Interview with Haig Bathgate, Turcan Connell

By 19. August 2015 Interview No Comments

Turcan ConnellHaig Bathgate is responsible for leading and developing Turcan Connel Group’s investment strategy and research process. He chairs the Asset Allocation & Implementation Committee, is lead manager of the VT Turcan Connell Investment Funds and sits on the Investment Advisory Board. Mr. Bathgate is a Chartered Financial Analyst and former Chairman of the Scottish Board of CFA UK. He also sits on the Investment Policy Committee for CFA UK. The Turcan Connell Group offers legal, tax and wealth management services – a rather seldom combination. Why did you decide to offer a UCITS fund of alternative UCITS funds?
Haig Bathgate: The fund was launched in response to demands from our clients for an investment strategy which had more of an absolute return focus but less correlation with stock markets. Many of our clients have an overriding emphasis on protecting capital but are not adverse to a degree of risk. We wanted to house the investment strategy in the most flexible structure and UCITS fitted the bill, provided amongst the greatest investor protections and also gave us the option of distributing the fund more widely should that be deemed appropriate in the future. Some people argue that hedge fund strategies in a UCITS wrapper are either watered down or increase costs due to regulation. What is your take on this?
Bathgate: There are pros and cons of using the UCITS structure, yes it constrains the ability to use certain derivative instruments, it also limits the amount of leverage you can apply to a strategy amongst other things but in aggregate for a multi-strategy fund we feel that the additional benefits afforded by investor protection, transparency and the widespread applicability of the structure in various jurisdictions and investment wrappers far outweigh the constraints. Are all investors of the fund your wealth management clients or do you also have outside investors?
Bathgate: The investment strategy was originally launched to cater for our internal wealth management clients although we have an ever increasing external investor base. We have not to date marketed the fund to external investors although the structure is perfectly suited to this end and it may be something that we consider in the future. What is the investment focus of the VT Turcan Connell Absolute Return Portfolio Fund?
Bathgate: The investment focus is to provide positive absolute returns over the medium term. However, the strategy is not designed to never suffer from a negative return. We feel that it’s important to expose the capital to calculated risks in order to achieve returns but we aim to do this with relatively little correlation to equity markets. In what alternative strategies do you invest the most and do you rotate allocations frequently?
Bathgate: We use various strategies depending on the market environment. We have found most consistency in the performance of equity long/short strategies, however, whether they be discretionary or more systematic in nature. We tend to rotate between discretionary macro and trend following strategies more frequently although we do try to allocate with a view to keeping positions in place for a sustained period of time. We have been more tactical in our use of trading volatility and also dividend futures which by their very nature can provide shorter term opportunities. The financial markets seem to be tense for many reasons at the moment. What kind of alternative funds do you expect to do particularly well for the rest of 2015?
Bathgate: We expect to see equity long/short funds perform in this environment, particularly in Europe, the increase in dispersion and reduction in intra market volatility makes this (and has indeed been evident more recently) a fertile environment for managers in this space to deliver good returns.
We also expect discretionary macro funds to perform well as interest rate volatility increases and those who have an edge should perform. We are also quite constructive on the outlook for markets and believe that a modest amount of beta exposure is sensible. Finally we are starting to use Emerging Market carry strategies which, although volatile, we believe will perform in the coming year. So you do not fear a global recession potentially caused by a Chinese market melt down?
Bathgate: Whilst we’re keeping a close eye on developments in China we believe that fears about a meltdown are overblown. There has clearly been misallocation of capital on an unprecedented scale for a number of years and this has manifested itself in terminally bad loans which are being ever-greened by the authorities. This is also unhelpfully happening at a time when the underlying economy is slowing down hence the reason that it’s gaining so much focus. Whilst we have seen what we believe to be policy blunders by the Chinese recently we still believe that the authorities will keep matters under control and understand the importance of not allowing the bad loans to default. China still has vast accumulations of reserves which can be used to smooth any bumps along the way. We’re not complacent about the risks, and if things unfold in an untimely fashion the reverberations would be felt globally, but our sense at the moment is that the position is not quite as bad as some commentators believe. Thank you for the interview