AppleTree Capital Supplement

2016's Most Innovative Hedge Fund Manager

AppleTree is an awarded alternative investment manager launched in May 2010 by Michael Nicoletos and Dimitris Apistoulas. The firm’s mission is to deliver exceptional value to its investors by strictly adhering to its philosophy of transparency, liquidity, and risk management. From 2012 onwards its flagship, the Violet Emerging Markets Fund, has outperformed all market and peer indices.
In a probing interview, the firm’s Dimitrios Apistoulas provides a fascinating insight into the attributes of a successful alternative asset manager, the benefits of investing in emerging markets and what their investment strategy is. The world of investment is an exciting one, and Apistoulas reveals how the firm’s fund managers challenge and debate everything before they begin their daily routine in the office.

Can you provide an overview of your firm does?

AppleTree Capital focuses on alternative investment strategies especially in the Emerging Market space.
Our flagship fund, the Violet Emerging Markets, is a long-short Emerging Markets Equities Fund focused on Emerging/Developing Europe. The portfolio consists only of listed, liquid equities, bonds and listed derivatives. Since its launch in May of 2010, Violet has significantly outperformed its benchmark, the MSCI EMEA (in 2015 alone, Violet yielded a net return of 18.8% vs a -22.3% drop of the MSCI EMEA).

According to the Barclays Hedge Fund Index, 70% of hedge funds grew within March 2016, with an average growth of just under 2.5%. With this being the sharpest rebounding of such funds since October 2015, why is now the perfect time for the major players of the industry to showcase their services?

The hedge fund industry is currently facing some very turbulent times. There has been a lot of talk lately about hedge fund managers underperforming and not deserving the fees they earn. An increasing number of investors has shown special interest to passive funds, as many of those have outperformed top active managers. We believe we need to look beyond that: if fund managers are good at what they do, illustrate a high level of commitment, vigour and transparency, then there is certainly a value to their role – a value that no passive fund can ever attain.

Of course returns are of paramount importance, but alternative asset management should look beyond that. We believe that on top of beating the market it also all comes down to the client/ manager relationship.

How does your company out from the crowd?
We believe a successful alternative asset manager, irrespective of returns, must safeguard first and foremost its most important assets. Integrity, transparency and trust. We believe that we – at AppleTree – have exemplified this to our investors: not only have we outperformed our benchmarks, but we have also demonstrated that we will always be thoroughly transparent in whatever we do, and fully reliable whenever they need us. Our relationship is about trust, dedication, and perseverance. At such difficult times, with passive funds making important gains, we believe that it is these exact values that will set active managers apart across the industry.

When it comes to our investing strategy, we have a unique approach, which sets our company apart from the crowd and ensures that our fund keeps achieving superior results. We challenge ourselves and our convictions, constantly, to ensure that all angles are covered. Financial markets are full of “noise”. Therefore, our main effort is to distinguish the real market-moving news that have a real effect in our portfolio vs the usual noise which can only cause intra-day or very short term price fluctuations.

How do we achieve this? We try to remain at the forefront of Emerging Markets developments by employing a comprehensive data gathering process that allows us to pool information from a number of different sources: we use a network of established relationships with local professionals, who provide a first-hand experience of the political and financial developments on ground; we frequently attend road shows and make company visits to speak directly to companies management ourselves; we do extensive in-house research to identify valuation miss-pricings; we review exhaustively company releases and quarterly results, as well as use a diversified array of 3rd party research; finally, all team members engage in robust monitoring of daily news and macro-level trends, utilizing the latest technology, local feeds, and social media (Bloomberg, Twitter, and so on).

This constant flow of information, as well as our team’s dedication to synthesizing and constantly re-evaluating new developments, provides us with a thorough understanding of all major developments, challenges, and macro trends in the EMEA region.
Every morning, before we begin with our daily routine in the office, the fund Managers begin by debating a very radical and contrarian position in the form of a reduction ad absurdum argument: they assume that the existing portfolio is not optimal. They challenge and debate everything: from our macro/political view, to portfolio net exposure, individual positions and sizing. This debate takes place every morning, and does not settle until the managers are convinced that the strategic investment decisions taken are on the right track.

While unconventional, this investment mentality has proven to be an excellent modus operandi to revise our assumptions, identify behavioural biases (both personal, but also across the industry), and affirm the strongest of our convictions. This profound process of daily re-affirmation of our fund’s strategy through productive debate lies at the core of our investment philosophy.

Can you give any examples of any successes your company has had lately, such as achieved aboveaverage returns, attained strong Sharpe Ratios and overall alpha generation?

Within the course of the past three years, the Violet Emerging Markets fund has achieved very strong returns despite market headwinds yielding a 3-year net return in excess of 90% vs a more than -20% drop of the MSCI EMEA. We created alpha for our investors in a period where Emerging Markets truly suffered. The reason behind this is, in my view, our dynamic investment decision approach.

Through our process of constant scrutiny where none of our views or convictions are taken for granted until fresh re-affirmation via debate, we have managed to identify early the negative trends for emerging markets (strengthening USD, falling oil prices, fiscal imbalances) and positioned the portfolio accordingly.

By spotting the early the negative trend in oil we kept a short position in Russia which paid off, after evaluating the political situation in Turkey we decided to also short the market despite the investment glut of the time. Moreover, since June 2015 we held a very constructive view on gold and positioned the portfolio accordingly, a view that paid off nicely within the first months of 2016.

What innovation can your company bring to the investment community?

In our view, true innovation in the alternative investment space is the adherence to the traditional values of transparency, integrity and trust. We believe that within the course of the past years many managers have neglected their true roles as partners and gatekeepers for their investors focusing on solely on returns or fancy ways to promote their business and increase their assets. Of course we also focus on returns and there is no better testament to that than our very strong 3-year performance.

But this is only part of our job. We believe in the strong bond between investor and manager. Clients are not nameless individuals but our true partners and we are always there for them every time they have queries or comments. Our innovation is the return to the roots of the traditional alternative asset management business.

What role do your staff play in the successes of your firm?

Our staff play the most important role. Since our inception we have kept a rather small tightly-knitted team. We communicate very well and there is a high level of consistency in what we do. New additions to the team are selected not only on the basis of their professional credentials but most importantly on the basis of their ability to share our vision and commitment and be a contributing part in our small dedicated clan at AppleTree Capital. We are alternative asset managers, our goodwill, consistency and success depends on our people and our people only.

What challenges and opportunities are does company look forward to in 2016 and beyond?

Following a successful period of 6 years we at AppleTree are happy to announce that we will be moving our main operations to London within 2016, apply for a FCA license and add a new fund to our platform. Myself and Michael have been always very excited to be part of the alternative investments industry and we see 2016 as a pivotal year to a new more interesting era.

Company: AppleTree Capital Ltd
Name: Dimitrios Apistoulas
Email: [email protected]

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