Key Takeaways
- • La Française Investment Solutions' flagship alternative risk premia fund returned +3% year-to-date through November 2018, outperforming Societe Generale's alt-premia index by 7 percentage points despite the index declining more than 4% for the year.
- • LFIS achieved a five-year Sharpe ratio of 2.1 by combining approximately 30 low-Sharpe but uncorrelated strategies across three families: academic premia (value, momentum), implied premia (volatility and correlation plays), and arbitrage opportunities.
- • The firm demonstrated resilience during October 2018—a record-bad month for both alt-premia funds and hedge funds broadly—by posting a +0.5% return, while 2018 produced six of the alt-premia index's 10 worst months since its 2016 inception.
- • LFIS's risk management approach emphasizes low correlation between strategies rather than individual strategy strength, allowing the firm to achieve Sharpe ratios exceeding 2.0 through portfolio construction—a principle Guillaume Garchery, head of quantitative research and senior portfolio manager, credits with the firm's outperformance during a difficult year.
Summary
La Française Investment Solutions won recognition as quant hedge fund manager of the year following exceptional performance in 2018, a period that proved deeply challenging for the alternative risk premia sector as a whole. The firm's flagship alt-premia fund delivered a +3% return through November, a remarkable result given that Societe Generale's index of comparable funds declined more than 4% over the same period. This seven-percentage-point spread in performance reflects a deliberate portfolio construction methodology that prioritizes diversification and avoidance of structural implementation errors.
Founded in 2013, LFIS operates a quantitative strategy built on combining dozens of low-Sharpe ratio strategies that maintain minimal correlation with one another. Guillaume Garchery, the firm's head of quantitative research and development and a senior portfolio manager, attributes this outperformance to rigorous diversification discipline. The firm invests across approximately 30 distinct strategies organized into three broad families: academic premia (such as value and momentum factors), implied premia (strategies based on volatility and correlation that exploit structural market flows), and arbitrage opportunities including negative basis trades. This structural diversity proved essential during 2018, which saw Societe Generale's alt-premia index experience six of its 10 worst months since inception in 2016.
The firm's longer-term track record underscores the sustainability of its approach. Over the five years since inception, LFIS's alt-premia fund has generated a Sharpe ratio of 2.1—a metric that reflects exceptional risk-adjusted returns. Garchery emphasizes that this result stems not from identifying high-Sharpe individual strategies but from sophisticated portfolio construction. As he explains, combining uncorrelated strategies with individual Sharpe ratios of 0.6 can yield a combined Sharpe exceeding 2.0, whereas stacking correlated strategies—even those with identical individual Sharpe ratios—produces diminishing diversification benefits. The firm's ability to post a +0.5% return in October 2018, despite that month representing a record-bad period for both the alt-premia sector and hedge funds broadly, demonstrates the practical value of this disciplined correlation-minimization philosophy during periods of acute market stress.
Founded in 2013, LFIS operates a quantitative strategy built on combining dozens of low-Sharpe ratio strategies that maintain minimal correlation with one another. Guillaume Garchery, the firm's head of quantitative research and development and a senior portfolio manager, attributes this outperformance to rigorous diversification discipline. The firm invests across approximately 30 distinct strategies organized into three broad families: academic premia (such as value and momentum factors), implied premia (strategies based on volatility and correlation that exploit structural market flows), and arbitrage opportunities including negative basis trades. This structural diversity proved essential during 2018, which saw Societe Generale's alt-premia index experience six of its 10 worst months since inception in 2016.
The firm's longer-term track record underscores the sustainability of its approach. Over the five years since inception, LFIS's alt-premia fund has generated a Sharpe ratio of 2.1—a metric that reflects exceptional risk-adjusted returns. Garchery emphasizes that this result stems not from identifying high-Sharpe individual strategies but from sophisticated portfolio construction. As he explains, combining uncorrelated strategies with individual Sharpe ratios of 0.6 can yield a combined Sharpe exceeding 2.0, whereas stacking correlated strategies—even those with identical individual Sharpe ratios—produces diminishing diversification benefits. The firm's ability to post a +0.5% return in October 2018, despite that month representing a record-bad period for both the alt-premia sector and hedge funds broadly, demonstrates the practical value of this disciplined correlation-minimization philosophy during periods of acute market stress.
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