Former RBS manager launches euro high yield hedge fund

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Steven Behr
B. G., Opalesque Geneva:

Steven Behr, the former head of RBS’s principal strategies team, has come out of an eight-year retirement during which he managed his own family office to launch a European high yield (HY) credit fund, a spokesperson told Opalesque. This is partly due to consistently outperforming the benchmark with average returns of about 12% p.a., before selling at the top of the market before the pandemic and returning 20% from May 2020 to year-end.

Behr has more than 25 years of experience working in the finance industry. He worked at RBS (Royal Bank of Scotland) from 2001 to 2008, initially on the structuring side, then moving to credit research achieving a number One European ranking. He was then asked to set up the bank’s proprietary long/short credit trading business, which he ran with a gross AuM of $10bn. He also set up an ABS trading business at Tradition and ran the ABS trading business at Christopher Street Capital until 2012.

In March 2013, he launched Geneva Capital Partners LLP (GCP), an FCA-regulated asset manager specialising in managing bond portfolios based in London. His GCP Fixed Income Master Fund, a portfolio of European HY bonds, averaged over 1.1% gross returns per month from 2016 to 2020.

Then he launched the European High Yield Investment Fund, a long/short portfolio of European high yield corporate bonds in April 2021 for outside investors. The fund has since returned about 1% net per month, outperforming the BBG Barclays Euro HY index and the BBG Euro IG Index.

The $18m portfolio is highly diversified across 55 different positions with a current cash yield of 9.6%. Following the positive returns, its targeted gross return was raised from 9% to 11% p.a. The level of leverage is about 40% and it is USD denominated. Investors’ fees are 0.72% p.a. for management and 10% for performance with a high watermark.

The investment philosophy’s first priority is capital preservation, according to documents seen by Opalesque. This is followed by a research-driven approach; a granular portfolio (no concentration risks); diversification across sectors, currencies and geographies; returns in excess of inflation (9% net); and consistent cash returns. Sourcing comes from strong relationships with banks, brokers and boutiques developed over 25 years.

The fund focuses on Western European, Scandinavian and UK corporate bond issuers, non-investment grade bonds, and liquid assets. It excludes investment-grade bonds as yields are below GCP’s target, structured bonds with multiple layers of leverage embedded in the structure (such as CDOs and CLOs), financials, and fossil fuels.

High-yield bonds (also called junk bonds) are bonds that pay higher interest rates because they have lower credit ratings than investment-grade bonds. Issuers of high-yield debt tend to be start-up companies or capital-intensive firms with high debt ratios – or even fallen angels that lost their good credit ratings. Bond yields move inversely with prices.