In 2008, before the financial markets crashed, Ben Cheng, president and co-chief investment officer of Calgary-based Aston Hill Financial Inc., moved the majority of the firm’s portfolios to cash. That focus on risk management proved to be the right move, and today it’s the basis of the firm’s investment philosophy. Here’s a look at the history of the firm and the numbers that bear its approach out.
It was around this time that Eric Tremblay, Aston Hill’s CEO, left Enerplus Resources—an energy producer with a portfolio of high-quality oil and gas assets—to take over the firm then being run by his father. Cheng joined in 2007, a Toronto office subsequently opened, and soon after, the firm, known as Overlord Financial since its 2001 inception, relaunched under the name Aston Hill Financial.
When Cheng came aboard, he brought more than two decades of investment experience to the firm. From 1997 through 2005, he was at Toronto-based CI Funds, where he managed the CI Signature Dividend Fund (which was named the Dividend Fund of the Year in 2003) and the Signature High Income Fund (which was named the Income Trust Fund of the Year in 2004). Then he moved to New York-based Fortress Investment Group LLC.
Not long after joining, though, Cheng was ready for a change. “Working in New York for a large, private hedge-fund firm like Fortress just wasn’t my cup of tea,” he says. “My family was still in Canada, but the firm and I also had philosophical differences. There’s a certain way to raise money and run capital in Canada, and it doesn’t mesh with how things are done in the United States.”
Mutual funds, branded Aston Hill Funds, represent 65 percent of the firm’s business. The funds are predominantly long-only, although two employ a long-short strategy: one, run by Jeff Burchell, invests in American equities, and another, run by Sandy Liang, invests in global high-yield. Another 20 percent of the firm’s assets are invested in institutional mandates such as pension funds and high-net-worth accounts, and the final 15 percent is invested in subadvised mandates, some of which Cheng himself runs for IA Clarington Investments Inc.
The firm’s total assets under management are close to $7.5 billion, a level Cheng attributes to the firm’s risk-managed approach. “Investors in Canada have become increasingly tired of the tremendous volatility in our markets, so we spend a great deal of time trying to control as much risk we can,” he says.
To this end, the firm has hired portfolio managers with in-depth experience running long-short money—in other words, hedge funds. “We brought them here to the long-only mutual fund world to help us figure out what might pose future risks and how we might contort that risk, whether it be through the use of equity and debt securities, cash, derivatives such as puts and calls, or managing currency hedges,” Cheng says. The portfolio managers are Burchell, who runs US equity funds; Liang, who runs global high-yield funds; Andrew Hamlin and Vivian Lo, who run balanced funds; Steve Vannatta, who runs a global-resource fund; and John Kim, who runs a Canadian-focused equity fund.
Year-to-date gross fund sales as of June 30, 2014—a new record
Current managed fund assets as of June 30, 2014—another new record
Total growth of assets under management per annum over the past five years
Revenue increase from the first quarter of 2013 to the second quarter of 2014
New sales team members added in the past year to achieve Canada-wide coverage
The start of the financial crisis, in 2007, wasn’t a fortuitous time to relaunch an investment firm. “I’d like to tell you there was some secret sauce we brought to the market, but the reality is, it was hard work,” Cheng says.
One strategy he employed, however, was an unwavering focus on protecting clients’ capital. Cheng recalls the tactical funds he was managing for IA Clarington, which by investment mandate could have a maximum of 20 percent in cash. That worried Cheng because “what we saw happening in the financial markets scared us to death.” By July 2008, before the real collapse occurred, Cheng had moved more than 50 percent of the tactical funds’ portfolios to cash despite the investment mandate. “We told IA Clarington’s compliance department that, based on what we saw at the time, what we did was in the best interest of our clients,” Cheng says.
Aston Hill ultimately won that debate and was vindicated when the markets fell 30–40 percent. But Cheng acknowledges that his decision was, in some respects, a gamble. “At the end of the day, when you take such a big stance, there’s a great deal of risk involved,” he says. “If the markets had risen 20 percent instead of falling by 40 percent, we would have looked like idiots.”
“For five years now, risk has been repaid with performance, so it’s fashionable to take on more risk,” Cheng says. “But our philosophy is to err on the side of caution, whether it’s fashionable or not, because it’s the right thing to do for our clients.”