Neal Berger B. G., Opalesque Geneva:
As a former proprietary global macro trader, Neal Berger sees himself as unusual in the world of hedge fund allocators, who typically have a hardcore, risk-taking, trading background.
About 20 years ago, he moved away from the global macro trading space and became a portfolio manager of non-correlated, often niche-oriented, hedge fund strategies. This has worked well, he says.
But he has recently noticed opportunities shifting again. Now he plans to launch a new fund to take advantage of this renewed fertile environment for major market shifts and trends.
“To say that the opportunity set is fertile for very large and extended moves in markets at this moment is a material understatement in my opinion,” he says in a communication to investors reviewed by Opalesque.
“Many participants, including myself, believe markets of all kinds are simply wackadoodle. We have dislocation all over the place. Five-year bond yields at under 1.2% with inflation running at 6% while the Fed has announced they will be raising interest rates three times next year, we have insanity in digital coins, absurd prices on .jpgs (NFTs) selling for millions of dollars, real estate that exists only in the virtual world and virtual homes selling for millions, to companies with little/no revenues trading with $80-billion market caps, companies that are only months old becoming unicorns nearly overnight, companies with multi-trillion dollar market caps, to kids who aren’t even 20 years old living in their parent’s basement becoming billionaires within a year, and many more examples of sheer insanity. I believe these are all different stripes of the same zebra brought about by central banks around the world printing money fast and loose for many years with a massive pickup in printing over these past two years.”
Indeed, we are seeing the effect of the ‘grand experiment’ by the world’s central banks following 2008. The multi-trillion-dollar injections have been severely distorting “everything including the price of a tea cup in China,” he continues. The central bank’s rationale has shifted from stabilising the financial system to adding liquidity in the ongoing pandemic, to wanting to continue to see the stock market rise. He believes we are at the cusp of a complete 180-degree turn in global markets as the Fed is reining in bond purchases and shifting course in monetary policy toward a tightening stance.
The bull market since 2008 in nearly all securities was engineered by central banks “in an effort to keep the patient alive”, he says. This is the beginning of the end, and the end will not be a smooth transition. It will indeed be very volatile as the Fed ceases quantitative easing and raises interest rates to rein in potential inflation which may already be spiralling out of control.
“In my entire career, I have never witnessed a time that is more conducive to making money as a macro trader riding the coming big trends that are about to develop as we embark upon an end of an era and a new regime,” he adds. “In my opinion, the markets are far more dislocated than the late 1990s internet boom as well as the years immediately after 2008.”
The new macro FoF, to be launched in H1 2022, will not be a tail fund or a short-selling fund. Rather, it will be a multi-strategy macro fund that “will be intelligently designed and nimble to have a certain balance of multiple strategies whereby we believe it will not get hurt too badly if at all when markets are in “risk-on” mode.”
“I believe that this is a product that is needed by nearly every investor in the world,” he says. “However, given the relentless rise of asset prices for such an extended period of time, nearly all investment products that seek to capitalize upon risk-off, or act as a hedge to risk-on, have disappeared. There is little for an investor to choose from to fill this gap. We’ve always tried to provide investors with a unique product that is needed yet hard to find and in this case, due to a complete shakeout, investment options that formerly covered this space.”
The new fund’s objective is to take advantage of volatility and capitalise on what may be a massive downward repricing of all markets in the coming years.
The fund will seek to accomplish its mandate by having traditional macro trading which will be run by himself along with a mix of strategies that should work during risk-on environments such as SPACs, IPO/Secondary flipping, very deep value stocks that trade around 9x multiple with the S&P at 21x.
Eagle’s View opened a Cayman-based entity in April 2021 to test this approach, but where macro trading was kept at a minimum due to timing. It has been trading capital markets strategies, ETF arbitrage, base metals trading, and a quant strategy. Macro trading was more active in November and made some money. The performance has been +6.31% through Nov. 30th with the only down month being April.
In November, the manager saw cracks in the markets and started becoming active in macro with a negative tilt. “We’ve made money in stocks, lost money in bonds, and made money in curve flattening trades in US treasuries.”
“The new fund is intended to shoot for material returns with substantially increased volatility relative to our existing wealth preservation businesses,” Berger says. “This will be an aggressive fund seeking to be in the “get rich” business versus the “stay rich” business which has been the hallmark of our existing products.”
Neal Berger, president and CIO, has been working on Wall Street for over 30 years with more than 25 within the hedge fund industry. Prior to founding New York city-based Eagle’s View Capital Management LLC in 2005, he was the founder and director of multi-strategy funds Apogee Fund and New Edge Fund. He was previously managing director and global macro trader at New York-based Millennium Partners.
Eagle’s View Capital Partners, L.P., the firm’s onshore fund of hedge funds (last mentioned in our June 2020 Corona Fighters report here), is estimated at +1.06% for November 2021 with a YTD performance of almost 18%, according to documentation seen by Opalesque. It has annualised nearly 7% (with a volatility of 4.6%) since its June 2010 inception, compared to 4% for the HFRI FoF Composite index.
The FoF invests predominantly in niche-oriented hedge fund strategies that seek to exploit an edge or a structural inefficiency in the marketplace. The manager does not believe that anyone possesses an edge in predicting the global macro-economic landscape, so the strategy does not rely on market predictions.
The offshore FoF, Eagle’s View Offshore Fund, Ltd. Class G is estimated at +1.3% for November with a YTD performance of 20% net.
Eagle’s View Dedicated Fund, L.P., an insurance dedicated fund launched in mid-2016, is estimated at +1.49% for November with YTD performance of +23% YTD net.
“There has been a surge of interest in Private Placement Life Insurance as a result of renewed focus on taxes and a realization of the tremendous tax advantages obtained by utilizing Private Placement Life Insurance (PPLI),” says a commentary.
The returns shown for the funds are all without correlation to stocks, bonds, commodities, or other alternative investments, it continues. The manager did not make money on crypto, NFTs, electronic vehicles, etc. This year, the returns came from capitalising upon the many inefficiencies in various markets due to the increased volatility.
The HFRI Fund of Funds Composite Index returned 6.5% in 2021, and the HFRI Macro (total) Index 7.5%.
October 2019 interview on Opalesque TV here: Neal Berger: Living On the “Edge”