The following interview is with SkyBridge Capital, a firm operating in sectors such as the fund of hedge funds sector. This publication interviewed Max von Bismarck, partner and chief executive for Europe at SkyBridge Capital.

The
following interview is with SkyBridge Capital, a firm operating in areas such
as the fund of hedge funds sector. This publication interviewed Max von
Bismarck, partner and chief executive for Europe
at SkyBridge Capital. By way of background, before he joined SkyBridge, Mr von
Bismarck was the head of investors at the World Economic Forum, where he built
and led an international team based in New York and Geneva responsible for all
global activities and relationships of the WEF related to hedge funds, private
equity, institutional investors, family offices and sovereign funds. (All told,
this is a group overseeing over $4 trillion of assets). He is a law student and
holds numerous other qualifications and titles, including an Executive Masters
in Global Leadership from the World Economic Forum (Programme in collaboration
with Wharton School
of Business, Columbia University, INSEAD and London Business
School).

Mr
von Bismarck also is a senior advisor on global business at the Asia Pacific
Research Center of Stanford University, a senior advisor for Europe at the
Nicolas Berggruen Institute and continues to serve as a senior advisor to the
WEF.

Can
you set out a bit of background about SkyBridge Capital's fund of hedge funds
business, as in when did it get set up, who runs it, who owns it, what is its
focus and unique selling point?

SkyBridge Capital (SkyBridge) is an
alternative investment firm with approximately $7.4 billion in total assets
under management and advisory as of 28 February 2013. Today, the firm provides the full spectrum of hedge fund investing
solutions including fund of hedge funds, custom portfolios and hedge fund advisory
services. SkyBridge was founded in 2005 by Anthony Scaramucci as a hedge
fund incubation in the firm. Mr Scaramucci previously co-founded Oscar Capital
Management, an investment partnership and managed accounts business which was
sold to Neuberger Berman in 2001.

In June 2010, SkyBridge acquired the hedge fund
business of Citigroup Alternative Investments, merging SkyBridge’s entrepreneurial
culture with Citi’s talent and depth on the investment side. The Citi team was
led by Raymond Nolte, currently co-managing partner and CIO at SkyBridge and
formerly the CEO of Citi’s hedge fund management Group.  Nolte has held positions of leadership in
banking and hedge fund investing, including at Deutsche Bank and Bankers Trust
Company, since 1983.

I joined SkyBridge in 2011 to focus on
further internationalising the firm and broadening our international investor
base.

SkyBridge's
multi-manager products focus on a high-conviction approach to alpha generation. Our research-focused investment team actively shifts investment exposures to
opportunity sets with what it perceives as the greatest risk/reward proposition
and the most attractive correlation characteristics. We
believe that fund of funds can create value in today’s market through a thoughtful, thematic investment approach and timely manager
selection, appropriate levels of theme and manager concentration and a dynamic
evolution of the portfolio. 

What has performance been like over the past, say, five years and 12 months?

Due to private
placement rules, we cannot publicly disclose our performance.

What have been performance drivers? What
might have hit performance, and why?

The main performance drivers for SkyBridge
in 2012 and so far in 2013 have been hedge funds focused on cash flow
generative strategies.

In our view, these funds offer the most
attractive return streams per unit of risk, beta, and liquidity in the current
market environment. Thus, we continue to position for potential exposure to
strong, consistent cash flow generative strategies that we believe should not
be dependent on an improvement in the global economy or financial markets in
order to generate returns. If the eurozone and the US
economy hold together and security prices do not appreciate in value to any
material extent, we believe that the cash flow generative nature of our top-three
themes (prepayment sensitive mortgage-backed securities, credit sensitive MBS,
and high yield/stressed US corporate credit) should generate at least modest returns.

Furthermore, on a relative basis, we
believe these strategies should be typically less affected by the debilitating
risk-on/risk-off price action that gripped the capital markets in 2011 and
2012, since the cash flow acts as cushion to extreme market moves.

In addition, we expect to maintain smaller
exposures to strategies such as lower beta Basel III implementation-related
relative value credit, and residual event-driven equity. We believe that what
these strategies do not have in cash flows, they should partially make up for
in hard catalysts, such as the continuing trend of US bank balance sheet
consolidation and select merger and acquisition activity. We continue to seek
to avoid strategies that are dependent on monetising, nearly impossible to
time, mark to market gains or losses such as long/short equity or macro.

How in general does the firm go about
selecting investments. How do you describe your investment and risk philosophy?

SkyBridge’s investment process starts with
fundamental research of the global capital markets to establish a top-down view
of the macroeconomic environment. Based on our view of the markets, we will
seek to identify low volatility, non-correlated, thematic exposures to hedge
fund opportunity sets with the greatest potential risk/reward proposition.
Portfolio management actively shifts investment themes (strategies) and
exposures as the environment changes.

Prior to making an allocation, we consider
historical and anticipated performance of each underlying fund manager and
perform extensive operational due diligence – while giving consideration to the
current macroeconomic outlook and the particular manager’s strategy. We also
practice active portfolio management with the goal of creating diversified,
hedged portfolios.

All our investments are supported by risk
management, operational due diligence and an ongoing monitoring process – with
a view to positioning toward capital market opportunities and risks.

In terms of risk management - SkyBridge
views risk holistically, as exposure to any financial, reputational,
regulatory, legal, operational, or other such factors that may negatively impact
the firm and/or its performance. Risk management considerations are integrated
into the firm’s investment decision making and allocation process. The head of risk
management sits on the manager selection committee and the portfolio allocation
committee.  It is important to note,
however, that no risk management system is failsafe.

What
is the fee structure? Some FoHFs levy a separate fee. How are fees disclosed?

The industry’s exclusive focus on fees is
clearly misplaced. What matters, at the end of an investment process, is the
risk-adjusted return net of fees. How one gets to that return is immaterial. If
an investor is happy with the return, then a fund of fund has provided value.

How
you deal with "style drift" and ensure that the overall risk profile
of the client's allocations is protected through time?

SkyBridge monitors its portfolio investment,
including through risk aggregation software, to assess if the exposures are
consistent with the investment style and risk profile stated by the
managers.  In addition, we seek to understand
the major themes and ideas in the managers’ portfolios through regular
communication with the managers by our investment team.

Where do clients come from? Family
offices, private banks, wealth advisors, others?

SkyBridge has a diversified client base
comprised of high net worth individuals, family offices and wealth advisors, as
well as institutions from all over the world.

Do you have
plans to launch new products, hire new people, set up offices, etc? If so, can
you give details?

As any entrepreneurial business, we are
always on the lookout for growth opportunities, ways to expand our product
range and talented individuals to help us facilitate this.

Can you give some brief comments on the
overall state of the hedge fund industry, which has been through a lot in
recent years?

The industry is back above peak assets,
evidencing a resurgence for the industry. 
We have also seen a shift toward more institutional participants -
institutions have had fairly solid flows out of pension plans and endowment
funds into hedge funds, because they continue to believe in the risk return
parameters.  Additionally, given where
interest rates are on the fixed income side, more market participants have
begun utilising the asset class as an alternative to fixed income products.

Specific to fund of funds, we are seeing a
bifurcation of the industry between providers of hedge fund beta and fund of
funds that have become more alpha-centric. Generalist fund of funds are having
a hard time justifying fees because the performance is just not there. However,
fund of funds that are more tactical in their position taking tend to show more
clear evidence of adding value and investors are therefore willing to pay an extra
layer of fees.

What
do you see the biggest trend in the industry now?

The very large funds continue to garner the
majority of the assets and the institutional allocations continue to outnumber
the individuals. The industry is also trending more toward niche strategies
including special situation funds and direct lending funds, rather than macro
and long-short equity strategies.  The
correlation properties of these new strategies are proving complementary to
stock and bond portfolios.

How
are you set up to deal with the European Union's AIFMD regulatory changes?

We are closely watching the regulatory
developments related to AIFMD to ensure that we act appropriately.