Interview with Steve Gilboy, Michael Newlander and Jason Gilboy of GLLInvestors
Founded in 1995, GLL Investors manages five multi-manager hedge funds – all of which have postedsuperb returns – while maintaining unusually low-risk profiles with little or no leverage. The largest andoldest fund, GLL Investors, LP, has recorded a 10.26% average annual return over 15 years with a betaof only 0.22. Since inception, GLL is up 287.29% net through June 2010 while the S&P 500 is up124.42%. GLL Single Strategy, which we created in 1999, invests primarily in hedge funds thatspecialise in PIPEs (Private Investments in Public Equities). This GLL fund also has a low correlation tothe stock market (0.22 beta) and, for the past 11 years, has produced an average annual return of 8.55% despite a tough market environment. Since inception, GLL Single Strategy is up 137.96% netthrough December 2010 while the S&P 500 is down (16.77%).Although we seek superior returns for our limited partners, we do so only within the parameters of prudent capital preservation. We are committed to hedging to offset risk and make sure that all fundsmeet our stringent requirements.A guiding principle at GLL is to remain small and nimble. Our experience, supported by industryresearch, has shown conclusively that small funds hovering around $100-500 million in assets performbetter at lower risk than larger funds. A large part of our success has been due to early identification of talented fund managers with integrity and experience who invest their personal assets in their own fund.We then invest in these funds before they close to new investors and monitor their performance andinvestment consistency over time.
1)How did your funds of funds fare through the financial crisis and the subsequent recovery? Has the recent volatility in the US markets affected performance? Which of your funds has delivered the best returns? How do you see the returns of your fund compared with the rest of the industry?
GLL's hedges have protected us as expected through the crisis. We have recovered well andtoday are close to the high-water marks of our investors. For 2010, our funds have experiencedvery low volatility despite the market's rollercoaster ride the general public has been enduring.As of July, all of GLL's funds are profitable for 2010.
2)Being a fund of hedge funds that invests across various asset classes and strategies,on what basis and to what extent do you diversify the investments of your funds intohedge funds employing different strategies? Do you also look at sector-specific funds?
At GLL, we prefer picking people over sectors within our investment areas. We feature eightdifferent strategies spread through 15 hedge funds run by highly-experienced managers whohave solid integrity and honesty. We believe that conducting lengthy, in-depth due diligence onthe people managing the funds that meet our strict criteria separates GLL from other fund-of-funds that often focus more on creating the 'perfect' sector allocation.
3)Which strategy has proved the most profitable for you, in terms of risk-adjusted returns over a period of, say, five years? Which sectors and strategies are youcurrently most bullish on, given the present state of uncertainty across markets?
Our convertible arbitrage and distressed securities funds have performed well for us since 2005.Given the current investment environment, we favour mortgage-backed trading vehiclesincluding agency and non-agency paper. Distressed securities continue to be attractive as wellas risk arbitrage.