Hadron Capital, the City of London-based hedge fund boutique
focused on a multi-asset approach to catalyst-driven investment
opportunities, is just a few months away from completing its
10-year track record – and is seeing renewed interest
from investors in the US and Europe at a time of increasing
The Cayman-domiciled Hadron Fund was launched back in
October 2004. Since its debut, the fund has produced a total
compound return of 139% for investors, annualising at 9.34%.
The fund made 9.20% in 2013 and is up 7.55% this year to the
end of June.
Hadron also manages a UCITS-compliant version of the same
strategy, the Hadron Alpha Select Fund, which launched in April
2010 and is up by 6.56% for the year to date.
Hadron is led by CIO Marco D’Attanasio, who
founded the firm with Giuseppe Di Cecio and Massimiliano
Ciuchini in 2004 and was formerly a proprietary trader at Royal
Bank of Canada (RBC). D’Attanasio previously ran
his Hadron strategy while at RBC, making for an unofficial
strategy track record that dates back some 16 years.
D’Attanasio describes his investment strategy
as multi-asset-class long/short investing, with an event-driven
style. The Hadron funds invest in catalyst-driven opportunities
across a diverse range of asset classes, including equity,
credit, merger arbitrage, convertibles, volatility and capital
structure arbitrage investments.
"I’ve always been convinced that there is a
strong advantage in having a bottom-up approach, being
long/short, and having a holistic view of the capital structure
– which means you better understand the risks and
opportunities, so you can find the best place in the capital
structure to position yourself," he says.
"This approach is becoming more and more relevant and useful
in Europe thanks to the explosion of the public credit markets,
as companies shift out of pure bank debt financing into those
public markets," he adds.
"Financial markets are stabilising; they’re
open for business again, so today you can find far more
candidates for which there is public debt of relevance as well
as public equity," D’Attanasio continues. "So
it’s easy to understand why you get better results
by looking at the whole capital structure, and it makes sense
both from the long and the short side. You can play different
parts of the same company off against each other, or you can
simply play the company from the best angle."
The Hadron portfolio comprises three distinct investment
buckets focused on long/short credit (mostly in high-yield),
catalyst-driven long/short equity and arbitrage-style
situations (merger arb, convertibles and other trades with
"The three buckets are managed by three different portfolio
managers, with clearly defined boundaries as if they were
independent funds," explains D’Attanasio. "The PMs
have clearly identified responsibilities for their individual
portfolios. For example, if a bond trade goes badly,
it’s down to the credit long/short manager."
That credit long/short manager is Ciuchini, a former RBC
colleague and Hadron founding partner. The arbitrage bucket is
managed by fellow founding partner Di Cecio, while
D’Attanasio himself is responsible for the
catalyst-driven equity bucket and, as CIO, is also responsible
for overall asset allocation.
The Hadron Fund allocates assets between its three strategy
buckets based on two 'levers’: gross portfolio
exposure and relative strategy exposure.
When it comes to the gross exposure of the portfolio, "we
find ideas, we implement them, and the gross goes up and down
as positions come in and out," says D’Attanasio.
"This is driven by macro factors, by the opportunities
available, and by market conditions."
The second lever is more intuitive, and is based on
determining which bucket best exploits an already perceived
opportunity in the markets. Again taking the credit book by way
of example, D’Attanasio explains that while there
may be plenty of opportunities early in a cycle within stressed
debt and debt refinancing, during the more mature stages of the
cycle credit will typically offer fewer opportunities
– whereas equity is likely to become more interesting
as M&A activity increases.
As a result, capital flows between the three strategy
buckets in a fluid and dynamic manner. "Our credit exposure is
probably cut in half now, compared even with a year ago,"
observes D’Attanasio. "And recently we
didn’t have even a single dollar in merger
arbitrage, but it has previously been as high as 60%. Our best
return by strategy – by a long way – has been
merger arb, because we only do it when it makes sense."
D’Attanasio believes these clearly defined
allocation buckets ensure clarity within the overall portfolio.
"At the bottom-up level, there’s no risk of
inconsistency: one idea is expressed one way," he says.
"Everything has its place, and nothing we do falls outside of
those three buckets."
A typical position accounts for 1-3% of NAV.
"We’d rather work a bit harder and find more ideas
than have too concentrated a portfolio," he explains. "We have
five analysts, plus the three PMs looking at their own ideas,
so that’s eight thinking heads."
The fund targets opportunities that are expected to play out
over a time horizon of roughly six months – but in
reality its average holding period is about half that. "We tend
to apply fairly tight risk/return filters," says
D’Attanasio. "If we have a 10% return target on a
position with a six-month projected timeframe when we enter,
but we make 7% in the first month, then the trade goes.
"It’s not worth holding onto it to make 3% in
the subsequent five months. Instead we work harder to find more
ideas, which make more money and spend less time in the
The Hadron Fund has a global remit, and places an emphasis
on western Europe. It has no sector bias and
D’Attanasio describes the team as generalists who
will look at almost anything.
Sectors are allocated to specific team members, who perform
analysis and make recommendations for any opportunities they
have identified across the capital structure. While the fund is
able to invest in a broad range of instruments and securities,
D’Attanasio says he aims to "keep it simple and
liquid, with nothing too exotic".
Much has been made of a perceived uptick in European market
confidence and corporate activity in recent months, with
M&A on the increase as a result.
"There’s pressure on European companies,
following the financial crisis, to actually do something about
their underperforming businesses – and that often
requires some form of restructuring," observes
"Monetary policies have created a strong focus on top-down
investment ideas and top-down teams within the investment
community," he continues. "Relative to the past, I feel there
is less focus now on the specifics, the nitty-gritty details of
companies – especially in the small and mid-cap
Hadron’s broadly market-neutral approach is
another differentiator, he adds. "A big problem for the
industry is that people feel they have to be very directional.
When interest rates are as low as they are – at zero
or close to zero – the returns available are lower, so
alpha gets squeezed. There’s not enough alpha for
the industry to latch onto; that’s a quantitative
He continues: "The focus of our investment programme is 100%
on finding alpha in specific bottom-up situations. The strategy
is working well, and we think it will keep working well across
With a long and healthy track record coupled with the
ability to exploit the current rise in corporate activity,
Hadron seems well placed to attract new investors and grow its
"European event-driven seems to be flavour of the month both in
Europe and also, more significantly, with US investors," says
David Sheppard, who has been the firm’s CEO since
coming onboard last year.
Sheppard is a well-established figure in the European hedge
fund industry, having previously set up Occam Asset Management
alongside Thames River co-founder Jonathan Hughes-Morgan.
By joining Hadron, Sheppard has taken over responsibility
for day-to-day running of the business and for driving growth
– leaving D’Attanasio and the other
founding partners free to focus exclusively on investment
When Sheppard joined the firm last September, it was
managing $200 million across the Hadron Fund and its UCITS
sister vehicle, Hadron Alpha Select. This figure has since
risen to $385 million, with inflows split roughly 50/50 between
the two vehicles.
Assets under management remain below the firm’s
peak in early 2008 when, pre-financial crisis, it was running
some $650 million. But flows are now very much heading in the
right direction again.
While some 80% of new inflows have come from the
firm’s traditional European stomping ground, an
encouraging 20% share has come from US investors.
"We’re on the cusp of getting a bit of pull in the
US, and we’ve accelerated our marketing push in
North America," says Sheppard. "There’s a growing
wall of money trying hard to find a home in the event-driven
space, but it’s having to do so on a measured
He describes the US push as a long-term project, though.
"It’s a cornerstone piece of work for the next
five to seven years, because it will take time to gain those
relationships – but with a 10-year track record,
we’ve shortened the lead time considerably," he
says. The firm estimates capacity for the investment strategy
at around $1 billion.