Peter Doherty, CIO & Fund Manager, Tideway – Global Navigator

Peter Doherty is the manager of Tideway – Global Navigator and is Tideway’s CIO. Peter graduated from Oriel College, Oxford with a degree in Engineering. Peter has over 25 years of experience in fixed income, currencies and derivatives from Goldman Sachs, Bear Stearns, Bank of America, Solent Capital and Markit.

LUXHEDGE :  Tideway is a young company created a few years ago. Could you tell us more about it?

PETER DOHERTY: Tideway, a London based firm, was created in 2009. The company currently has AuM of over EUR 100M. It is an investment manager specialised in generating secure income from the credit markets and large cap equities with a focus on capital preservation. The primary goal is to deliver consistent returns above inflation after fees, while maintaining low volatility. We have added a substantial amount of expertise in credit research and asset management in the past 6 months and now have an experienced team of 4 professionals managing the Investment Process with over 100 years combined experience !

LH: Could you introduce Tideway – Global Navigator for us?

PD: Tideway – Global Navigator is classified as an Absolute Return Credit Fund. The fund has a target return of 15% over 3 years and historically has delivered more than this and with a very low correlation to equity markets. The return target is net of fees with low volatility through a full economic cycle. It currently has AuM of EUR 40M, with an investor base of High Net Worth Individuals, family offices and insurance companies.

LH: Tideway – Global Navigator was launched in September 2011. Happy 3-year anniversary! How is the performance doing since inception?

PD: Thank you! The return since inception is over 36% net of fees leading to a cumulative return p.a. of +9%. These figures show that we achieve our performance objective so far. The volatility remains low with one-year volatility less than3%, and an annualised volatility of less than 5%.

Tideway – Global Navigator faced drawdown during summer 2014, but we limited the loss thanks to a defensive position. More precisely, we increased our cash holding to 20%, reduced the portfolio duration to zero and assigned Global Navigator large short position on equity in order to be able to face deterioration of the global geo-political situation. However the bond market didn’t follow the equity market trend: while the equity market trend started to recover in August after the general slow-paced period in July, the credit market and inparticular subordinated financials did not. As a result the fund has suffered consecutive down months and performance has lagged the return target for the first time since 2011. But note that the current drawdown is less than 2% from its peak in June 2014.

Thanks to government bond yields in Europe and in the US reaching new lows, the holdings of Tideway – Global Navigator will be increasingly popular among investors and we expect to get back on track and achieve our objectives.

LH: Tideway – Global Navigator had its maximum loss during April 2012. Could you tell us the reason of this loss and how you recover?

Graph Monthly Perf

PD: After 4 months of excellent return, Global Navigator lost -3.19% in April 2012, mainly because of the weakening of the global economy and then more specific, serious issues in Spain and in the Eurozone. Our hedging strategy of being long Euribor and USD and short Spanish equities was not sufficient to prevent the loss, even though it allowed us to limit its extent.

Credit market and equity market are highly correlated; however, we should have held some other risk aversion positions in order to protect capital. This is what we did not well in April 2012, but we have learned from this experience.

Graph NAV Evolution

Despite this loss in April 2012, Global Navigator shows higher performance than the LuxHedge Global Macro UCITS Index: 36% compared to 10.42% since inception.

We have also avoided all single name blow ups like BES, Phones4U, NWR and KAISA and will continue to do so.

LH: How would you define your investment philosophy and process?

PD: Using a top-down investment approach, the fund creates a core credit portfolio which is protected by macro hedges. We capture excess returns by buying “the worst house on the best street” meaning that we only ever take risk on credits who can demonstrate a strong balance sheet and both the ability and willingness to pay debts. But once we approve a credit we try to find junior, subordinated bonds where we get paid extra yield. Tideway – Global Navigator is actively managed and is invested in order to reflect the medium-term (6 to 18 months) view of the team in charge of the fund management.

We usually try to invest in cheap and undervalued cash flow in order to reuse that cash flow to capture opportunities in broader macroeconomic themes.

LH: How and in which countries is Global Navigator invested?

PD: We mainly rely on macro hedging strategy using listed equity and interest rate futures and options, but have no foreign exchange risk for example. The hedges are implemented in order to protect capital, lower volatility and enhance returns.

As you can imagine, the geographical exposure is variable over time and thus it is difficult to give you precise figures. However, what I can say is that we mainly invest in the United Kingdom, the United States and Eurozone. We have no emerging markets exposure, and no Asia or Latin America for example. Insurance, diversified financial services, banks and utilities/corporation are important sectors in our portfolio allocation. Finally, the weighted average credit rating of the Issuers in Tideway’s portfolio is typically single A, but the weighted average credit rating of the bonds in Tideway’s portfolio is typically high BB. We therefore have a HIGH systematic risk and LOW Idiosyncratic risk and should outperform traditional HY portfolios whilst being higher quality.

LH: What are your service providers?

PD: We have selected Luxembourg-based companies as service providers, using their strong expertise in the field of alternative UCITS funds. Alceda Fund Management is both our management company and information agent, and we use M.M.Warburg & CO as a custodian. The transfer agent is European Fund Administration (EFA).

LH: Thank you very much, Peter.