EMES' screening process is our primary form of risk control. We begin by narrowing our focus to only transparent strategies with ample liquidity. We then look for managers who’ve displayed prudent risk control and consistent alpha generation. We aren't rigid in our requirements, but we strive to keep our exceptions exceptional.
EMES sticks to conventional strategies where assets are liquid and pricing is efficient, like events, relative value, low net long/short, macro, and multi-strategy. We generally avoid investments where valuations are off market or by model.
EMES’ own products generally have 30-90 day liquidity so we look for funds with similar terms. While we may invest in strategies with penalties for early redemption, we try to avoid hard lockups or investor level gates.
EMES manages its investments prudently and wants to partner with managers who focus on capital preservation and risk control. EMES looks for a Sharpe greater than 0.75 and generally avoids funds with peak-to-trough drawdowns greater than 15%.
EMES prefers a three-year track record for a manager or team, whether that’s in the current fund or carried from previous work. We look for a pedigree showing strong intellect, consistently accurate judgement, a drive to succeed, and unquestioned integrity.
EMES core fund of funds business grew out of our founders’ frustration with traditional products. They found the market saturated with ineffective, undifferentiated, highly correlated offerings. They set out to create more unique offerings managed at low cost with ample liquidity.
EMES fund of funds leverage the team’s fund screening and manager selection skills. From inception, EMES has sought all-weather athletes who make money across cycles to minimize portfolio turnover. Our selection and management skills produce portfolios with steady risk-adjusted returns and low correlation to broader markets.
We base investment decisions on unique and diverse information sources to build portfolios that incorporate long-term views to minimize short-term event risks. Rather than move into riskier assets, we enhance existing portfolios with leverage, tax, or capital preservation overlay mechanisms.
Prior to the 2008 financial crisis, nearly 50 banks provided leverage on a single hedge fund’s shares. However, post-GFC Basel III changes to risk-weightings have cut that number to only a handful of banks offering single fund leverage today. The majority of hedge fund managers lost access to this product and the advantages it provides.
EMES learned about this development in 2012 from managers in which EMES had invested in the past. In 2013, EMES began work on a replacement product, consulting with hedge fund insiders, lawyers, bankers, investors and tax advisers around the globe. What emerged in 2014 was a product created with hedge fund managers for hedge fund managers, EMES Single Fund Leverage (SFL).
In contrast to other levered solutions, SFL subscribes directly into an investor-designated share class at a modest leverage level indicated by the investor (generally 1.5-2.5X). Subscriptions and redemptions have the same liquidity terms as the designated shares class so can be managed dynamically over time.