Finance

A Veteran Fund Manager's Strategic Return to the Hedge Fund Arena

In a strategic rebounding from his previous venture, the seasoned fund manager Nick Bird is making headlines once again. Following the closure of his initial fund, the Macquarie Asian Alpha Fund, which was a frontrunner among quantitative hedge funds in Asia, managing a staggering $2 billion at its zenith, Bird has made a notable comeback.

Today, Bird is at the helm of OQ Funds Management, a firm he established in Hong Kong, seeding it with $15 million of his own capital in June 2020. The fund's assets have surged to approximately $500 million under his stewardship. However, Bird is mindful of the pitfalls of his prior operations, aiming to prevent the rapid expansion that previously led to underwhelming results and consequently, to the shutting down of his fund at Macquarie.

His nascent enterprise has seen a strong performance, outstripping the Eurekahedge Asia stock hedge fund index with an annualized return of 12% from its inception through February. In a conscious decision, Bird has decided to limit the fund's assets to a ceiling of roughly $750 million. Presently, he's observing with keen interest the discrepancy in pricing between Chinese stocks listed on the domestic stock exchanges and those in Hong Kong, which he notes is the most pronounced it has been in over a decade and a half. Moreover, Bird identifies a particular opportunity in the “unjustifiably cheap” valuations of Chinese tech stocks.

Bird reflected on the past, stating, “This was a chance to learn from past mistakes and do things right.” Despite not being directly impacted by the regulatory curbs on Chinese quants, charting his own course in today's investment environment comes with its challenges. He points out that the landscape has significantly changed, with the bulk of new capital flowing into the hedge fund industry being absorbed by large, multi-strategy, multi-manager firms, with enthusiasm waning for Asia-focused funds. Bird remarks nostalgically on the difficulties faced currently, "It’s much harder than it used to be in the old days."

Nick Bird's Journey from Youthful Investor to Quant Fund Pioneer

The Australian native, whose early investment experience began at the tender age of 10 years, has had an extensive and influential career in the realms of finance and investment. With a heritage rooted deeply in academia—his father being a former head of the University of Sydney's aeronautical engineering department—Bird’s journey in the financial sector is noteworthy. During his initial years working at Macquarie in the 1990s, Bird concentrated his research on quant factors pertinent to the Asian market. By 2005, Bird launched the Macquarie Asian Alpha Fund, carving out a niche as one of the first large-scale, Asia-dedicated hedge funds that leveraged computer algorithms for stock selection.

A key factor contributing to Bird's success has been his unique strategy of implementing what is known as a discretionary overlay. This approach blends computerized screening of stocks with his seasoned judgment to select and assign weightings to individual equity and factors.

Evolution of Strategy at Macquarie and Lessons Learned

The trajectory of Bird's tenure at Macquarie saw an evolution in strategy as the assets under management grew, prompting a divergence from the discretionary overlay method. As investments branched out to encompass Europe and the Americas, the funds were managed more exclusively using quantitative models. Bird’s role expanded to oversee all three funds, which collectively burgeoned to $2.8 billion in assets. The geographic expansion and the sheer size of the assets made it increasingly complicated for Bird to apply his acumen and to conduct agile trading operations.

Following a decade of profitable years, except one, the Asian fund endured four subsequent years of losses, leading to Macquarie's decision to terminate the fund in November 2018. Bird departed from Macquarie in 2019, introspective about the decisions that led to the downturn. “It was a mistake to diversify outside of Asia,” he expressed, with a consequential realization that accumulating excessive funds for both the Asian and European funds was also erroneous.

A New Beginning with Concentrated Focus and Discretionary Overlay

Determined to rectify past errors, Bird is set on constraining the size of his new firm and to persistently concentrate on the region where he discerns a greater number of stocks with substantial analyst coverage and turnover compared to Europe. His aspiration is to realign with his foundational strategy of synergizing computer models with human insights.

Bird’s original fund amassed an impressive $800 million within just 27 months. In contrast, it took nearly the same duration for OQ Funds Management to attract its first external investor, Boothbay Fund Management, based in New York, and over 30 months to reach $50 million in firm assets—a testament to the heightened competition and shifting investor sentiments in today's market.

Bird’s reintegration of the discretionary overlay appears to be bearing fruit for his new fund. Despite a modest 2% decline in its inaugural year, attributed to the tumultuous market conditions spawned by Covid-19, OQ recovered and subsequently delivered substantial returns in the following years. During a particularly challenging year for the Eurekahedge Asia stock hedge fund index, which plummeted nearly 11.7% in 2022, Bird's Asia Absolute Alpha Fund was on an upward trajectory with an approximate 15% gain.

Capitalizing on Market Inefficiencies and Chinese Tech Stocks

One of the more striking market phenomena that have caught Bird's eye is the significant deviation in valuation between Hong Kong-listed shares and their domestic yuan equivalents. Highlighting this arbitrage opportunity, Bird notes that prominent, high-liquidity Chinese entities such as China Life Insurance Co. are fetching approximately 70% lower prices in Hong Kong compared to China—a notable anomaly considering both share types confer identical voting rights and dividends. Bird's strategy involves initiating long positions in these undervalued Hong Kong shares while concurrently holding short positions in either the yuan shares or in FTSE China A50 stock index futures.

Further aligning with his conviction in undervalued equities, Bird shares his assertive stance on Chinese technology companies. “We also believe that Chinese tech shares are unjustifiably cheap,” he declared, revealing his long positions in tech giants such as Alibaba Group Holding Ltd., Baidu Inc, Tencent Holdings Ltd., and JD.com Inc. He observes these entities are judiciously utilizing their excess cash for share buyback initiatives, amplifying the potential for growth.

Vision of Sustainable Growth and Long-term Success

Nick Bird's experience, coupled with the recalibration of his strategies, signifies a poignant chapter in his career. His intent to facilitate the sustainable growth of OQ Funds Management by capping the assets and honing in on the Asia-Pacific region positions his comeback in a space where he is most confident. By highlighting his learnings from earlier ventures and embracing the challenges of the current financial landscape, Bird is navigating OQ Funds with prudence and insightfulness.

Amidst his intricate blending of technological analysis with seasoned judgment, Bird's OQ Funds Management stands out as a boutique firm that prioritizes quality over the rapid scale. The fund's expansive portfolio, composed of roughly 1,200 stock positions, is a testament to its meticulous and diversified approach, all while adhering to the principles of concentrated asset management that Bird fervently supports.

In Conclusion: A Resurgence in the Hedge Fund Domain

The narrative of Nick Bird's resurgence in the hedge fund space is a profound display of resilience, acuity, and an unfaltering commitment to adaptive strategy. Having spearheaded one of the region's pioneering ventures, experienced both resounding success and setbacks, Bird is once again charting his course with deliberation and strategic foresight. With OQ Funds Management, he is laying a new foundation, poised for a legacy of success rooted firmly in reflective practice and insightful exploitation of market disparities. Bird’s story underscores an unyielding conviction in the potential of Asian markets, leveraging his wealth of experience and the lessons gleaned from the past to shape a prosperous future in the ever-evolving world of finance.

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