Home Hedge Funds How West Basin’s Nat Dean Trades

How West Basin’s Nat Dean Trades


At $3.5 billion, Nat Dean’s new macro fund, West Basin, is set to be one of the biggest hedge fund launches of the year.

The New York-based manager is spinning out of $30 billion Capula, the multi-strategy firm where Dean is a partner and has been running the strategy since late 2017. The new firm is expected to launch in the second half of the year and Capula will have a commercial interest in it, according to Bloomberg.

The macro sector is one to watch this year, with elections, big central bank decisions, and geopolitical tensions giving traders opportunities to prove their worth.  

Marketing documents viewed by Business Insider from London-based Capula describe the macro fund’s performance, trading focuses, and projections.

The Capula Tactical Macro fund became a stand-alone in late 2020 after operating within the larger multi-strategy offering. It has a target net return of 10% to 15%, the documents say, and has put up an annualized return of 12% through the end of January.

A somewhat muted 2023 — with gains of 3.4% — is offset by strong numbers in shaky markets. The fund returned 17.7% in 2022, when the stock market fell by more than 18%, and made 9.7% in March 2020 when the COVID-19 pandemic shut down the global economy and sent markets plummeting. The strategy’s final 2020 return was 37.3%, the documents say.

The macro fund’s Sharpe ratio — a rough measure of risk-adjusted returns used by asset managers and allocators — is 1.56 through the end of January and the strategy has made money 72% of the months it’s been running.

Capula did not immediately respond to requests for comment.

Dean — one of 24 partners at Capula — specializes in G-10 rates, currency, and equity options trading. He trades rates, FX, and equities, all with various holding periods between days to months.

According to the marketing materials, Dean’s ideas are generated from three different sub-categories: thematic macro, macro relative value, and semi-systematic.

The firm called the blend of different strategies the “next generation of global macro.”

“Short-dated tactical ideas complement thematic macro ideas that aim to provide a consistent stream of revenue,” one slide reads.

The strategy behind next-gen macro

One of the foundations of the strategy will be thematic macro, which will trade rates, FX, or equities, mostly in G10 markets and expressed through options and derivatives. These holdings last one to six months and makeup anywhere from 20% to 60% of the portfolio.

The case study on this type of bet presented in the marketing materials is a US dollar-Russian ruble call option prior to the invasion of Ukraine — a classic type of macro bet that comes from reading the tea leaves on the geopolitics and the global economy.

Macro relative value — which “targets dislocation between two underlying instruments” — makes up 20% to 30% of the portfolio with positions that have a holding period of one to two months. It’s looking at mismatches in emerging market currencies, G10 markets, equity indexes, and inflation trades. The example given here was a UK Gilt play where the firm bought 50-year bonds while selling 30-year options.

The assumption for the trade is that in a rally, when the longest-term bonds would produce higher returns, some investors bank some gains and put on a curve-flattening trade, meaning selling out of the longest-term bonds and reducing the yield of the longest-dated bonds relative to quicker options. However, given the demand for the longest-term bonds from institutions like pensions, the firm believes it is sufficiently protected from any serious loss.

Lastly, the marketing materials describe semi-systematic as “repeatable, catalyst-driven” opportunities “often based on recurring calendar effects and expected flows.” A case study example of this would be a bet on Norway’s currency for when the regular dividends go out to the Scandinavian country’s population — domestic companies holding other currencies will have to buy up Krone in advance to distribute.

These opportunities have the shortest holding periods, often from a week to a couple of months. The portfolio exposure to these bets is between 30% and 50%, as the team “focuses on identifying new patterns and the application of existing patterns to new markets.”

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