Introducing the Strategic Long Short Fund – A differentiated approach to long / short equity investing

We are pleased to announce the launch of the E.I. Sturdza Funds plc – Strategic Long Short Fund, in partnership with Boston-based US investment team Crawford Fund Management ("Crawford").

Commentaire du Fonds
1 Nov 2022

We are pleased to announce the launch of the E.I. Sturdza Funds plc – Strategic Long Short Fund, in partnership with Boston-based US investment team Crawford Fund Management (« Crawford »).

The Crawford Team, led by investment industry veterans – Christopher L. Crawford, Jonathan R. Saunders and Scott L. Utzinger – have worked together for a number of years, contributing to enhanced synergies between the members of the investment team. As such, all members have an ingrained understanding of the strategy, the processes and the investment universe.

Christopher Crawford

Christopher L. Crawford

Jonathan Saunders

Jonathan R. Saunders

Scott Utzinger

Scott L. Utzinger

What’s the objective of the new strategy being launched by Eric Sturdza Investments

We have launched a long-short equity fund with a North American bias, which seeks to achieve long-term capital growth, providing investors with compelling upside capture with downside protection.

Why did Eric Sturdza Investments decide to progress this strategy now?

At Eric Sturdza Investments, we are fully committed to presenting the best investment opportunities to our clients. We decided to set in motion this strategy to diversify our growing range of funds. As a firm, we were extremely impressed by Crawford Fund Management’s performance track record, ethos and expertise and are pleased to be able to be in a position to discuss this strategy with our clients.

The team at Crawford consists of Christopher Crawford, Scott Utzinger and Jonathan Saunders. Chris and Jonathan founded Crawford Fund Management in March 2009, while Scott joined the team in 2012 and is also an equity holder in the firm.

As such the team has worked together for 10+ years, with no turnover, developing strong synergies and an ingrained understanding of the strategy, process and investment universe. This stability has offered investors a steady hand across market cycles and the volatility of the past few years, with the team generating alpha and protection on the downside across bull and bear markets. Team members have prior experience managing large, multi-billion-dollar pools of capital for diversified top-tier investment firms.

Given where markets currently are and that we are experiencing inflation at levels that have not been seen in decades, with almost all asset classes being impacted, we feel we are fortunate to be working with an investment adviser that is equipped with the right skills and experience to navigate this new dynamic, a team we anticipate will be able to continue to deliver absolute and de-correlated returns. We are confident that the team at Crawford are well placed to find the opportunities and add value for our clients in this new market environment.

What was the selection approach?

Consistent with our longer-term approach to the identification of potential investment advisers, we have at a group level known of the team for some time, as they were formerly an investment adviser for an FoF we were tracking. We were impressed by the team’s return and approach to investing, which led to direct dialogue between us, which has been ongoing for over three years.

As a result, we have been in direct discussions with the team to better understand their approach to investing, their strategy, philosophy and ethos. It is a crucial component of our selection process to ensure there is a strong alignment in the mindset between our group and any potential team we look to work with. For us this is a long-term approach, as such, we need to ensure that we have that level of alignment.

It was very important for us to work with an investment adviser with extensive experience managing an investment portfolio across a range of market cycles, with a demonstrable track record of achieving positive returns. We were thoroughly impressed by Crawford’s performance track record and its ethos and expertise.

Discussions and meetings have therefore been undertaken at various levels across our group, as well as more quantitative and qualitative assessments of the team and their track record. The output is that we are confident that we have found a team with that we can build a long-term and mutually beneficial relationship, for the benefit of our companies and investors.

Why did Crawford elect to work with the Eric Sturdza Group?

Crawford has long believed that its core strategy is well suited to the European market, but like the Eric Sturdza Group, Crawford takes a cautious, long-term view to business development and partnerships, engaging in very few over the firm’s 13-year history. When Crawford first met the Eric Sturdza Investments team in 2019, it was quickly clear that the Eric Sturdza Group had a winning formula for partnering with external managers to create and foster new funds to address compelling market opportunities.

Over the ensuing years of dialogue between our groups, a conviction in the cultural fit grew based on a deeper appreciation of a shared entrepreneurial spirit but one firmly grounded in thoughtful analysis and serious contemplation of both the benefits and responsibilities of partnership. At the same time, Crawford gained an additional understanding of the long experience and considerable resources that the Sturdza Group provides. As discussions progress, excitement over the potential for this joint venture has only grown.

What is Crawford’s investment approach?

The team at Crawford pursues an investment strategy which is geared to superior risk-adjusted returns and preservation of capital. In so doing, they rely on both long and short portfolios in terms of delivering alpha. They are style agnostic, believing a multi-style approach ranging from growth companies to deep value and special situations, is most appropriate in their space, giving the greatest opportunity to deliver on the investment objectives.

The long portfolio of their strategy is focused on undiscovered, underfollowed securities with a strong emphasis on owner-operated companies, where management’s incentives and compensation are closely aligned with investors.

The team adopt an uncommon shorting approach, selectively employing options, married with fundamental analysis to mitigate the perils of traditional shorting. Within the short book, they rely on two well-honed strategies: young companies with unproven business models, and leveraged equities facing potential distress.

Most of the short ideas are executed via hand-picked, single-name put options, which the team believes are typically better suited to the ideas than outright shorts. This innovative, yet conservative approach allows Crawford to benefit from opportunities for returns in areas of the market that are hard to access, and often to record returns even if prices fall.

Ultimately, the team’s ambition is to compound capital at 10% per annum, plus the 10-year US Treasury yield over any 5-year rolling period, driven by both long and short books.

How has the team performed in comparison to its peers?

Since the inception of the team’s investment strategy in 2009 (managed within a US-domiciled structure), the team’s domestic US product has delivered 10% annualised net returns, being positive in 12 out of the past 13 years, and consistently outperformed the wider equity hedge fund peer group.

Potentially of equal importance is the fact that this returns profile has been achieved with substantially less volatility and drawdowns than the equity market generally, with a 5-year Sharpe Ratio to the end of October 2022 of 0.72 vs. a category average of 0.21 and Sortino Ratio of 1.28 vs. a category average of 0.29.

 

Strategy Historic Performance: Growth (%)
Time Period: Since Common Inception 28/02/2009 to 30/09/2022

Crawford Growth Chart

Source: Crawford Fund Management & Morningstar.

What is the team’s current AuM in the strategy, and overall as a Firm and what have been the headwinds in raising additional assets?

Crawford’s AUM is currently just over $100M, with $45M within the strategy. Crawford has always prioritised investing over marketing. Given Crawford’s uncommon approach to both sides of the investment strategy, the team have also recognised that properly marketing the strategy requires a more nuanced process than a more “generic” equity long/short approach. Despite considerable unused capacity in the strategy today, we continue to believe that the small core team’s resources are best spent managing investors’ money. The team are thus particularly excited to have the considerable resources of the Eric Sturdza Group, including a highly experienced marketing and sales organization, joining forces with Crawford to help grow the assets under management.

Is there an anticipated capacity limit with regard to the strategy? If so how much do you think can be managed before the strategy becomes less efficient?

The Crawford team essentially managed the same strategy with assets of $1.5B at a prior firm from 2006 through to early 2009. That portfolio had not yet reached its capacity limit, thus we are confident that the strategy today has at least $1.5-2.0B of capacity given the gradual upward drift of the strategy’s underlying market caps in the ensuing 15 years.

What are the key factors considered when determining capacity that could potentially impact the anticipated limit?

The key factor in determining capacity is the liquidity of the underlying names. Crawford’s strategy is market-cap agnostic; however, the characteristics that they seek in their holdings have most often manifested themselves in the upper end of small-cap and the lower end of mid-cap space, i.e., $3-10B cap companies. As such, that has historically been where the bulk of strategy’s assets have resided over time, with additional holdings typically in every segment from micro-caps to large-caps. Rarely has the strategy owned mega-caps. If there were to be a gradual evolution in where Crawford was finding the most attractive ideas, that could affect capacity, but this is not something that has been experienced in more than 16 years running the strategy.

What is Crawford’s approach to ESG?

To identify investments which will promote the ESG characteristics in alignment with the strategy. You can learn more about Eric Sturdza Investments’ ESG approach and a copy of its Responsible Investment policy here.

The Fund will be initially available for distribution in Ireland and the UK, with other markets to follow soon. The Initial Offering Period (IOP) does not commence until 1 November 2022.

For more information contact Adam Turberville.

Adam TurbervilleAdam Turberville
Director
+44 1481 742380
a.turberville@ericsturdza.com

 

The views and statements contained herein are those of Crawford Fund Management in its capacity as Investment Adviser to the E.I. Sturdza Strategic Long Short Fund as of 01 November 2022 and are based on internal research and modelling. This does not constitute independent research and under no circumstances should the information contained therein be used as a recommendation to buy or sell any security or financial instrument or service to pursue any investment product or strategy or otherwise engage in any investment activity or as an expression of an opinion as to the present or future value of any security or financial instrument. Nothing contained in the views and statements of Crawford Fund Management is intended to constitute legal, tax, securities, or investment advice. The views and statements contain “forward-looking statements”. All projections, forecasts or related statements or expressions of opinion are forward-looking statements. Although Crawford Fund Management believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct, and such forward-looking statements should not be regarded as a guarantee, prediction or definitive statement of fact or probability. Please click on Disclaimer Page to view full disclaimers.

Investment involves risk. The value of investments, the funds and the income which may be generated from them can go down as well as up and therefore investors must be able to bear the risks of a substantial impairment or loss of their entire investments. Past performance is no guarantee of future results.

This communication is issued by Eric Sturdza Management Company S.A (“ESMC”), a regulated Management Company approved by the Commission de Surveillance du Secteur Financier under registration ID S00001025 and appointed by the Fund, registered for distribution in the countries mentioned in this document. ESMC’s registered office address is 16, rue Robert Stumper, L-2557 Luxembourg. ESMC has appointed E.I. Sturdza Strategic Management Limited (“EISSML”), as the investment manager and global distributor which is regulated by the Guernsey Financial Services Commission and registered under Company Number 35985. EISSML’s registered office address is 3rd Floor, Maison Trinity, Rue du Pre, St Peter Port, Guernsey GY1 1LT. EISSML is part of the Eric Sturdza Group. E.I. Sturdza Funds plc and its sub-funds are Irish funds authorised by the Central Bank of Ireland. The information contained herein is estimated, unaudited and may be subject to change.