Frequently Asked Questions

Our investment process blends a systematic and discretionary approach to deliver consistent, risk-adjusted returns. Our investment principles are based on time-tested methods and backed by robust data analysis and market monitoring.

We attempt to deliver a “complete investment solution” that invests dynamically in all asset classes with global diversification. Additionally, our ability to short and use leverage, whilst not being constrained by a benchmark, results in lower correlations.

Our commitment to risk management and aligned interests also sets us apart, as we always strive to minimize potential losses while maximizing returns. 

Our team is made up of experienced professionals with a diverse range of expertise and backgrounds, which allows us to bring a fresh perspective to the market and make informed investment decisions.

Adding our lower correlation funds into an existing portfolio of traditional equity or bond mutual funds is likely to lead to diversification benefits and better risk adjusted returns.

A quant/systematic approach to investing is a method of investing that relies on mathematical models and algorithms to make investment decisions. This approach is designed to remove human emotions and biases from the investment process and instead rely on various sources of data (e.g. price, macroeconomic data, asset correlations) and historical market trends to make decisions. 

In this method, investment decisions are made based on a set of well researched and robust rules that have been programmed into the system, which are then automatically executed based on market data. 

This allows for a more objective and consistent approach to investing, which can lead to better risk management and higher returns over the long term.

Discretionary trading is a type of investment approach where a portfolio manager or trader makes decisions based on their own experience, knowledge, and judgement. This approach involves making subjective decisions about buying and selling securities, as opposed to relying solely on pre-determined rules or algorithms. 

In discretionary trading, the portfolio manager has the flexibility to make changes to the portfolio as market conditions change, which can result in a more active and personalized approach to investing.

As part of the funds’ capital is allocated to discretionary ideas, this allows Cross Light Capital to exploit temporary or emerging trends. Furthermore, this is an important source of diversification and can complement the quant/systematic side.

Active management is where a portfolio manager actively makes investment decisions in an effort to generate absolute returns, or to outperform a benchmark. Passive management, on the other hand, aims to track a benchmark index.

Dynamic asset allocation is an investment strategy that involves continually adjusting the mix of different asset classes in a portfolio, based on current market conditions and the portfolio manager’s outlook for future economic and market trends. The goal of dynamic asset allocation is to optimize investment outcomes by making proactive changes to the portfolio, rather than simply following a static investment mix or passive investment approach.

Cross Light Capital employs active management in our strategies, and with daily rebalancing and a high portfolio turnover, ensures dynamic asset allocation.

Cross Light Capital believes strongly in protecting our clients’ investments and preserving their capital.

To achieve this, we take a proactive approach to risk management. We monitor and adjust our exposures systematically. Our approach is to cut our exposures when we experience losses, even if it means selling at a loss. However, as we recoup losses, the strategies will dynamically add back exposure.

Backtests have shown that this approach lowers long-term returns. However we believe it is prudent as the largest drawdown for a strategy is always in the unforeseen future. By prioritizing risk management, we aim to ensure the stability and security of our clients’ portfolios.

Please note that despite this, investments in our funds still involve the risk of losses as well as gains.

Risk-adjusted returns should be used instead of raw returns to compare the performance of different investments as it strips out the effect of leverage. However, it should not be relied on as the sole indicator of an investment’s performance.

The Sharpe ratio is a common measure for evaluating risk-adjusted returns. It is calculated by dividing the average return of an investment, beyond the risk-free rate, by its standard deviation, which is a measure of volatility. A higher Sharpe ratio indicates that an investment has a better risk-adjusted return, meaning it has generated more return per unit of risk.

Cross Light Capital and its Performa funds aim to deliver superior risk-adjusted returns compared to traditional asset managers.

Correlation is a statistical measure of how two assets move in relation to each other. It ranges from -1 to 1, where -1 means two assets move in opposite directions, 0 means they are not related, and 1 means they move in the same direction. Correlation helps investors understand the relationship between two assets and how they may impact each other in a portfolio.

Furthermore, assets with low correlation typically provide the most diversification benefits when added to an overall portfolio.

Beta is a measure of an asset’s volatility compared to the overall market. A beta of 1 means the asset’s price moves with the market, a beta less than 1 means it is less volatile than the market, and a beta greater than 1 means it is more volatile than the market. By understanding a stock’s beta, an investor can assess the potential risk and return of including it in a portfolio.

Beta can also be negative, in which case an asset is expected to appreciate in price when the market falls.

Whilst most typical long-only equity funds tend to have very high correlations of near 1, Cross Light Capital aims to deliver, over a cycle, a substantially lower correlation to the overall market.

During downturns, our funds also attempt to hedge against declines and may add negative beta exposure.

Our Wholesale Unit Trust Funds are only open to “sophisticated investors” as defined here.

Additionally, as our investments are in foreign currency assets, we can only accept investments from investors that are compliant with the Bank Negara Malaysia Foreign Exchange Policy Notice 3 (please see page 44 here).

Before making any investment decision, it is important to consider its suitability and to seek professional advice.

Due to our dynamic nature, whipsaws are a common risk. A whipsaw occurs when we adapt to new market signals or conditions, only to see the market reverse direction soon after. This can result in the fund experiencing losses, despite our efforts to reduce risk or increase returns through dynamic asset allocation.

Given that we employ active management and are unconstrained by benchmarks, we expect to have a lot of tracking error, meaning that our strategy performance can deviate significantly from the equity market indices. Therefore the fund may not post gains, and may even fall in value when the market rises. However, this can also be beneficial as at times, we can protect capital or even profit when the market falls.

Whilst we have utilized best-practices when developing our systematic strategies to ensure robustness, the risk remains that they may not perform in the future, as past performance is not indicative of future performance.

The “super endowments” are a group of large, well-funded college and university endowments that are known for their high level of investment sophistication and strong returns. These endowments typically manage portfolios that are highly diversified across multiple asset classes, and they often employ active investment strategies to generate higher returns than those achieved through passive investment strategies. Some of the largest and best-known super endowments include those of Harvard University, Yale University, and Stanford University.

Notably, these super endowments have large allocations to private equity and hedge funds.

Cross Light Capital has built our strategy using the “super endowments” as a rough model to generate long-term capital growth. We attempt to replicate hedge fund and private equity exposure ourselves in a liquid format.

By using replication techniques rather than direct investments in private equity and hedge funds, Cross Light Capital escapes lock-ups and second layers of fees.

Various studies and articles have shown that an average private equity return can be replicated using liquid instruments via factor exposures and leverage.

Similarly Cross Light Capital employs its own absolute return oriented strategies to replicate hedge funds. This can include relative value long/short, term structure yield harvesting, statistical arbitrage, CTA strategies and event-driven trades.

Our strategies invest in all traditional asset classes, including stocks, bonds, real estate and commodities. In addition, we also allow small allocations to emerging asset classes such as digital assets and carbon credits.

Our strategies also attempt to replicate exposure to alternatives such as hedge funds and private equity through liquid methods (i.e. no lock-ups on the underlying investments).

The benefits from diversification include better risk management, and the potential for better risk-adjusted returns.

To protect your investments, we deposit your funds into a unit trust structure with Pacific Trustees overseeing the separation of client assets from the fund manager. As a Securities Commission Malaysia regulated trustee, Pacific Trustees comply with regulations and the trust deed to safeguard your investment and protect your interests.

Cross Light Capital manages your investments through a limited power of attorney, and withdrawals cannot be made without the consent of the trustee.

Additionally, our wholesale funds undergo annual external audits from Crowe Malaysia PLT.

Cross Light Capital Sdn Bhd is licensed and regulated by the Securities Commission Malaysia.

Our strategies use an equally weighted blend of:

a) SPDR S&P 500 ETF Trust (SPY)
b) iShares Core Growth Allocation ETF (AOR)
IQ Hedge Multi-Strategy Tracker ETF (QAI)

Given the leverage, Cross Asset Strategic Alpha Fund uses a 2x leverage factor whilst Performa Core Growth and Income Fund uses a 0.5x leverage factor.

Whilst it is US-centric, we believe this is an appropriate benchmark as it incorporates equities, fixed income and hedge fund replication.

Please note that we do not attempt to track our benchmark, but rather just use it for performance comparisons.

Cross Light Capital charges performance fees. This helps to align the interests of the manager and the investor.

This fee expressed as a percentage of the profits earned on your investments. The performance fee is subject to a high watermark, which means that the manager only charges the fee when the investment performance exceeds the previous high.

In other words, for a given gain, performance fees can only be collected once and any losses from the high watermark must be recovered first before any further performance fees are paid.

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