We are very pleased to feature the well-known hedge fund manager Silvio Graß from Berlin in today’s interview. One of his flagship funds will participate in this year’s WSOT Main Event. We took this as an opportunity to invite him for this interview.

Professional background:

Q: Could you briefly describe your path into the world of hedge funds? What motivated you to become a hedge fund manager?

A: My love for the markets and my own interest in investing brought me to the stock market and have been with me all the way. This is still the case today and ensures that I am always open to new things and constantly try to develop myself further.

Q: What specific positions and responsibilities have you held in previous positions, and how have these experiences shaped your investment philosophy?

A: Basically, I have gone through your entire career, from business administration studies to banking to asset management, where I have taken on greater responsibilities piece by piece.

Since 2011, I have been my own boss as an entrepreneur and can look back on a career with 26 years of experience. As Head of Trading and Analysis, I was for many years the link between the research department that worked on automating successful trading strategies and the traders themselves.

The mathematicians in the research department were mainly theorists with little active trading experience but could incorporate very good statistical knowledge. The traders, on the other hand, have experience in active trading and are bursting with new ideas, which, however, regularly cannot withstand statistical evaluations due to overestimation of their own abilities and emotional misinterpretations. If both teams work together efficiently, excellent results can be achieved.

Due to my long time in and with both teams, I know the problems and merits of both parties, which has helped me a lot in developing my own strategies.

Today, I am both an entrepreneur and actively trading on the markets, managing 3 own funds, developing new strategies, and also building the whole value chain around it, from structuring new funds to my supervisory board activities at JFD Bank.

Investment Strategy:

Q: Can you explain your investment philosophy and approach? What strategies do you use when managing a hedge fund?

A: Diversification of uncorrelated or low-correlated strategies is the secret. I have seen and been exposed to many very interesting trading strategies and approaches in my career. But all strategies in this world have one thing in common – none of them works perfectly at all times. For this reason, it is essential to diversify and look at as many approaches and ideas as possible. We include these strategies in our portfolio in partnership with other managers. The forex strategy we are publishing in the current WSOT event is just one of the strategies we have in place.

Q: How do you identify investment opportunities and assess risk in your portfolio? What criteria do you use to make investment decisions?

A: It depends on the strategies involved. We have a clear decision-making process that an investment or strategy must go through before it is included in our portfolio. This would be a longer chapter if we wanted to go into detail about all of our investments.

Taking the forex strategies used in WSOT as an example, there are clear patterns in combination with the corresponding price momentum or trend dynamics. Fundamental factors are not used in forex trading. The strategy targets very short-term movements and tries to exploit the momentum of the price movement. Risks are hedged with stops, and positions are closed when the price targets are reached. The strategy can place multiple trades not to affect spreads and optimize entry. Positions are opened in several steps and closed in several steps. Trading is fully automated to prevent emotionally wrong decisions.

Q: Can you share a recent successful investment case or strategy you implemented and highlight the key factors that contributed to its success?

A: Using this strategy as an example, which we currently run in the WSOT event, the decision is based on several points. First, the strategy is very well suited as a speculative addition, as it does not correlate with traditional equity strategies. Furthermore, with this strategy, above-average continuous returns with a high hit rate can be achieved with only a small capital investment and clearly calculated risks without a high capital commitment. There is no correlation to the other strategies in our specific strategy portfolio. Thus, weak phases of other strategies can be absorbed, and the overall performance can be excellently smoothed. In addition, there is no need for a long capital commitment, as is the case with a secured loan strategy or equity and option strategies, for example.

Risk Management:

Q: How do you manage risk in your hedge fund? How do you balance risk and return in your investment decisions?

A:

We look at the risk parameters of individual strategies at regularly defined intervals. If individual strategies deviate from their historical statistical values, they are reduced within the portfolio or stopped altogether.

Furthermore, we pay close attention to broad diversification. Cluster risks are avoided, and substantial drawdowns have a maximum pre-calculated limited impact on the overall portfolio.
In addition, the correlation of the individual strategies is analyzed regularly, and strategies are exchanged if necessary.

This is the case at the overall portfolio level. Each strategy has a risk management tailored to the trading approach in the individual strategies.

Q: How do you deal with market fluctuations and unforeseen events affecting your portfolio?

A: Unpredictable events are impossible to manage because you usually cannot plan for them. Therefore, it is essential to know the risk ratios of your own portfolio and to ensure that risks are spread as much as possible through broad diversification. For example, it is also important not to leverage capital to push performance. Using leverage is only interesting in the long term if it allows risks to be spread more broadly or hedged. Ideally, this should be done so that the targeted return does not suffer.

Performance Evaluation:

Q: What metrics and benchmarks do you use to evaluate the performance of your hedge fund? How do you define success for your fund?

A: We strive for continuous value growth, even during a challenging year. We do not always succeed in this either. In the long term, it is essential to keep drawdown phases as low as possible and to achieve above-average returns in the good years.

Portfolio diversification:

Q: How do you approach portfolio diversification and asset allocation in your hedge fund? What factors influence your asset allocation decisions?

A: Generally, cluster risks are avoided. If a strategy performs exceptionally well, it is automatically reduced piece by piece with increasing weighting, thus ensuring profits.

Strategies that fall outside their historical risk parameters, on the other hand, are terminated and removed from the portfolio.

Strategies with strong fluctuations are included in the portfolio with a lower weighting.

Q: Do you prefer or avoid specific sectors or asset classes, and why?

A: We exclude real estate or very illiquid investments so that we can react to big and sudden changes. The German real estate market is a negative example of how political changes can impact. If one is then stuck in illiquid investments such as real estate, this can have a lasting negative impact on overall performance.

Market outlook and future plans:

Q: How do you assess the market situation on the global stock markets? Do you see further rising prices in the indices?

A: Absolutely. The rate hike cycle is through. The stock markets, particularly the large technology stocks, have the worst behind them after the correction of the last 1.5 years.

Q: How are you positioning your fund to benefit from this market expectation?

A: Part of our portfolio invests in equities and option and index strategies and thus participates, among others, in further rising equity markets. However, this is not the main focus of our portfolio. Instead, we strive to achieve positive returns through many non-correlated strategies, which can be realized regardless of the current stock market phase.

Thank you very much for the detailed interview and your insights into the world of hedge funds. We wish you good luck at the WSOT Main Event and hope to see you again soon in our next interview.

Disclaimer

The article above does not represent investment advice or an investment proposal and should not be acknowledged as such. The information beforehand does not constitute an encouragement to trade, and it does not warrant or foretell the future performance of the markets. The investor remains singly responsible for the risk of their conclusions. The analysis and remarks displayed do not involve any consideration of your particular investment goals, economic situations, or requirements.