Prior to founding Segantii Capital Management more than eleven years ago, Simon Sadler was at a loose end. He was out of the market and keen to get back to trading after a short stint managing the equity trading business at HSBC. He had joined the bank’s securities business in Hong Kong in 2004 after success at Dresdner Kleinwort Benson and Deutsche Bank, which were considered two of the most aggressive equity trading houses in the region in the late 1990s and early 2000s.

Unlike his stint with Deutsche, his management role at HSBC was less focused on actively trading in the market. “It didn’t work out,” says Sadler frankly.

After less than a year at HSBC he left and took a short hiatus from what he considered a “moderately successful” trading career. For a while he considered joining another bank or an established hedge fund, but nothing seemed to be a good fit.

With the encouragement and support of a small group of friends, including COO Chuak Chan (who later joined hedge fund seeding platform Ascalon), the idea of launching a fund became a reality.

“I saw an opportunity,” he says. “I liked trading and investing, and I wanted to start a business based on what I liked doing. I also wanted to challenge myself to build something to be proud of.”

Segantii was formally launched in 2007 with the modest sum of $26m raised from initial investors, a few friends and Sadler’s own savings.

Fast forward to 2019 and Segantii is one of the most recognisable names in Asia’s hedge fund space: a homegrown fund manager that has scaled to over $3.2bn in assets and employs a team of 80 people across Hong Kong and London.

Operations, compliance, legal, marketing and technology account for 37, with the remaining 43 managing the portfolio and making an average of 2,000 transactions daily.

Yet, while Segantii itself may be familiar to all in Asia’s hedge fund industry, Sadler’s story is unlikely to be. “I don’t really like publicity,” says Sadler, who has turned down multiple requests for interviews over the years and does not attend any award events where his fund is regularly feted. He says that all he wants to do is to focus on investing.

The latest plaudit was the 2018 AsiaHedge Award for best performance in the 10 Years: Over $500m category. In fact, since inception Segantii has won more AsiaHedge awards than any other fund manager.
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For Sadler the 10-year award is the most rewarding yet. “That’s a very satisfying achievement,” he says. “To have consistently outperformed our peers over the last 10 years, that is a difficult thing to do.”

The firm’s remarkable annualised return of 15.36% since launch, with a Sharpe ratio of 1.62, has been delivered through periods of market duress and dislocation, such as the global financial crisis (2008), the effects of the Eurozone turmoil (2011), Chinese A-share weakness (2015) and the technology/US sell-off (2018) – a testament to Segantii’s ability to produce low-beta, market-independent returns.

Last year the fund made impressive gains of 11.34%, which is very robust when compared to the negative 6% median performance of the overall AsiaHedge Composite Index.

Much of the success can be attributed to a strong culture at the firm, according to Kurt Ersoy, CEO of Segantii – who says that, even during the Christmas holidays while other firms were quiet, the core Segantii team were still at their desks in Hong Kong and London trading the several markets that remained open.

The dedication paid off as Segantii returned 3.05% in December, despite the month’s choppy equity markets.

Ersoy, who joined from Credit Suisse in 2010, believes that alongside a strong work ethic and intense analytical focus, the determined manner in which Segantii captures investment opportunities is a major strength of the firm.

While at Credit Suisse, Ersoy had advised Sadler and his fledgling fund especially during the global financial crisis. But they had known each other since 1991, when they were graduate trainees in London. This historical friendship was helpful as they started to work closely together again during the early years of Segantii’s growth.

“When I joined the firm our goal was to build on the existing business and to attract global institutional investors. As part of that process we broadened and deepened our investment team,” Ersoy says.

But the path to success was not always smooth for Segantii. Sadler himself recalls that the early years were challenging, especially when assets started to grow significantly in 2009 and hit $270m in early 2010.

“There was then still lot to prove after AuM increased more than ten-fold in such a relatively short period of time, and after having delivered stellar returns in 2008 and 2009,” Sadler says.

When performance declined in 2010 to only a 1.72% gain following a strong 18.02% the previous year and 23.76% in 2008, some investors got cold feet and fled, causing assets to drop below $200m.

Fortunately for Segantii, the remaining investor base consisted of large institutional investors who supported the firm as it evolved and developed its investing approach. “We realised then the importance of long-term manager and investment alignment,” Sadler reflects.
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Investors who stayed with the fund in 2010 were rewarded after Segantii recorded a 40.75% gain in 2011, its strongest annual performance so far – in a year remembered not only for the Eurozone crisis but also the Fukushima earthquake and tsunami disaster in Japan.

“It was a very good year and confirmed to us that we would be able to continue the scale the business,” Sadler and Ersoy recount.

They felt that the fund could grow to $2bn, an ambitious goal given the difficult environment at the time. However, the goal was reached six years later in early 2017. Two years after that milestone, the fund added another billion dollars.

“We always consider the opportunity set that is available in the market,” says Ersoy. “We ask ourselves if we have the right team in place to put capital to work and we ensure that we understand investors’ expectations when they put their money with us.”

“At Segantii, I can look each investor in the eye and tell them that whilst we charge 2 and 20, it’s worth it. We have a large team who work very hard and genuinely seek to deliver alpha,” Sadler says.

Ersoy says that a challenge the management team sometimes faces is deciding what to do with strategies that are not performing. “Our aim is to ensure that our strategies are always delivering alpha, and we’re not afraid to reduce strategies that are not working,” he says.

An early example of that was when Segantii discontinued its equity long/short strategy in late 2010 to focus on relative value and event-driven trades.

Further to this approach, the firm will adjust capital allocation between strategies as it sees market opportunities evolving – for example, dialing up risk within relative value ahead of the launch of Hong Kong-Shanghai Stock Connect in 2014.

Event-driven strategies often account for more than half of the firm’s capital and are handled by a team of PMs, traders and analysts. Ersoy says the event-driven side of the strategy has benefited as markets in the region, especially those in Japan and China, have grown more varied and diverse over the last 10 years. This strategy looks to take advantage of changes in corporate activity and market structure – and China and Japan have been rich in both in recent years.

Ersoy suggests that now is a potentially pivotal moment as markets emerge from an environment of unusually low rates, low volatility and tight credit spreads. Of late the firm has been devoting more resources to options and derivatives trading as market volatility has increased.

He also notes that a big difference is that, unlike in the past, many risk assets globally are now held by passive or quantitative investors, rather than by banks, and that mainland Chinese investors have become much more important. “With those factors in the background it’s difficult to figure how the market will play out. This is why we think that our multi-strategy approach should continue to do well as we have proven over the years that we can perform in a multitude of market environments.”

Given Segantii’s enviable track record over more than 11 years, not many people would bet against Sadler and Ersoy being able to make returns whatever situation unfolds.

The Segantii story on AsiaHedge.