some of the personal work that I've done in my my PhD er, what we've identified is that during your normal times or your risk on times, uh, we see a lot more parallel shifting of the yo curve. Parallel shifting means that short, medium elongated yields move by more or less the same amount.

Speaker 1:
And, uh, that happens on average. If if you take a long term average, it happens about 90% of the time and you get your nonparallel curship. So that's when your short, medium and long dated bond yields move by varying amounts that happens over the long term. On average, about 10% of the

Speaker 1:
But what we've noticed is during the risk, uh, off periods such as, like, you know, the dot dot com bubble the G f c covid Russia, Ukraine crisis that you get a lot more of the non parallel shifts happening now. So instead of the usual, uh, 10% it actually occurs 2030% of the time.

Speaker 1:
So you have to adapt to those sort of yield curve changes and make, uh, in sort of duration views. Now, you have to make higher order yield curve calls now, such as slope and curvature. And, uh, some of the factors that that, uh, we actually introduce in that space are things like absolute spread the term

Speaker 1:
convexity, uh, country risk, premium swap bond basis break, uh, break given inflation. And those factors have been working well. And, like I mentioned earlier on trying to extract Alpha from those non parallel curve shifts, So So not just playing duration. So you're playing slope and curvature changes there. So

Speaker 0:
san via I'd like to understand, what are some of the new capabilities that have been, um, supported in the investment team.

Speaker 1:
Yes. So we've had a new hire with, uh within our equity team. Guliani Masi. She's joined about, uh, three or four months ago, and she, uh, covers the financial sector there. She's been doing a really good job there, and I think she's gonna have a bright future at S c o

Speaker 1:
Another member that's joined my team. The fixed income team is Kabalo Nambiri. Uh, he's been been with us for just over a year now, and he's doing very well at assisting me. He's got a very strong quantitative background. So it's it suits the company, uh, profile in terms of machine learning and a, uh, and artificial intelligence. So he's been helping me in that, uh uh, Space and also trying to identify new, uh, trading opportunities and ideas.

Speaker 0:
Sandra. Now, what are the new learnings? I know you mentioned, um, the pandemic Russia, Ukraine, But now Silicon Valley Bank and the banking crisis that's been happening globally. What have been some of the lessons that have been learned?

Speaker 1:
Yeah, So I think the big thing and I think it's kind of stood the test of time. We can't assume things remain the same

Speaker 1:
regime shift and one of the big shifts that have taken place now is interest rates and inflation. We aren't in that post G F C space where interest rates and inflation remains low now. So we've moved, we've shifted gear, we've shifted into a high, high inflation regime, and we have to adapt according to that. So I think the big takeaway is coming to financial institutions like like Silicon Valley Bank and Credit Suisse in Switzerland Is that in order to increase

Speaker 1:
returns, you have to take into account the amount of risk that that you're taking. Unfortunately, those those entities took on a little bit too much risk. Uh, because, um, I wanna use the word. Maybe maybe they were a little bit greedy. But, uh, you have to have a proper risk management system, like like we have a century now to monitor the amount of risk you're taking there and you have to factor in, uh, markets Al always adapt and evolve regime shift. So you have to be able to be

Speaker 1:
nimble and, uh, change with, uh, with the times.

Speaker 0:
Perhaps you can take us through your responsible investing philosophy and how does this relate to your invest for good approach?

Speaker 1:
Sure at. So we not only try to achieve the highest returns possible for for our clients, we also want to have a transformative change within the asset management industry. And we we we have done that, Uh, since I've I've been there and even prior where we try to employ a lot more previously disadvantaged, uh, people to to our team, Uh, at the moment. Now, our team compromises of about 80% from previously,

Speaker 1:
uh, disadvantaged background stuff.

Speaker 1:
Um, also in terms of our e s G process. So this runs throughout all our funds along only and hedge funds. Uh, we where we have a very strong quantity and qualitative process that has worked well and helped us avoid, uh, stock bombs such as Stein of E O H uh, to and so on. And by doing so,

Speaker 1:
those large drawdowns um, we are able to capture the upside a lot more. And, uh, because we we don't have to make up those, uh, losses. We don't have to take undue risk as well. So by doing that over the long term, we are able to deliver superior returns.

Speaker 0:
So now just to close off the session, what are some of the opportunities you're looking out for? Um, in the next year or possibly three years?

Speaker 1:
Uh, within the fixed income space. Uh, it's actually a very difficult environment now, uh, because, you know, everyone's talking about it. Recession, risk, recession fears. It's kind of well talked about. And maybe it's not priced into the market. Um, so I think that's that's the big risk going forward. So going in into that recession and how severe and deep

Speaker 1:
it would be and how long it would take us to get, uh, get back out of it. So I think that's on the back of our minds. Uh, we still think that we have some time there, but obviously the clock is ticking and you don't want to overstay your welcome. So there are returns, uh, to be made. But like I mentioned earlier, you don't want to take on too much risk.

Speaker 0:
Absolutely. Thank you very much. Sandia. For sharing your insights. Appreciate your

Speaker 1:
time. Thank you.