Peter Schabus, Co- founder of SYMATE Capital AG

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Peter Schabus
Peter when did Symate Capital commence operations and how is the company organized?

Symate Capital AG was founded in May 2009 and is based in Zurich. My co-founder, Jannis Nitsios and I commenced operations in October 2009 by launching our flagship fund: Symate G-7 L/S currency fund. The Zurich based legal entity is the investment advisor to its subsidiary Symate Capital Ltd (Cayman) which is the investment manager of the fund. We have decided to go for an SPC (segregated portfolio company) structure which will enable us to add more funds in the future and therefore offer diversification to our investors via new strategies, expanded currency underlyings and other time frames. Symate Capital is also in the position to offer tailor-made solutions via Managed Accounts.

Who are the other key principals of the firm and how do you split your day to day responsibilities?

The co-founders are myself and Jannis Nitsios. I am responsible for Engineering & System Development trying to exploit new technical trading systems, methods and tools. Together with Jannis we are both heading the Portfolio Management division with the main focus on trading and risk managing the Fund as well as Managed Accounts. Another key person is our Risk Officer, Patrick Haag. Patrick has developed a proprietary risk management and reporting tool that delivers mark-to-market valuations and VaR calculations. He is also overseeing our trading activities and controls our risk parameters.

Both you and Jannis previously had very successful careers in trading and portfolio management. Why did you decide to take part in setting up Symate?

We had both been working for two major investment banks in Switzerland and were very successful in our roles. We are fascinated about FX and took a major step by founding Symate Capital: a start-up hedge fund focusing on a purely systematic trading approach within the FX space. By having founded our own company in one of the most challenging times in the financial sector we actively took the risk associated with this decision, but also underscored our confidence as well as our long term orientation. Being part of such a young company is extremely exciting in all respects. We are fully committed to what we do and will do our best to achieve our mission.

What factors do you particularly like about FX as an asset class?

What we particularly like about FX is: high liquidity, low correlation to other asset classes, almost no opening gaps (stop loss management), narrow spreads and is 5 x 24h tradable.

How would you describe the firm's mission and currency management style?

We would best describe our mission in these words:

"By adapting our disciplined way of strict money and risk management we attempt to limit drawdown and to deliver asymmetrical risk-return characteristics. By taking long/short positions in the most liquid G-7 currencies' spot market we aim to generate alpha in different business and/or market cycles." Our currency management style can be taken from our name:

SY = SYstematical
MA = MAthematical
TE = TEchnical

Meaning we are systematic traders with a pure technical approach. We do not rely on any fundamentals, news or any macroeconomic events.

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Jannis Nitsios
What currency products does Symate Capital offer to investors?

We offer to our investors the opportunity to gain FX exposure, either via managed accounts or directly via our first fund which is called 'Symate G-7 L/S currency fund'. The aim is to grow the current asset base and strengthen our product offering by adding more funds to our SPC structure. The vision is to have a complementary product offering and to trade a portfolio of strategies which offer true diversification.

What sort of investors are you seeking to attract?

Our current clientele consists mainly of High Net Worth (HNW) individuals and independent Asset Managers. However, one of our long-term targets is to attract institutional investors. In order to reach this target we need to grow our asset base at a reasonable time. We are convinced that the FX market will attract investors and that from an asset allocation point of view the market share will increase over the coming years.

In what ways do you go about achieving minimum draw-downs and asymmetrical risk-return characteristics?

Our main focus lies on risk- and money management and not on achieving the maximum possible return with the highest risk involved. We are very risk- averse traders and trade on multiple time-frames from intraday to swing trading. The models use a volatility filter which ensures the correct weightings between the different time layers. Thus, we adapt our risk parameters / risk per trade according to market volatility between the multiple time-frames. Furthermore our proprietary momentum indicator signals pretty fast if momentum is vanishing. If the indicator signals a loss in momentum we might close out the trade soon after opening it and wait for the next entry signal where risk / reward is in our favor.

How do you balance your trading between technical and systematic methodologies?

Our trading is 100% technical. We trade purely off the charts and look for patterns on the price itself, but also on our proprietary indicators. In order to get rid of the noise during major fundamental announcements we have created an indicator which keeps us out of the market half an hour before and after such events. This is particularly helpful for trading the short-term intervals. On the longer time frame we almost trade 24 hours. There is just one overnight time slot in Asia where we ignore any new entry signals. Nevertheless, existing positions will always be secured with an initial stop loss or if already in profit with a trailing stop. Our approach is 95% systematic with a clear and precisely defined set of rules. The systems tell us where and when to enter and exit a position and what stop and position size to use linked to the current market volatility.

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Patrick Haag
What components make up the formula for your proprietary trading signal indicators?

Well, as you know most if not all technical indicators lag price. We have tried to find a formula which eliminates the lag as far as possible and reacts to price changes in a quick way without too much noise. The main component of the indicator is historical and actual price action on which we calculate some Standard Deviations and Volatility measures. We have combined momentum, trend and volatility in one indicator to prevent an information overload on our charts by using multiple indicator panels. Too much information is just misleading and slows down your decision making process. Therefore, our indicator is able to show trend direction, momentum and how stretched the current price action is.

Do you use FX algorithms as part of your program trading activities and if so, are these designed and built in-house of supplied by external providers?

As of today we do not use FX algorithms in our daily trading. But we plan to do so in the not too distant future and are in talks with some providers. We are definitely following the developments in this area and are aware of the added value. The capital investments into such technologies are contingent on our asset growth over the coming years.

In what ways do you leverage trading technologies to help you deliver more stable alpha returns?

We mainly trade electronically over platforms with very tight and competitive spreads. One of our next challenges will be to evaluate an in-house order book. The signals generated by the trading systems will be watched in-house until the price moves to our target entry or exit. A pending order will then be executed at market best. We simply want to avoid all of our signals (i.e. orders) becoming visible and then being watched by our banks/brokers.

What steps do you take to limit trading risks?

As previously mentioned our systems tell us everything we have to do. To limit trading risks anything in the investment process is checked by two persons - from signal to order book status and risk parameters. We have built an in-house position keeping system which issues 'red flag' alerts if one of the risk parameters is broken. Every single trade is limited with a volatility adjusted hard stop-loss and trailing stops are moved along to protect gains. The sum of our net open positions does not exceed 3x the portfolio's total equity and we are avoiding excess concentration risk.

Do you think some currency managers tend to ignore operational risks and how do you go about mitigating these?

We are trying to outsource all non-core related business activities which allows us to focus on our trading competences. A 'red-flag' report has been put in place linked to open positions and ensuring correct profit/loss attribution. We have an an independent and accredited fund administrator who is reconciling our trade activities on a daily basis and also calculates the NAV of the fund on a weekly basis. On the other hand, we have a solid custodian where approx. 70% of the assets is held in cash.

Steps are being taken in various parts of the world to significantly increase the regulation of the capital markets, which may also include OTC derivatives. In what ways might increased regulatory oversight effect the currency management landscape and your own activities?

Regulation is the important issue of 2010. One key thing to realize is that regulation will be by EU- wide rules and will be done by EU regulators. The proposed Alternative Investment Fund Managers (AIMF) Directive will impact the hedge fund industry. However, at this stage the effect of this on our business is still vague. Especially as the proposed directive is built on the proposal to regulate the hedge fund managers rather than the funds. We are, of course, following the developments on the regulatory front very closely.

Looking to the future how do you plan to expand your business and the value it offers to investors?

Well, if talking about the future of Symate we should probably differ between Business Development and new Trading Systems Development.

Business Development:

Our mission in life is performance. Symate is geared to deliver the best risk adjusted returns. What all investors want is capital protection and to maximize returns. In our view, hedge funds are able to satisfy the demands of capital preservation because they can actively manage the downside risk compared to long-only funds. What happened in 2008 made investors very nervous about markets in general, but they are definitely starting to re-invest. For 2010, we believe the industry will recover and will be starting to gain market share as investors realize the value it provides. Our strategy returned 14.19% net of fees in 2009 at an annualized volatility of 8.06%. Of course many long-only funds have done better than hedge funds last year, but investors recognize that hedge funds will have much less volatility in the long run. In this context, we will try to match our investors' needs and offer them efficient solutions to gain exposure to the FX market - either via a direct investment into the Symate G-7 L/S currency fund or via Managed Accounts.

Contrary to long- only investment strategies, those based on trend- following programs are currently facing a tough market environment. Especially due to the high intraday volatility which is challenging for the trade management of a position. During the end of the year 2009, developing trends got repeatedly interrupted by short-term corrections. This is the reason why our fund finds itself currently in a draw- down phase. Nevertheless, we are convinced that systematic, non-discretionary investment and risk management processes will lead to out-performance over discretionary investment styles in the long run.

Trading Systems Development:

We are currently working on a new trend-following model and another trading approach where we eliminate the time scale from trading. The concept of the trend- follower is to trade off the daily charts and capture the main trends of an underlying currency basket during the year. The system will be fully automated and will also consist of Emerging Market currencies. The second project we're working on is to eliminate time from trading. We're trying to focus on pure price action.

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