LazardGlobal Hexagon
What is Lazard Global Hexagon?
Lazard Global Hexagon is a global long/short equity strategy that seeks to achieve long-term capital appreciation by investing in attractive
opportunities around the world, including emerging markets. The investment approach utilizes bottom-up, fundamental stock selection
driven by Lazard’s global research resources and adheres to an investment philosophy that places risk management and capital preservation
at its core.
Why Invest in Lazard Global Hexagon?
• Experience and resources: Seasoned investment team leverages Lazard’s large pool of equity research capabilities
• Seeks attractive risk-adjusted returns: Aims to deliver better performance with lower volatility than the comparable hedge fund
index, while protecting capital on the downside and managing liquidity
• Disciplined investment process: Defined and repeatable process based on bottom-up analysis, value-driven investing and robust
risk management
• Diversified portfolio: Seeks multiple sources of return from a global opportunity set, including emerging markets, as well as across
a broad spectrum of industry sectors and market capitalizations
• Alignment of interests: Jean-Daniel (JD) Malan, Portfolio Manager/Analyst, has and intends to maintain a significant investment
in the Lazard Global Hexagon Strategy
Investment Team
The Lazard Global Hexagon Team is led by Jean-Daniel (JD) Malan, who has over 14 years of experience in managing long/short and longonly portfolios at Lazard as well as BlueCrest Capital Management. JD is supported by a Research Advisory Team consisting of Robin Jones
and Mark Little.
Lazard Global Hexagon Team
Regional Inputs
Jean-Daniel Malan
Special Inputs
Yann Vasseur
Global Thematic
Portfolio Manager/Analyst
Sydney, Australia
New York, New York
Hedge Funds
Portfolio Analyst
Tokyo, Japan
Emerging Markets
Robin Jones and Mark Little
London, United Kingdom
Global Small Cap
Research Advisory Team
Sector Inputs
Consumer
Financials
Health Care
Industrials
Power
TMT
Snapshot
Strategy Inception
Exposure
June 2010
• Long 50%–100%
Characteristics
• Number of Long Holdings
30–60
• Top stock long positions 2%–4%
• Short (80)%–(40)%
• Number of Short Holdings
10–50
• Top stock short positions 1%–2%
• Total Number of Holdings
40–110
• Net Exposure (30)%–60%
• Gross Exposure 90%–180%
Positions
2
1
Investment Process
The Lazard Global Hexagon strategy seeks to invest long
in companies that the Portfolio Manager/Analyst believes
have high sustainable or improving financial productivity
and compelling valuations, and to sell short companies that
possess the opposite characteristics. The strategy primarily
invests in global equity securities, including emerging
markets securities.
The Portfolio Manager/Analyst employs a sustainable, repeatable
investment process that is comprised of the following steps:
6
Identify
Candidates
Monitize
the Value
Lazard Global
Hexagon
5
Investment Process
Risk
Monitoring
For illustrative purposes only.
The strategy seeks to generate ideas from a variety of different sources,
including proprietary screening techniques, third party research, and
Lazard’s global research resources. Constant dialogue and inputs
between the investment team and the various research specialty teams
at Lazard is a key component to generating investment ideas.
The strategy seeks to invest in companies that, the team believes, offer
greater upside potential than downside risk.
Fundamental Research
Valuing a company: Determine an internal price target
Valuation
What must we pay?
• Return on Equity
• Price/Earnings
• Peer group comparison
• Cash Return on Capital Invested
• Price/Book
• Sum of the parts
• Operating Margins
• Price/Cash Earnings
• Proprietary Cash Return on Capital Invested (CROCI) model
• Historical valuation bands
Quantifying the potential downside risk
• Analyze worst case scenarios
Financial Productivity
• Stress test assumptions:
Longs
–– Return Analysis
–– Valuation Analysis
–– Investment Risk Analysis
–– Analysis of Catalysts
Shorts
Valuation
What we look for in Longs
What we look for in Shorts
• Strong fundamentals
• Weak fundamentals
• Superior business models
• Flawed business models
• Undervaluation
• Accounting problems
• Catalysts
• Strategic mistakes
Isolate
Desired
Risks
2. Formulate Investment Thesis
Financial Productivity
What do we get?
• Price/Sales
3
Portfolio
Construction
Lazard’s investment process is presented here in sequential steps. In practice,
the process is not sequential and will, as needed, weight certain criteria over others.
1. Identify Candidates
4
2
Formulate
Investment
Thesis
3
3. Isolate Desired Risks1
Individual securities are classified in terms of desired and undesired
risks, (i.e., as absolute, market-relative, sector-relative, or pair trade
ideas). The Portfolio Manager/Analyst may seek to hedge any undesired risk through various instruments, such as a market index future,
a sector index future, or a single-stock long or short hedge.
Hedging Trade Structures
Pair Trade Fundamental or hedging position using a single stock
Example: Single stock long vs. short
Market Relative Hedging risk of general market moves
Example: FTSE 250, QQQ, Brazilian Bovespa Index
Sector Relative Hedging risk of general sector moves
Risk Management is a two-level process between the investment team
and the risk management group. Risk is managed internally through
active monitoring by the investment team. In addition, the Lazard
Risk Management group provides independent oversight and analysis.
6. Monetize the Value
A strict sell discipline drives monetization of value and validation of
the opportunity set.
Sell Discipline
• Technical Analysis
Use of various technical indicators and chart patterns to improve timing on
entry/exit
Options Hedging specific investment risks using options strategies
• Benchmarking
Constant benchmarking of new ideas vs. existing ones to determine if more
compelling opportunities are available
Absolute No hedge is desired
• Assessment of Investment Thesis
Dynamic reassessment of the investment thesis according to new data points
Example: OSX oil service sector index, custom baskets
Example. Call/put spread, risk/reversal
Example: Long airline stock without oil price hedge
4. Portfolio Construction
The portfolio is diversified across a number of positions. Trades are
categorized by strategy type and themes. The investment team can
view the portfolio’s holdings in real-time. Factors that are considered
when sizing a position include risk/reward, liquidity, and geography.
5. Risk Monitoring
The Portfolio Manager/Analyst uses a range of proprietary portfolio
management and risk management tools for monitoring purposes.
Live performance and portfolio attribution are broken down in a
variety of formats to enhance understanding of the performance trends
and provide early signals of potential issues or opportunities.
Risk Management Tools
Diversification A typical total of 40–110 positions seek to minimize the
impact of stock-specific risk.
Portfolio Liquidity Liquidity levels will be dependent on prevailing market
conditions. The team seeks to invest in securities that are sufficiently liquid.
Beta Analysis The team evaluates how the portfolio’s stocks behave in
both up and down markets and utilizes beta-adjusted market exposures.
Real-time Attribution The team measures attribution real-time by
country, by sector, by investment theme, and by type of risk.
Simulate and Beta Test the Portfolio The team and the
quantitative team utilize internal and external risk systems allowing for
daily monitoring of exposures, beta analysis, valuations, etc. Systems used
include Barra, RAMPRO, and Style Research. Lazard has an independent
Global Risk Management team based in London and New York, which is
constantly monitoring the key risk metrics of the portfolio.
Internal/External Risk Analytics The team and the quantitative
team utilize internal and external risk systems allowing for daily monitoring
of exposures, beta analysis, valuations, etc. Systems used include Barra,
RAMPRO, and Style Research. Lazard has an independent Global Risk
Management team based in London and New York, which is actively monitoring the key risk metrics of the portfolio.
For informational purposes and subject to change.
Sell Decisions
• Price Targets
Monetization strategies used when price targets are reached or we believe
investment thesis is played outs
• Invalidation of Investment Thesis
Strict sell discipline used when we believe an investment thesis no longer
holds true
Monetize the Value
Lazard Global Hexagon
Investment Team
Jean-Daniel
Malan
Director
Portfolio Manager/
Analyst
Yann Vasseur
Vice President
Portfolio Analyst
Robin Jones
Director
Portfolio Manager/Analyst
Mark Little
Managing Director
Portfolio Manager/Analyst
Research advisory team, not considered part of the portfolio management team.
Notes
1 The type of hedging instruments shown are for informational purposes only and are subject to change. There is no guarantee that the hedging instruments will achieve the desired results.
The securities identified above are not necessarily held by Lazard for all client portfolios and should not be considered a recommendation or solicitation to purchase or sell any security.
Important Information
Published on 9 January 2015.
Information and opinions presented have been obtained or derived from sources believed by Lazard to be reliable. Lazard makes no representation as to their accuracy or completeness. All opinions expressed herein are as of the published date and are subject to change.
An investment in any alternative investment is speculative, involves a high degree of risk, and may lose value at an accelerated rate. Privately offered investment vehicles (“hedge funds,” which
includes “funds of funds”) are unregistered private investment funds or pools that invest and trade in many different markets, strategies, and instruments. Hedge funds generally are not subject
to regulatory restrictions or oversight. Opportunities for redemptions and transferability of interests in hedge funds are often restricted so investors may not have access to their capital if and
when it is needed. Typically, there is no secondary market for an investor’s interest in a hedge fund. The fees imposed on hedge fund investments, including management and incentive fees/
allocations and expenses, may offset trading profits. An investor should not invest in any hedge fund unless he or she is prepared to lose all or a substantial portion of his or her investment. These
and any other risks involved in an investment in any hedge fund should be considered carefully before an investment is made.
The performance of the strategy is largely dependent on the talents and efforts of certain individuals. There can be no assurance that Lazard Asset Management LLC (“LAM”) investment professionals will continue to be associated with LAM and the failure to retain such investment professionals could have an adverse effect on the strategy.
The strategy may leverage its investment positions by borrowing funds from securities broker-dealers, banks or others. From time to time, the strategy may borrow significant amounts to take
advantage of perceived opportunities, such as short-term price disparities between markets or related securities. Such leverage increases both the possibilities for profit and the risk of loss.
The strategy may take short sale positions. Short selling can, in some circumstances, substantially increase the impact of adverse price movements on the strategy’s portfolio. A short sale creates the risk of a theoretically unlimited loss, in that the price of the underlying security could theoretically increase without limit, thus increasing the cost to the strategy of buying securities to
cover the short position.
The strategy is subject to a number of actual and potential conflicts of interest involving LAM and its affiliates. LAM and its affiliates provide investment management services to other investors
whose investment objectives may be similar to, or different from, the investment objective of the strategy. The directors, members, officers and employees of the strategy, LAM and its affiliates
may buy and sell securities for their own account or for the account of others. The investment manager may receive an incentive allocation and such a compensation arrangement may create an
incentive to make investments that are riskier or more speculative than would be the case if such an arrangement were not in effect.
The strategy invests in securities of non-US companies which trade on non-US exchanges. These investments are denominated or traded in currencies other than US dollars involve certain
considerations not typically associated with investments in US issuers or securities denominated or traded in US dollars. There may be less publicly available information about issuers in non-US
countries that may not be subject to uniform accounting, auditing and financial reporting standards and other disclosure requirements comparable to those applicable to US issuers. Equity securities will fluctuate in price; the value of your investment will thus fluctuate, and this may result in a loss. Emerging Market securities carry special risks, such as less developed or less efficient
trading markets, a lack of company information, and differing auditing and legal standards. The securities markets of emerging market countries can be extremely volatile and performance can
also be influenced by political, social, and economic factors affecting companies in emerging market countries.
This material is for informational purposes only. It is not intended to, and does not constitute financial advice, fund management services, an offer of financial products or to enter into any
contract or investment agreement in respect of any product offered by Lazard Asset Management and shall not be considered as an offer or solicitation with respect to any product, security, or
service in any jurisdiction or in any circumstances in which such offer or solicitation is unlawful or unauthorized or otherwise restricted or prohibited.
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