EXCLUSIVE: Marcel Melis (Co-Founder Swaen Melis Fund)

Marcel Melis earned his stripes in trading early on. After studying economics at the University of Groningen, he started his career at BP as an LPG trader, after which he progressed to a position as a senior trader at Reliant Energy.

Because Marcel was able to identify certain inefficiencies in the energy market, he quickly made a name for himself. The emphasis was on unevenness between energy prices in different regions, season and margins in coal and gas power stations. As a result, he was offered a position at Delta Energy as a portfolio manager.

After a few years, he launched his own hedge fund, called MMT Energy Fund. A multi-commodity fund with $150 million under management. However, due to sharply falling energy prices around 2009, arbitrage opportunities decreased and the return targets could no longer be met and a smooth closure followed, but MMT was nevertheless profitable. Realism that is only noticeable in few fund managers.

Marcel is good at spotting inefficiencies, because he is currently active as CEO of MGI Family Office. In addition to managing his own (family) capital, he offers alternative investment options, with a focus on the best-performing hedge funds worldwide. A select group of hedge funds have been bundled in the Swaen Melis Fund, which you can read more about in this interview.

MGI Family Office and Marcel are experiences as a former fund manager

From 2005-2010 you ran a hedge fund (MMT Energy Fund) specialized in energy (electricity, gas, coal, emissions and oil). Can you describe what your life was like then and what you have achieved with your fund?

‘Managing capital and being an entrepreneur is the hardest thing there is. First, you have the minute-to-minute P&L on your back that reflects your performance. Watching your capital evaporate physically hurts, because you know that investors can get in and out on a monthly basis. If you have a few bad consecutive months, you know you’re going to lose investors and your business is at risk. First you must compensate your losses, which makes your staff inclined to leave for a competitor, where they can start again at zero and receive signing bonuses.

I was CEO and portfolio manager, so I was responsible for the portfolio; personnel; I had 50 institutional investors that I interacted with on a weekly basis; hundreds of potential investors; and all the travelling. That was 24/7 stress because the oil market dictated the electricity market, where I had the most exposure. If you’re at home for a weekend and you’re long on electricity and you see the oil market collapse, you get nervous because you can’t do anything.

Eventually I just shot through my knees playing tennis. I simply had an unhealthy life. The reason why I did this was because when you have a good year you can make so much money in one year that you will be financially independent for the rest of your life. I have a lot of respect for hedge fund managers, because a good manager always makes sacrifices. When I look at today’s fund managers, they are often autistic people who see their capital as monopoly money and are not concerned if they face a major drawdown. And that’s how you should actually act, because otherwise it will tear you down.

In October 2006 I started with $70 million with a US investment vehicle (Elliott) as one of the investors, because they wanted to use my expertise in arbitrage trading. In retrospect, I’m quite proud of that, as I had no experience as a hedge fund manager at all. However, I had a good story and noticed inefficiencies that hardly anyone knew about at the time. If the Dutch electricity price was undervalued compared to the German electricity price, we took long positions in Dutch electricity and short German electricity, so that the position was reasonably hedged.

We did this with positions in gas, coal, emissions and oil. Everything was right and in 2008 we were one of the best performing funds, with an annual return of 24% with very low volatility and therefore a high Sharpe ratio. When the GFC arrived in 2008, it was grist to the mill for us. As a result, everything has accelerated and we have grown to 150 million AUM.

However, when the market picked up again in 2009, arbitrage differentials became minimal and we were unable to meet our benchmark. Then the staff started to drop out because no bonuses were paid that year and then I decided to go for a smooth closure. I made money net, investors were satisfied and I gained a great experience. I’m happy how it went, because that’s where the seed was planted for what I’m doing now.’

Now that you are also a hedge fund distributor, how did you come up with this idea and how why did you start MGI Family Office?

‘When I started my fund (MMT), I gave a presentation at Dexion Capital in London at the time and then I found out that they were not interested in investing in me, but in raising capital for me. To which I responded: ‘I have already raised 70 million, why would I need you to raise capital if I have to pay you 20% of my fees?’ And the answer was right: ‘you don’t have the know-how and the network what we have and 80% of a lot of money is more than 100% of a little money.” Then Dexion became my distributor, and that got me thinking.

In 2010, when I ended my fund, I asked myself what I wanted to do. I didn’t feel like trading anymore, because I did achieve everything I wanted to achieve, and then I started to elaborate on the idea of becoming a distributor myself. Because I have good communication skills and I am good at sales, this is perfect for me. It works to my advantage that I have been a hedge fund manager myself, so I know the market like the back of my hand. I currently live a carefree life, meet nice investors and am very passionate about my profession.

We work with a small-scale team and are supervised by The Dutch Authority for the Financial Markets (AFM) and the Dutch Central Bank (DNB). I am also supervised by FINRA, which means that I can also offer my products in the US.’

Analysts expect that, in a sense, a regime chance is coming, with periods of rising inflation and a more volatile market leading to structurally low returns. How do you view this issue and which alternative investments do you prefer?

‘Hedge funds, no doubt. I have been active in this world for sixteen years and I exclusively invest in hedge fund managers who have a proven track record and have achieved an annual yield of more than 10% since inception.

I am very well diversified; from macro, to stocks to commodities and so on. Last year was my best year ever because my fund managers were mostly short government bonds and equities, but long commodities. The advantage of hedge funds is that the best are able to achieve uncorrelated returns.

There are 20.000 hedge funds worldwide and based on my criteria I can only find 10-30 hedge funds. Given my knowledge, network and experience, I am able to select very carefully. That is why I do business worldwide with pension funds, family offices, fund of funds, asset managers, but also more and more entrepreneurs and private individuals who come to me.

Currently I am one of the few international and the only one in the Netherlands who can offer exclusive funds. Hedge funds are the best alternative for professional investors, given their liquidity; the fact that the best fund managers are in charge; low volatility; and high performance. Hedge funds can make money in any market.

For example, I have a life insurance fund that has achieved an average of 15% return per year for nine years. Life insurance policies are classified higher than shareholders and bond holders, where the risk is very low. You can participate in such funds from as little as $100,000. A great opportunity for investors who are sitting on a pile of cash or want to get rid of their real estate.

I am supervised like I said, and I only do business with professional investors. As a rule, the profile of my investor, should meet the following criteria: a net worth of at least [the equivalent] of 1 million euros and who has earned an income of at least [the equivalent] of 200,000 euros in the last two years. I mainly look at someone’s personal situation. Someone who has no obligations can take more risks than an elderly couple with children and a large mortgage.’

Swaen Melis Fund

You are currently launching the Swaen Melis Fund, in which you offer your services in one product. Can you describe the objective of the Swaen Melis?

‘I set up the Swaen Melis Fund together with my partner Cliff Go (Swaen Capital) who went to Singapore 25 years ago and works as an asset manager. I’m going to start a fund of funds with him, where we launch with 8-10 million dollars.

Investors can join from $100,000 and this is invested in nine different funds, in which I am also invested. In this way I want to offer investors the opportunity to invest in exclusive high-performance funds, so that they have a nicely diversified portfolio, with an expected return of 10-15% per year. All that in one product.

Probability in the stock market is currently very low, which is why I currently prefer managers who are market-neutral or long-short. They have also done fantastic in recent years, because they made a lot of profits on their short positions. Long-biased managers cannot deliver positive returns in every market. Stocks, commodities, interest rates, everything will remain volatile for the time being and that is a good market for hedge funds.’

Are you interested in participating in the Swaen Melis Fund? Click HERE for more information. Don’t hesitate to check out the website either.