Troy Gayeski Dishes On SkyBridge Capital's Success
SkyBridge Capital's Partner and Senior Portfolio Manager, Troy Gayeski, sat down with Benzinga to discuss the hedge fund-of-fund's profound success in recent years.
The SkyBridge Alternatives Conference (SALT) took place in Las Vegas earlier in May.
SkyBridge outperformed the HFRI hedge fund index for the last seven years and this year is no exception. Returning just shy of four percent year-to-date, SkyBridge is still leading the way, outperforming the hedge fund index's 0.38 percent gain.
Hedge fund-of-funds have taken flak recently for charging an alpha fee but delivering beta, or worse. SkyBridge bucks the trend, but how is the firm only turning over 40 percent of the portfolio per year? Gayeski said, “We don't claim to have a monopoly on good ideas.”
In a more serious tone, he continued, “Look, our process has always been very thematic. Ignore hedge funds. Ignore trade executions...Where are the greatest inefficiencies in the markets, and why?”
What Separates SkyBridge From The Pack?
As SkyBridge looks for what the trends and themes are, it matches up managers who fit those themes and can deliver results. From there, SkyBridge allocates dollars to risk.
“We don't think we have a silver bullet or magic potion,” said Gayeski. Many hedge funds fall into a position where they limit their ability to capture upside moves in the market. Gayeski explained, “Calibrating how much risk you should be taking is very important. If you take so little risk, you could get everything right but you're not going to make much money.”
Separating SkyBridge from the pack, he stated, “A lot of fund of funds fall into this category. If things go well, you'll make four [percent]. If things go really well, you'll only make six.”
For SkyBridge, the importance is on taking risk, but not too much that, “not if, but when you get something wrong, which is inevitable, or there is a market calamity, clients don't suffer from permanent capital impairment.”
Gayeski continued, “You have to focus on time horizons you have predicative power over. You can only see ahead six to 12 to 18 months. Three years? So many things can change between now and then.”
He clarified the term predicative power, so as not to confuse it with day-trading and market timing. “No one can predict daily or weekly changes. We're not in the business of predicting whether the 10-year goes from 2.5 to 3 or back to 2.4.
"We're in a pay-the-shareholder regime. The only action is in the equity part of the capital structure. M&A volumes are picking up. There [are] plenty of structural transformations managers can take advantage of either actively or passively.”
One of the major themes across the many panels at SALT was that event-driven equity is a hot space, providing lots of opportunities for managers. “We have thought for some time now, that at this stage in the cycle, event-driven equity has the most upside capture that can still generate well above risk-free returns in a flat market and has less than equity downside in a bear market.”
To complement the event-driven equity theme, SkyBridge also seeks managers that specialize in mortgage-backed securities, or Basel 3 banking capitalizations.
“If markets are flat, which is a plausible outcome, we can make somewhere between three and eight percent. If markets are up 20, which we're not saying will happen but anything is possible, we could make 10 to 15. If markets are down 10, we would be flat plus or minus a few percent.”
Mortgage-backed securities and distressed credit are some themes SkyBridge jumped on early and was very effective at implementing. Not looking to criticize others methods, Gayeski wondered, “Why people think there are opportunities in macro or why every year is going to be a stock-pickers market finally and never is.”
Some hedge fund managers at SALT talked highly of buying assets that European banks are selling, touting the sudden great opportunity. “When you really look at what's going on, it's okay, not great," said Gayeski.
SkyBridge's incredible track record must indicate the firm has some idea of how to cut losses or invest in only winners, so how does SkyBridge know if a losing theme is going to continue to be a loser? Gayeski said it's very difficult, but "The key is, why do you own something? Why are you invested in it? What factors are contributing to it?”
On a forward-looking basis, SkyBridge monitors positions and reduces exposure and risk to a certain theme while it is still in favor. SkyBridge isn't waiting for a bear market or a correction - the firm is anticipating it.
The conversation then shifted to a more personal level.
“What do you do when you're bored?...What do I do,” he asked. Looking caught off guard, Gayeski answered, “Two young boys, uh, busy business.”
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