Manager Profile and Insights: Adam Savin and Jeffrey Roney, Maxwell Thacher

New York (HedgeCo.Net) Maxwell Thacher was founded in early 2014 by Jeffrey Roney and Adam Savin who serve as the firm’s general partners and acting co-portfolio managers. The firm currently manages over $100 million in assets through two investment vehicles, the Caisson Breakwater Global Opportunity Fund, LP and the Caisson Breakwater Fund, LP. On the HedgeCoVest platform, Jeff and Adam will be managing the Maxwell Thacher Global Opportunity model and the Maxwell Thacher US Equity Yield model. I recently had the privilege of speaking with Adam and Jeff about their investment philosophy and their strategies. Rather than try to distinguish between the two gentlemen and their answers, their answers are collectively attributed to Maxwell Thacher.

HedgeCoVest: Welcome Adam and Jeff. Thanks for taking the time to sit down with us.

Maxwell Thacher: You’re welcome, thank you for profiling us.

HCV: You guys have two different models with a global focused and a domestic strategy. Are the investment strategies similar?
MT: Similar yes, but not exactly the same. In the US equity strategy focuses on large-cap stocks with yield or total return focused. It is a more conservative strategy as opposed to the global opportunity strategy. The global model is an all-cap strategy and it is our maximum alpha strategy.

HCV: Both models are long-only models, is that where the similarities end?

MT: Not completely. Both of the models are operated with the idea of finding fundamentally solid investments, but like we said earlier, the domestic model skews toward total return with yield and capital appreciation in mind. The global model operates more on finding an overall theme where there are growth opportunities.

HCV: Does the global model only invest in companies outside the US?

MT: No, the breakdown of the portfolio presently shows about 40% invested in North American opportunities with 30% in European opportunities and 30% in Asia-Pacific opportunities.

HCV: Are there precautions taken to avoid areas of geo-political tension?

MT: Absolutely. We only invest in markets that are somewhat developed and where the investment industry is well regulated. We shy away from controversial geographic areas as we don’t want to get hit with a huge loss because of geo-political tensions. For instance, we have avoided Russian investments of late with all of the tensions between Russia and the Ukraine. Too many things can happen in a situation like that where you can’t account for it with your usual analysis tools. We prefer investing in opportunities such as in China or Japan where the market is more developed and the political tensions are at a minimum. We look for a theme, either global or regional, that we see providing growth opportunities based on that theme and then look for an underfollowed company that will benefit from the overall theme.

HCV: Because these are foreign stocks, are there any concerns about being able to execute the trades for the investors?

MT: Not at all. All of the stocks we invest in are listed on a reputable and well developed exchange, so there are very few issues with being able to execute trades.

HCV: I mentioned earlier that the models are long-only, but do you use leverage?

MT: We can use leverage and it could be up to 120%, but most of the time we aren’t using leverage.

HCV: What steps can you take to reduce risk if there is a market correction?

MT: We can take several steps including using some options strategies that will allow us to hedge the portfolios. We can move to cash, we can use index hedging or we have even used collars.

HCV: Would you please explain a collar for our readers, just in case they aren’t familiar with this type of options trade.

MT: A collar is a strategy to protect gains on a long position. You are holding the stock long and then buy a put while simultaneously writing an out of the money call. By buying the put, you are hedging the long position in the stock and by selling the call, you can both offset the cost of the put and set an exit price for your long position should the stock continue to rise.

HCV: Thank you for that definition. We have talked more about the global strategy at this point, so sticking with that strategy, what would you say are the strengths of the strategy?
MT: The flexibility to be in the right markets at the right time and out of the wrong markets at the right time is one of the biggest strengths. I would also say that having expertise in the markets through a network of global professionals is also a strength to the global strategy.

HCV: What about weaknesses?

MT: The biggest weakness is that our ability to uncover opportunities is somewhat limited by our capacity. If we had unlimited capacity, we could find an unlimited number of opportunities. Sometimes the themes we uncover are rather complex and our ability to take advantage of the opportunity is limited.

HCV: Is there a particular kind of market where you feel your strategy performs better than your peers or the overall market?
MT: Because of the global aspect and our due diligence with the companies we are looking to invest in, we seem to do better when the domestic market is down. I would say we outperform in a down market and over-perform in up markets. Conversely, we don’t do as well in a choppy market.

HCV: Is that due to the time horizon you have for your investments?

MT: Possibly. We go into our investment ideas with a three to five year time horizon in mind, so it could be that the underperformance in a choppy market stems from the fact that we have a longer time horizon than most hedge funds.
HCV: On average, how many stocks will you hold in your portfolios at any given time?

MT: We typically hold between 30-40 stocks in each of the portfolios, the global strategy model and the US equity model.

HCV: Do you have limitations on how much of the portfolio can be represented by one investment or one stock?

MT: Upon the initial investment, the average position is size is between three and five percent. Some of the positions have grown to where they represent 10-11% of the portfolio, but that is through capital appreciation, not due to adding funds to the investment.

HCV: What percentage of the portfolio is turned over each year?

MT: Based on the last couple of years, it is probably in the neighborhood of 5-10%, but if there is an economic change, it could be a little higher than that.

HCV: My last question for you is this, what was it that made you join the HedgeCoVest platform?

MT: The biggest thing we saw in HedgeCoVest was that it was a chance to reach a market that we couldn’t reach before. With the ability to attract investors that don’t meet the accredited investor status, HedgeCoVest opens up an entirely different market for us.

HCV: Thank you for taking the time to meet with us today and welcome aboard.

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