Rialto Capital

ESM LLC and Rialto Asset Management have launched a global macro fund with hedge funds standards (monthly liquidity and a net annual performance objective of 10-15%) based on a diversified set of macro tools. The aim of the Rialto Global Macro portfolio is to achieve consistent long term appreciation through an active investment strategy. The strategy implemented could be assimilated to a global macro style and uses futures contracts (with very exceptional use of options, forwards, ETFs and CFDs) in order to exploit market inefficiencies. The strategy is seated between what could be viewed as a portfolio of highly hedged directional positions with low correlation or, put differently a congregation of slightly biased relative value trades. The portfolio is highly diversified and does not invest in single stocks nor in corporate bonds. The Fund has developed a number of proprietary tools which help the investment professionals in spotting and measuring arising opportunities. Examples would be our Index Pricing Model (IPM) or our Dispersion Measurement Model (DMM). Some typical trades would be to exploit relative value opportunities between different sectors or geographical stock indices, spread widening/tightening between highly co-integrated assets or currency movements linked to sovereign policies. Given that the bulk of our portfolio allocates to equity indices, that is the main risk we will seek to mitigate through various hedging techniques. The Fund’s investment objective is to deliver a consistent performance month after month. We consider the first step in risk management to be portfolio construction, therefore the strategic allocation by market is readjusted on a monthly basis in order to expose the portfolio consistently to 50% equity risk, 20% currency risk, 10% bonds and 15% commodity risk. Constant risk management is applied through various ways (sliding stops by position, cluster risk analysis, correlation, co-integration). Particular attention is given to correlation and directional positions are consistently hedged. Target volatility in the medium/ long term is 8-10% for a return of 10-15% p.a. In terms of investment tools, the Fund will only consider allocation to highly liquid contracts (indices, currencies, bonds, commodities) all cleared by major exchanges (CBOT, NYSE, CME, GLOBEX…). In order to track global portfolio risk, stress tests are conducted with various percentage-worst-case-scenarios. The correlation is a focal point of our risk management and we will look at maximal losses at various levels. Pair trades are tested for stationarity and sized proportionately All investment decisions will take into account some (or all) of the following: - Proprietary fundamental analysis based on information from various sources - Proprietary technical analysis based on information from various sources - Macro-economic analysis (as developed by the Investment Advisor) to evaluate market risk and mitigate/control overall portfolio risk