London, 02 August 2018 – Alternative asset manager Cheyne Capital Management (UK) LLP (“CheyneCapital”) today announced it has successfully reached its capacity limit of £600 million ($800 million) for Cheyne Real Estate Credit (CRECH) Fund V – Opportunistic (“CRECH V” or “the Fund”), bringing the net assets of Cheyne’s Real Estate group to £2.3 billion ($3 billion).

“European real estate debt markets continue to be structurally inefficient. Regulatory pressures have reduced the lending volume and risk appetite of European banks, creating a sustained demand for nonbank lending”, said Jonathan Lourie, CEO and Founder of Cheyne Capital. “At Cheyne, we seek to uncover attractive investment opportunities presented by dislocations and to identify the best ways of delivering
their value to investors. Our Real Estate group has demonstrated a successful track record of doing this over the last ten years”. CRECH V is the fifth fund in Cheyne’s real estate direct lending strategy, which launched in 2011 following on from the firm’s real estate bond strategy in 2009. Over this period the team has deployed £2.3 billion
of capital across 63 loans and had £1.3 billion of capital returned by borrowers to date.
CRECH V takes an opportunistic approach to the asset class, with an ability to invest across the capital structure. The Fund targets double-digit returns whilst maintaining an overarching focus on capital preservation. In the current environment, Cheyne’s Real Estate group sees the best risk/return opportunities in senior lending to mid-market borrowers on value-add assets and also in core/core+ senior and mezzanine lending to large global institutional borrowers. All of the Fund’s investments are in Western Europe.

Approximately 80% of the Fund’s capital has already been deployed, with investments including a €155m senior loan to French luxury hotel operator, LOV Hotel Collection, a £105m whole loan to Quintain to fund the development of a residential and office building on the Wembley Park site, a £100m whole loan to fund the development of two bespoke residential schemes in central Manchester, and a £35m junior loan to SME regional housebuilder Larkfleet Homes.

Ravi Stickney, Head of Real Estate at Cheyne Capital said, “The closure of our fifth real estate lending fund and deployment of almost all of the capital is testament to the market’s need for customised, nonbank lending solutions. Over the last nine years, I believe Cheyne’s Real Estate group has established a reputation with borrowers for innovative credit solutions, dependability and timely delivery, which has
led to many referrals and repeat business. ”

Quintain has successfully completed a £172.5m financing
package with Cheyne Capital to support the development of the next phase of its
development programme at Wembley Park. The funding will support the development
of the latest block in its Eastern Lands quarter, consisting of 458 homes and
includes a multi-storey coach and car park that is being part funded by Homes
England.

Angus Dodd, Chief Executive at Quintain said: “Cheyne is an
existing funder of the business on other phases under construction and we are
delighted that it is continuing its support through co-funding the next
development in the pipeline.  The funding
structure is bespoke for Build to Rent (BtR) and was executed in a highly
efficient manner, demonstrating Cheyne’s expertise in this area. The funding
will take the aggregate number of residential units under construction at
Wembley Park back to over 3,000. These homes are on track to be delivered in
phases over the next two years and will all be managed by Tipi.”

Arron Taggart at Cheyne Capital said: “The Quintain loan
demonstrates Cheyne’s continued ability to provide large development loan
solutions to high quality projects such as Wembley Park and support borrowers
of the calibre of Quintain. The Wembley Park project is a complex and
innovative example of how the London landscape continues to improve and change
from large scale redevelopment such as this, and we are delighted to be able to
play a part in that journey.”

The latest plot on the Eastern Lands is called E05 and
comprises 458 homes across three blocks, ranging in height from 10-21 storeys.
The homes are being delivered entirely for rent, including discount market rent
and London living rent, all of which will be managed by Tipi, Quintain’s
lifestyle-focused rental brand. Also at E05 is 83,000 sq ft of innovative amenity
space in the form of podium-level private landscaped gardens, roof terraces and
a resident’s lounge. The contractor for this project will be John Sisk &
Son.

The news comes as Quintain also announces the appointment of
Richard MacDowel to the role of Group Treasurer. Richard joined from the real
estate lending team at Lloyds Bank, where he was Head of Major Private Groups.
Working alongside Cath Webster, Executive Director of Strategy &
Investment, he will have responsibility, among other things, for the group’s
relationship with external debt funders. Richard said: “I join at an important
time for the business, as it further develops the Wembley Park project. The
Build to Rent funding market in the UK is still nascent, and it is exciting to
be a part of the team that is at the sector’s vanguard and looking to establish
new funding templates.”

The growth of non-bank lending in Europe is often mentioned as a trend that could radically transform the European economy. This remains to be seen, but if banks gradually give some of their dominance in the lending market, then firms such as Cheyne Capital Management stand to benefit.

Cheyne was founded in 2000 by Jonathan Lourie and Stuart Fiertz, two fellow graduates of Dartmouth College, an Ivy League university in New Hampshire. Lourie took the role of CEO and CIO, while Fiertz is Cheyne’s president and director of research. They had previously worked for Morgan Stanley in London, setting up and running the bank’s convertible bonds business for a decade.

At the time there was probably nothing unusual about two colleagues leaving a large investment bank to set up a hedge fund. Having chosen London as their base, the pair got caught up in an important structural trend. In the nearly two decades since its foundation, Cheyne has become one of the largest providers of specialised credit in Europe.

The growth of non-bank lending is likely to face resistance by businesses themselves, which may be reluctant to partner with non-bank entities. However, regulators are exerting pressure in favour of this trend by reducing the capacity of banks to lend. Fiertz points out that the IFRS9 accounting rules implemented in 2018 force banks to put up reserves against an expected loss for any credit that has broken a covenant. This creates an opportunity for external investors to buy the ‘stressed’ credit asset. Fiertz estimates the volume of these credits amounts to about €250bn at the European level and argues that stressed credit is a different proposition to investing in non-performing loans (NPLs). “We would sit down with borrowers, discuss the debt terms and the new liquidity line, giving every incentive for them to work with us. It is effectively a consensual restructuring that avoids the court process,” says Fiertz.

Cheyne has hired experts focusing on regional markets, from Spain to Germany, and found suitable businesses in various sectors of Europe’s medium-sized companies. The strategy, which Cheyne branded ‘strategic value credit’, was launched in May 2018. According to Fiertz, it is a seriously scalable strategy, where competition with large credit managers is less intense than in other sectors. It is also intended as a smart play for the later stages of the credit cycle.

The growth of the private debt market is intertwined with that of the private equity sector, as equity sponsors have started providing debt as well as equity. Fiertz argues that there are clear benefits from investing with a pure debt provider like Cheyne. Private equity sponsors tend to invest in the more liquid part of the market, where more leverage is needed to achieve attractive yields. Furthermore, he says: “We have seen many private debt operations being set up, with staff often coming from the leveraged finance teams of large investment banks.”

Cheyne is also known for its real estate lending. The firm’s real estate private debt strategy was launched in 2011, building on its expertise in real estate securities. Since then, the group has invested £2.5bn (€2.9bn) in 67 private real estate debt deals and has returned £1.7bn to investors to date. The portfolio consists of 40 deals, backed by assets mainly located in the UK.

The firm’s real estate group consists of 28 professionals. Cheyne invests across the entire real estate capital structure, including senior, mezzanine and whole loans, listed real estate securities like commercial mortgage-backed securities (CMBS) and residential mortgage-backed securities (RMBS). There is also a focus on ‘special situations’ like workouts, loan-to-own, debt for control and recapitalisations.

The securitisation market has suffered owing to the Solvency II rules, which penalise insurers for owning asset-backed paper. But by lending across the capital structure, and for different purposes, Cheyne can take advantage of different opportunities.

The yields in this sector are attractive, according to Fiertz. In the UK, a typical real estate refurbishment loan can yield 9%. With leverage, that goes up to 15%, but Fiertz points out that putting leverage on investments is not essential for Cheyne. As a market veteran, he has seen the damage that overleveraged strategies can do.

Demand for property debt is high and banks do not have competitive advantage in this area, because the UK regulator forces them to lend to cashflow-generative assets. Fiertz says Brexit has had a limited impact, mainly reducing loan-to-value (LTV) ratios. At the same time, this sector has not seen the degradation of lending standards that is clear in other more liquid loan markets, where ‘cov-lite’ loans are the norm. “We have a full set of covenants to ensure works are being done on time and on budget,” says Fiertz.

The real estate sector has seen fewer non-bank lenders being set up in recent years, compared with those focusing on corporate loans, according to Jonathan Lourie, Cheyne’s CEO. “Typically our clients are real estate entrepreneurs or companies where property is a major factor, such as healthcare companies or student housing operators. It is harder to end up in a competitive situation.”

Because Cheyne is known as a hedge fund it is perhaps surprising to learn that one of its flagship strategies involves impact investing. In late 2014, Cheyne launched a social property impact fund whose goal is to take advantage of huge shortage of affordable housing in the UK. “There are 1.15m households currently on the waiting list and just 47,000 new affordable homes were created in 2018, indicating a 24-year backlog,” says Lourie. The social impact strategy builds residential property and enters into long-term leases with counterparties such as councils, housing associations and charities to help meet their housing needs.

Cheyne is proud of its multi-strategy approach but it remains committed to fundamental credit research and to exploiting opportunities where market dislocations appear. Lourie has a particular liking for investment-grade credit at present, in which the firm invests solely through single name credit default swaps.

The firm continues to run its event-driven and long/short equities strategies that leverage on its broad research capabilities. With the ability to allocate dynamically across different sectors of the credit and equity markets, Cheyne hopes to satisfy the needs of many investors as the hunt for yield continues.

By Justin McGowan and Duncan Sankey

Since the global financial crisis, the world has witnessed unprecedented growth in global corporate credit markets. Yet, despite the trillions of dollars put to work in the debt capital markets, corporate credit is still an unfamiliar concept to most investors compared to other asset classes, such as equities and commodities. Every red-top newspaper and 24-hour news service is happy to report the latest twitch in the Dow, FTSE or Stoxx indices but momentous moves in the iBoxx or iTraxx go unmentioned. And whereas many a talking head is happy to pose as an equity analyst, few feel comfortable venturing into the arcana of credit. Yet the corporate credit market, as the authors of this new book show, is both materially larger than its equity peer and has shown more attractive risk/reward characteristics over the last 90-odd years.

In Opening Credit, career credit professionals, Justin McGowan and Duncan Sankey, aim to redress this by drawing on their more than 50 years’ collective experience in the field to elucidate a practitioner’s approach to corporate credit investment. Whilst explaining the basics of traditional credit analysis and affirming its value, McGowan and Sankey also caution against its shortcomings. They demonstrate the need both to penetrate the veil of accounting to get to the economic reality behind the annuals and interim numbers and to analyse the individuals that drive them – the key executives and board members. They employ a range of cogent and easy-to-follow case studies to illustrate the value of their executive- and governance-led approach, which places management front and centre in understanding corporate credit.

Opening Credit will appeal to all those seeking a better understanding of corporate credit, including analysts looking to develop their skills, fund managers (especially those with an eye to SRI), bankers, IFAs, financial journalists, academics and students of finance.

About the authors

The authors have worked together for over 20 years.  Since 2005 and 2003, respectively, Justin and Duncan have both worked in the award-winning corporate credit team of Cheyne Capital Management, participating in the management of both long-biased and long/short credit strategies specialising in global investment-grade and crossover corporate credit.  Cheyne’s long-only corporate credit funds have compounded at approximately 16% per annum since 2002 and have recorded cumulative defaut losses of only 0.34% over that period, despite navigating some of the worst market conditions ever experienced.

About Cheyne Capital

Cheyne Capital was established in 2000 by Jonathan Lourie (CEO & CIO) and Stuart Fiertz (President) after working together at Morgan Stanley. Today Cheyne is one of the largest providers of European Real Estate Debt and has developed an Investment Grade & Crossover Corporate Credit programme that has generated net annualised returns of 14% since its inception in 2002.

The Cheyne Social Property Impact Fund, (“Cheyne”) this month took home the ‘Best Large Scheme in Planning’ award for its ‘Elderberry Walk’ project at the National Housing Federation Awards 2018, which are considered the most respected in the affordable housing industry.

The 161-unit development will deliver much-needed high quality, affordable housing to the Southmead area, comprising six different housing tenures to meet the local housing demand. Work on site commenced over the summer and the first units are due to be delivered in 2019.
The project is being developed in partnership between Cheyne, Bristol City Council, United Communities and Bristol & Bath Regional Capital, marking the first time that a private investor, a housing association and a community investment company have come together to create an inclusive housing scheme. Furthermore, it also sees the introduction of the UK’s first private sector rent-to-buy model, making this project a genuine turning point for UK housing.

Head of Cheyne’s Social Property Impact Fund, Shamez Alibhai, said: “We’re proud that our work on
the Elderberry Walk development has been recognised by the industry and are thrilled to have won this prestigious award. This project has set a new standard of delivery for social housing in the UK, ensuring that high quality and genuinely affordable homes are delivered on time to those who need them most. Most importantly, we look forward to our first residents moving in in 2019 and flourishing in their new homes”.

Cheyne was founded in 2000 by Jonathan Lourie (CEO & CIO) and Stuart Fiertz (President). Approximately two thirds of our 144 staff work in non-investment and control functions, demonstrating our commitment to creating a sustainable business to serve investors through a long-term investment in people and infrastructure.

• Loan to fund redevelopment of prestigious Kitchener Barracks site in Chatham, Kent to build 300 new homes

• Forms part of Cheyne’s real estate debt strategy to provide non-bank funding to housebuilders

London 3rd July June 2018: Cheyne Capital today announced it has provided a £27 million loan to TopHat Industries to fund the redevelopment of the prestigious Kitchener Barracks site in Chatham, Kent. The loan will help secure the development of over new 300 homes, comprising two, three, four and five-bedroom houses and apartments. The properties will be design-led and energy efficient, in a master-planned gated development, that is located within easy reach of Chatham’s town centre and railway station. These homes will also provide a quality housing solution for the increasing numbers of people looking to the Medway commuter belt for affordable options.

Raphael Smadja of Cheyne Capital said: “The Kitchener Barracks have a rich heritage as one of the oldest military sites nationally. We are pleased it will provides homes for the local community and are delighted that innovative new company TopHat are developing them. ”

Rob Turner of Cheyne Capital said: “We are very pleased to be supporting another housebuilder with the flexible financing support they need to grow and help find new ways to address the country’s housing shortage. This forms part of our strategy of identifying residential developers looking to build high-quality, mid-market housing in the country and follows our recent investments in Larkfleet Homes, Vanderbilt Homes and co-living developer The Collective.”

TopHat Industries was advised by BLP. Taylor Wessing advised Cheyne.

About Cheyne Capital Real Estate

Launched in 2000, co-founded by Jonathan Lourie and Stuart Fiertz, Cheyne Capital is one of Europe’s leading alternative investment managers and is headquartered in London. Cheyne invests across the capital structure from the senior debt to the equity of corporates and real estate. In real estate specifically, Cheyne has provided financing solutions since 2009 and now manages approximately £2 billion of assets across direct real estate lending, securitised European real estate debt and selective special situations. Cheyne seeks to provide specialised non-bank loans to borrowers in select European markets, with a flexible approach that enables it to invest into all parts of the capital structure.

Payouts for top staff at hedge fund Cheyne Capital almost doubled to £37m last year as profits boomed.

Senior management and other “risk-takers and control functions [staff]” at the investment firm took home the combined windfall, up from £19m the year before.

Cheyne’s highest-paid member bagged a £7m payout as profits rocketed by around 80pc to £44m and turnover increased from £46m to £72m.

The company, which specialises in alternative investments, has been capitalising on unmet demand for credit from property developers.

It has backed schemes including Quintain’s redevelopment of the area around Wembley Stadium in west London. The fund now controls around £2.5bn of property assets across Europe. Cheyne has also been growing its “strategic value credit” arm, which is currently focused on acquiring riskier corporate debt from banks that are ­tidying up their balance sheets.

Cheyne was founded in 2000 by former Morgan Stanley bankers Jonathan Lourie and Stuart Fiertz, who continue to run the fund, which employs around 140 staff.

It is run out of Stornoway House in London’s St James’s district, the former home of historical figures including Lord Beaverbrook and one-time headquarters of broadcast giant Granada. Cheyne Capital declined to comment.

Peterborough and London, 31 July 2018: Country Court Care today announces the completion of a refinance which sees Cheyne Capital installed as the sole, senior lender to its 30 care home portfolio, replacing Barclays, Santander and AIB. In addition, Cheyne has provided a £51 million development facility to fund a pipeline of seven new build assets nationwide, as the group continues to expand.

The Country Court Care portfolio has grown significantly over the last few years, stretching from Brighton to York and with the Group opening seven homes in the past 24 months. The portfolio is 100% freehold and remains fully-owned by the Kachra family who focus on driving the standards of environment and hospitality continually within the sector.

Al-Karim Kachra, CFO of Country Court Care said, “We’re very pleased to have grown our relationship with Cheyne Capital which started three years ago. Being a family business it has always been imperative for us to retain our core family values throughout the business and to have a partner that understands our ethos. In a sector that is constantly changing and encountering new challenges, this is especially important and Cheyne’s willingness to evolve and flexibility has proven that to us. With this facility, Cheyne will be supporting us in being able to continue in our vision to provide high quality care and focus on building new care homes fit for the future.”

Raphael Smadja of Cheyne Capital commented, “As a business with a significant history and a 35 year heritage, Country Court Care has a proven track record and established role as a provider of quality care across the country. We’re delighted to grow our relationship with the business, whose ethos and operational approach corresponds with the high-quality, relationship-driven principles we employ in our lending strategy. This supports our strategy of providing flexible private capital to help invest in the growth of this sector.”

Country Court Care was advised by Charles Russell Speechlys, Freeths, 8Advisory, PwC Birmingham and Duncan and Toplis. Taylor Wessing, Mayer Brown, Knight Frank and Connell Consulting advised Cheyne.

About Cheyne Capital Real Estate

Founded by Jonathan Lourie and Stuart Fiertz, launched in 2000, Cheyne Capital is one of Europe’s leading alternative investment managers and is headquartered in London. Cheyne invests across the capital structure from the senior debt to the equity of corporates and real estate. In real estate specifically, Cheyne has provided financing solutions since 2009 and now manages approximately £2 billion of assets across direct real estate lending, securitised European real estate debt and selective special situations. Cheyne seeks to provide specialised non-bank loans to borrowers in select European markets, with a flexible approach that enables it to invest into all parts of the capital structure.

About Country Court Care

Founded in 1983, Country Court Care operates nationally providing dementia and nursing care across 30 sites. The group has grown over the last 10 years from 7 care homes, successfully acquiring 16 care homes and constructing 7. The business now focusses on new builds and is looking to continue growing over the coming years.

Earlier this month, Bridges Ventures and Cheyne Capital hosted a packed room of institutional investors in London for a discussion about the challenges and opportunities of impact investment for institutional investors. Featuring contributions from Sir Ronald Cohen and Nick Hurd MP (the former Minister for Civil Society), the event gave investors a chance to hear from peers who are already active in the space, and from fund managers who are developing investment products to meet a range of different investor needs. 

The following summary is for the benefit of the 65 investors who attended, and others who expressed an interest to attend but weren’t able to join us. 

Key takeaways:

·There is increasing global momentum behind the impact investing movement

· More and more entrepreneurs are setting out to solve social and environmental problems

·There is a range of possible impact investing strategies – including private equity, property and fixed income – to suit a range of risk/reward profiles

·There is a growing body of evidence that investing for impact can create competitive advantage and deliver at- or even above-market returns

·Government has an important role to play as a facilitator (and buyer of social outcomes)

A few highlights of the discussion:

“The invisible heart of markets”

Sir Ronald Cohen described impact investing as the new venture capital. Just as venture had previously emerged in response to the needs of innovative tech entrepreneurs, so the rise of impact investing is a response to the needs of the growing number of social and environmental entrepreneurs – and just as ERISA legislation had made it easier for institutions to invest in venture capital, so legislative changes were making it easier for institutions to invest for impact, too. “This is already a global movement, demonstrated by the engagement of the G7 countries, the EU, Australia, Brazil, India, Israel, Mexico and Portugal in the work of the Global Social Impact Investment Steering Group.” And it brings a new dimension to investment decision making across asset classes, bringing “the invisible heart of markets to guide their invisible hand”. He pointed to the extraordinarily high calibre of people in the space, as well as to the potential for attractive uncorrelated returns from financial products like social impact bonds.

Next, a group of investors talked about their experiences of investing for impact, in a panel chaired by (outgoing) Big Society Capital CEO Nick O’Donohoe.

Matt Christensen fromAXA IM said his organisation had originally started thinking about impact as the positive element of its responsible investment strategy, to complement its risk mitigation strategies (like divestment, integration of ESG factors, and so on). AXA IM has now looked at more than 300 fund opportunities across different asset classes, he said, of which 50 were “institutionally ready”. He discussed the importance of impact being “in the DNA of the fund” rather than “accidental”; he thinks linking fund manager incentives to impact might help in that respect. In light of its success to date, and the substantial interest this has generated internally, AXA IM is now seeking to increase its activity in this area: it plans to launch a second impact investment fund of funds. Matt believes we will increasingly see buyers pay a premium for impactful businesses.

Lisa Hall fromSkopos Impact Fund said that, contrary to some investor concerns about a lack of institutional quality product, her team has been able to invest more than €70 million across two different portfolios in less than two years. She stressed the importance of recognising that there is a broad spectrum of possible impact investments (as per the Bridges Spectrum of Capital); Skopos only invests in funds seeking risk adjusted market-rate returns, and there is growing evidence that this is possible, she said (notably in the recent Wharton report ‘Great Expectations’). She also highlighted the importance of impact measurement, to ensure impact is “not just promised but real” – and also truly additional. Companies that follow sustainable business practices are more likely to be adhering to best practices throughout their organisations, she added. 

Aled Jones fromMercer suggested his firm’s clients were only really interested in market-rate return products – and that there was a small but growing number of institutional-quality managers in that space. Mercer is very focused on the dependability of impact measurement processes, he said; but generally speaking, it assesses a potential impact investment opportunity in much the same way as it would assess any other potential investment.

Next up was Nick Hurd MP, the former UK Minister for Civil Society. He argued that as our social and environmental problems become ever larger and more complex, and with public spending shrinking across the developed world, Governments desperately need new and innovative solutions. So they have a huge role to play as a facilitator of the social investment market and as a buyer of social outcomes. He also believes that social businesses will become increasingly important in the creation of sustainable jobs, particularly for young people. There are cultural challenges to overcome, he admitted – but he believes this is one of the few issues on which there is cross-party consensus in the UK. Quoting Victor Hugo’s aphorism that “there is nothing more powerful than an idea whose time has come”, he urged those investors present to “take action” and commit the capital required.

Finally, a group of fund managers discussed their own impact investing strategies, in a panel chaired by Emma Daviesof The Wellcome Trust.

Shamez Alibhai, partner and manager of the Social Property Impact Fund at Cheyne Capital, an alternative investment manager, said that his fund was helping to plug the gap as Government funding was withdrawn from the social housing market. Investors recognise that serving the socially-disadvantaged doesn’t have to mean sacrificing returns, he said: three-quarters of the fund’s investors do not even have a specific impact allocation. Cheyne had brought in an external expert (New Philanthropy Capital) to assess the social impact of all its investments, he added.

Michele Giddens, partner and co-founder at Bridges Ventures, a specialist sustainable and impact investor, talked about how investing for impact could act as a competitive advantage – in terms of the quality and passion of the team it allows a manager to attract, and the alignment of interest it demonstrates to mission-driven entrepreneurs. By developing a platform of different funds (from growth capital for SMEs, to property investment, to social sector funding), Bridges now has a range of tools to tackle societal challenge – and a range of products to meet different investors’ requirements, she said.

Simon Bond, lead portfolio manager of the Threadneedle UK Social Bond Fund – a partnership between fund manager Columbia Threadneedle and social investor Big Issue Invest – talked about how the vehicle is giving a range of retail and institutional investors an opportunity to invest for impact via a daily liquid fund. Big Issue Invest designed the methodology used to assess the impact of the bond investments under consideration – and almost half of Threadneedle’s management fee goes towards Big Issue’s charitable efforts, Bond said.

Cheyne Capital was established in 2000 by Jonathan Lourie (CEO & CIO) and Stuart Fiertz (President) after working together at Morgan Stanley. Today Cheyne is one of the largest providers of European Real Estate Debt and has developed an Investment Grade & Crossover Corporate Credit programme that has generated net annualised returns of 14% since its inception in 2002.

Investors can prepare to rebalance in a quickly repricing market by using convertible bonds and credit default swaps, Cheyne Capital Management president and director of research Stuart Fiertz said.

Given the fragility exposed in both equity and credit markets, surging geopolitical risk and concerns over economic expansion, Fiertz supports the strategy.

There are “many visible fault lines”, Fiertz told the audience at the Investment Magazine Absolute Returns Conference in September.

“We could each choose our favourites, but certainly we’re extended on the equities side, there’s evidence we’re extended on the credit side, interest rates, inflation seems low, how long will it remain, and the economic expansion is breaking new records in terms of time,” he said.

At the same time, idiosyncratic risk is increasing, driven by business model changes like the Internet of Things, and increased geopolitical risk with the rise “of a harder right and a more radical left” in countries like the US, the UK and Germany. Given all that, Fiertz said, “liquidity is unreliable”.

“It’s all good having trading strategies – these indicators that tell you where to move to – but will you be able to move in time?” he asked. “I think that is a fundamental building block. Given all these fault lines and the speed at which markets will reprice in today’s environment, especially at this time of unreliable liquidity, in our view, you need to be pre-positioned.”

Fiertz suggested that investors “embrace convexity” – meaning measuring and managing the amount of market risk to which a bond portfolio is exposed. This means investing in floating instruments; Fiertz specifically mentioned convertible bonds and credit default swaps.

“We think that what you should do in this case is embrace convexity at the instrument level, and build that up within each of the asset classes. That convexity will translate to convexity at the portfolio level, so that if you are indeed long and wrong, the portfolio will automatically reposition itself,” he said. “And you won’t have to be prescient…or have to rely on the market liquidity that I don’t think will be there the next time around.”

Convertible bonds may have “fallen out of favour” in the market, Fiertz said, but they “get more long in the market as equities go up, and get out of the market when the equities come down”.

Fiertz said Cheyne Capital (co-founded with Jonathan Lourie) uses credit default swaps to manage credit risk spread and raised concern about the state of the private debt market. He said evidence suggested that private debt was in the “late stages” of the credit cycle, raising further risks for investors.