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Capital preservation, simplicity, and liquidity.

Summary: SAED ABU KARSH, CEO, ARK CAPITAL, SHARES THE FIRM'S INVESTMENT PHILOSOPHY AND SUCCESS STORY WITH WEALTH ARABIA

Tell me the story of Ark Capital.

During the early years (2003-2008) of the equity boom in the GCC, there was an explosion of investor interest in equity and fixed income assets. The evolution of that interest led to substantial business growth in asset management and investment banking in the region. At that time, regional asset managers sought to capitalise on a trending market by providing regionally linked equity or fixed income funds. Activity in the non-regional space was minimal.

Then, my partner and I were employed in a regional bank and our key observation was that while investor appetite was very much domestically focused, there was demand for exposure to non-domestic markets that was being supplied by London, Singapore or New York asset managers.

In 2012, we decided to establish a firm in the DIFC which would specialise in managing macro risk while focusing on FX; our core strength. Very few firms specialised in macro then due to competition from Europe and Asia. However, we felt that the region needed to provide clients with a regulated, alternative macro manager. Unlike many start-up managers in the region, we sought DIFC licensure on inception to provide transparency and promote regulatory oversight.

What is Ark Capital's investment philosophy?

Capital preservation, simplicity, and liquidity are the primary tenets of our philosophy and the mainstay of our value proposition. First and foremost, our goal is to protect our client assets while seeking to generate a return that is commensurate with the risk we take on their behalf. If we have learned anything since the subprime mortgage crisis, it is that simpler investment ideas are better and easier to manage and explain than complex ones. We are not in the business of reinventing the wheel or betting the ranch through leverage. Unlike many managers vested in more illiquid assets, we aim to ensure that assets are liquid and accessible to our client without undue restrictions.

How has your investment philosophy evolved over the years?

As a firm, we implement an investment strategy employing both discretionary and systematic models which best delivers our investment philosophy. Over time, we have observed traditional macro strategies failing when applied to the wrong market environment. Therefore, accurate market assessment and re-assessment are critical to remaining flexible and adaptable to dynamic market conditions. We learned early on not to cling to an opinion when the market behaved otherwise. One may be correct but their timing relatively wrong. Ultimately, risk trumps even the strongest of convictions.

What is your approach towards risk management?

How do you manage risk? We employ an Absolute Notional Limit and Stop-Loss Risk Management Framework. What this indicates is the amount of money that the fund's single- period market loss should not exceed, with exposure capped at predefined limits. These Notional Exposure Limits (both total and per currency pair) are tiered on a scaled ladder whereby each strategy is allotted risk. In turn, this Notional Exposure Risk also translates into an Annual and either a Monthly or Weekly Absolute Stop Loss (strategy-dependent as strategies geared to a longer holding period require more flexible stop-loss limits), thus also capping capital at risk per period. The Strategies may move to higher or lower risk limits in relation to their performance, thus creating a dynamic risk allocation model. It's important to outline that our firm's process in the allocation of capital at risk whereby the deployment of various trading strategies which are designed to work optimally in varying market conditions implies that they act to offset total risk undertaken due to the fact that under any given conditions, a number of them will act as a hedge for the total exposure. This obviously provides an innate further layer of risk management. Furthermore, stop-losses are managed dynamically in real time while derivatives are used to increase leverage or to express an event-driven directional view.

What differentiates Ark Capital from its competitors?

Within the region, talent is restricted to existing asset management models focused primarily on regional themes. Ark Capital maintains a global orientation within the investment universe opportunity set. Our competitive advantage is generated by utilising a hybrid investment approach which effectively combines both macro and technical analytics while investing predominantly in products that are characterised by high levels of liquidity, low transaction costs, adequate transparency and low correlation to other asset classes. We are entrepreneurial and versatile, quickly adapting to changing market forces without having to abandon our fundamental structure. As the market continues to evolve, these characteristics will be even more valuable. Often, we see asset managers who are restricted to specific asset classes suffer as entire sectors rise or fall. The correlations in falling markets, for some reason, seem to be much stronger than in rising markets. The ability to side step these asset traps is a key to success.

Tell me more about your investor base in the region.

Not unlike other regions, the region has a diverse set of investors. As such, their requirements and risk appetite are also very different. Our present base is HNW individuals who are looking to diversify away from pure equity, fixed income or real estate exposure. For a typical HNW individual, they may have their investments diversified in any of these assets domestically. Traditionally, these assets have been highly correlated, especially in this region. We offer an uncorrelated asset class which doesn't move hand in hand with their existinginvestments.

For a typical HNW individual, they may have their investments diversified in any of these assets domestically. Traditionally, these assets have been highly correlated, especially in this region.We offer an uncorrelated asset class which doesn't move hand in hand with their existing investments.

-- Saed Abu Karsh, CEO, Ark Capital

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Publication:Wealth
Date:Nov 8, 2017
Words:987
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