SPARTA CAPITAL MANAGEMENT - Q&A
Credit support gives hedge fund room for growth
Q: Please give us a brief intro to Sparta Capital Management.
A: Sparta Capital Management is a London-based hedge fund founded by Franck Tuil from Elliott Capital. The predominant strategy is event-driven but they invest in both equities and credit markets, and both public and private markets. We launched in 2021. We focus on four core strategies spanning the capital structure. These include equity special situations, relative value and capital structure arbitrage between different share classes and debt of an issuer, credit (stressed, distressed, investment grade, and high-yield), and a separate focus on private credit and equity financing. Given these strategies, Sparta trades equities, bonds, and derivatives (both listed and OTC derivatives).
Q: What is your operating model and what criteria did you consider when choosing an investment management platform?
A: When it comes to OTC derivatives for the credit market, we execute CDS, mostly to buy protection, and loan TRS, to trade total return swaps that banks are providing to access specific bank debt. We also trade the more common equity OTC derivatives such as equity swaps and CFDs and hedge the forex on our books, including forwards and collar puts on some exotic currencies. Finally, we do private financing, including bridge loans, loan facilities, and hybrid financings between equities and debt, for example facilities with a warrant or preferred shares.
With this complexity, support for multiple asset classes played a major part in our decision to launch with Enfusion.
We couldn’t just have a system that would be all singing and dancing in terms of equity, but ignore credit, for instance. Our platform needed to be as good on the equity derivatives side as well as the credit side. We also wanted a system able to grow with us. Enfusion supported all of that.
Q: How do you view the importance of front to-back coverage and one single dataset in trade workflows?
A: The market has shifted towards front to back, but Enfusion’s approach gives us full visibility of the trade workflow. Portfolio managers, traders, and back office teams all use the same platform and data set. This seamlessness means we can obviously reconcile trades (bonds, derivatives, or equities) and cash, but also shadow our fund administrator’s NAV, which is crucial for us and our investors.
The benefits of this visibility go deeper into our organization as well. We can use the same data to track and manage accruals, monitor credit and other portfolio risk (such as Greeks, DVO1, and CSO1), and more easily manage bank debt without separating it from the rest of our portfolios. And lastly, Enfusion allows us to connect seamlessly with third parties, including prime brokers and our fund administrator,
In other words, Enfusion prevents miscommunication and even tension. If your portfolio manager isn’t looking at the same data as your risk manager or fund accountants, it’s a recipe for miscommunication and operational mistakes.
Q: How does your trading and risk team leverage reporting capabilities to monitor credit strategies and trades?
A: The trading and risk have been utilizing the analytics platform as an integral part of their investment process. For instance, they use the Order Management System and various reports to monitor our credit investments. We receive a daily credit report to oversee our traded loans, in addition to reports for monitoring metrics like DVO1, CSO1, and certain betas. These betas are calculated by examining the spread of our traded instruments in comparison to the crossover, to partly hedge our credit book.
Q: How has your experience with Enfusion impacted your overall operational efficiency and cost savings?
A: Enfusion’s ability to deliver a single system benefits us in terms of licensing and tech costs. We also see savings from fewer man-hours, the elimination of the need to reconcile across data sets, and the reduction in anxiety. As a cloud-native platform, Enfusion is always there for us, handling the complexities of the IT footprint. Peace of mind matters.
We also gain peace of mind from Enfusion’s client support. Responsiveness to support queries and expertise in credit help us ensure that our daily operations run smoothly.
You don’t really know about support until you live with it. We have seen Enfusion support be very responsive. They demonstrate expertise in the credit field, where it’s much needed because there are intricacies in credit that don’t occur with equities. We have found a partner on the system side that understands our world, our strategies, and our needs. Enfusion has supported us from onboarding onward. And we feel confident that our partnership will develop as we do.
Finally, we do not have to spend time or budget on upgrades. We get seamless feature updates pushed to us weekly. We can always access the latest enhancements without the disruption of upgrading from one version to the next. We constantly get new functionalities so we can improve our operations. For example, now we can easily mirror the cash flow of credit facilities and handle the nuances of accruals for large or sinking bonds.
Q: What would you advise other COOs when choosing an investment management platform?
A: I think it’s important for the COO to lead the selection process. But to be legitimate in doing so, they have to bring everybody into the decision process. The CIO, PMs and Risk teams, are all key decision makers, especially in a hedge fund. The CIO is usually the founder, so can weigh in.
It’s also important to educate all the stakeholders within the firm that it’s not only about selecting a system that’s just going to show their portfolio ticking live or just the OMS for the traders. It’s also the system that will reconcile against the administrator, like for an event-driven fund, handling corporate actions correctly and for the right quantities.
If you are all working on the same data, seeing the same data, it makes life so much easier for everyone and it makes the firm operationally more robust. At the end of the day, our investors are not investing in operational risk because that risk doesn’t produce any return for them. But the COO still has to mitigate it.