Ardea Global Alpha Fund

Ardea was set up in 2008 by 4 co-founders and as a firm specializes in interest rate relative value trading with all products centered around this, with £13bn run across their suite of highly liquid, low volatility and typically defensive natured funds. The investment team consist of 21 members, 15 in portfolio management and 6 in research (which has a quantitative focus). The process is run in a collaborative manner with no lead PMs, with the investment team jointly running/managing all firm portfolios, with trade ideas developed firm wide and filtered down to the appropriate portfolios. The firm see traditional rates RV trading to be heavily macro influenced, and accepting they have no true edge in macro forecasting, they diverge from this approach, with the strategy focusing on very micro/constrained pricing relationships. The investment universe is the global rates markets (sovereigns and equivalents) with a minimum credit rating of A+ to avoid credit and liquidity risk, and the most liquid related derivatives. The opportunity set arises as global rates markets are not always efficient due to market flows from hedging etc, which can result in supply/demand imbalances along curves. The process is aided by screens in searching for flow imbalances, upon identification, the team look to determine an imbalance is affecting the relevant curve, identifying the causes of the imbalance to help with conviction and potential trade duration. Trade structuring then determines how to get exposure to the relative cheapness of bonds whilst limiting exposure to macro factors. There are typically four types of trades: bonds vs. derivatives, curves (exploit anomalies), basis (mispricing between similar instruments) and ‘optionality’ (long options). Portfolio construction aims to create a highly diverse portfolio with the house view that spreading bets across lots of small positions and as well as diversifying across issuer, currency and duration, should help managing portfolio volatility better during stressed environments. Portfolio construction is systematic and is built around a risk optimisation process, taking a marginal risk approach where every trade entering the portfolio needs to be accommodated within the risk budget whilst providing risk/return benefits. The portfolio typically consists of around 400-500 line items which represents 50-100 ideas, with a holding period ranging from a few weeks but is typically months.