Interview with Oliver Prock, Salus Alpha

By 13. January 2013 Interview No Comments

Oliver ProckOliver Prock is the CEO and CIO of Salus Alpha Capital Ltd. He graduated from Vienna University of Business and Economics with an MBA and has gained experience in different investment fields such as financial engineering, product development, trading and sales. He started his career working for an American CTA and later was in charge of derivatives and structured products at Raiffeisen Zentralbank AG. Before becoming CEO of Salus Alpha, he worked at Erste Bank, where he was responsible for the development and the management of alternative investment products of Erste Bank. Mr. Prock has over 19 years of professional experience in derivatives and trading systems as well as fields such as financial engineering, product development and trading. Furthermore, he is founding member and chairman of the board of the association “Vereinigung Alternativer Investments” (VAI). Founded in 2003, this association is the first independent agency for protecting and representing the interests of the providers of alternative investment products on the Austrian capital market. Mr. Prock is also member of the Expert Group of the European regulator ESMA, Cinema for Peace Foundation and Clinton Global Initiative (CGI). As CEO and Fund Manager he was responsible for the introduction of the first world-wide UCITS III compliant alternative investment fund “Salus Alpha Equity Hedged”, which is one of the reasons we were interested to find out why he ventured into the UCITS alternative space so early and what his thoughts on the industry are. Salus Alpha has been one of the first asset managers to launch alternative investment strategies exclusively under the UCITS regulation. What was your reasoning back in 2003 when literally no one even thought about regulated hedge funds?

Oliver Prock: UCITS was implemented by the European Union (EU) in the 80ies, aimed to i.a. maintain a high level of investor protection by imposing strict constraints concerning diversification, liquidity, and the use of leverage. After working many years in the hedge fund industry partly also in the USA, for us at Salus Alpha (lat. SALUS = safe) it was perfectly clear at this time, that in the future institutional and retail investors will ask for a maximum of transparency, liquidity and safety of their assets. That’s why we launched the first alternative investment multi strategy vehicle under the new regulation as early as 2003. Having been part of the alternative UCITS industry right from the start, what are the biggest changes you have witnessed over the years?

Prock: Well, first of all we saw an ever increasing number of followers and competitors in the field of UCITS alternative investment funds which clearly shows that our move was perfectly right and well timed. You ask for changes. There were a lot of changes. The biggest change was the introduction of the Index Total Return Swap as an eligible and non-complex asset for UCITS. That made many things possible. Before the only way to introduce hedge funds strategies was with the help of Delta one certificates. Obviously the regulation does not stop and the industry is facing new challenges and new changes. The European regulator introduces guidelines on Indices and ETFs that affect structured UCITS funds. One core change there is the full transparency of the index components and methodology for strategy indices and the exclusion of daily index rebalancing. Both changes will affect a lot of alternative UCITS funds. These changes regarding the use of indices are said to affect managed futures strategies in particular. Will you have to change the way your funds operate as well under the new regulation?

Prock: Interesting you mention it because we were last time ahead of the curve and we think we will be this time ahead as well. We have our solutions in place. The good news is that for most of our products we do not need to fix anything at all – and even better – the new rules will put an even increasing focus on the Salus Alpha Commodity product, as probably one of very few “survivors” of its kind as it already fully complies with new index regulations. Salus Alpha will soon launch a new risk parity UCITS fund. How does the fund work and more importantly – how is it different to the already available risk parity products in the market?

Prock: It is all very much about the “beauty of simplicity” when we are talking about the advantages an “equal risk” approach can deliver: a limited number of asset classes (equity, bonds, short term interest rates and commodities), true diversification and a stable risk profile via long-only, uncorrelated sources of return. The very important difference to other existing concepts is the method of how Salus Alpha looks at the factor “risk”. A simple volatility approach will not cover any more the expectations of all types of investors. Our 100% systematic model looks in a highly sophisticated way at future “draw down vs. return” patterns as basis of allocation decisions. Looking ahead: what will 2013 bring from an investor perspective and what strategies will profit most?

Prock: I think 2013 could be an equity year. I do not expect a strong bond sell off although bonds will probably have a weak year. The market accepts and does not fight the policy of the ECB anymore and therefore money should return to Southern European countries which should lower their refinancing rates. I must admit that the picture might be too cosy; probably some summer volatility might come and confuse some speculators. I think at the end of the year equity indices might be up double digit. According to this scenario equity strategies should do fine and in terms of a portfolio context I would add some managed futures as protection. I think such a portfolio will have a great 2013. Thank you for the interview.