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
"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
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
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
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
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
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
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 portfolio."
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
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 D'Attanasio.
"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 space."
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 fact."
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 management.
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
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 basis."
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.