The blue sky thinker

Hedge Magazine, December 2016. Original article p38-40

Jean-Jacques Duhot, Chief Investment Officer and Managing Partner of Arctic Blue Capital

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An Inuksuk is a human shape built from stone, used by Canadian native peoples to aid navigation across the tundra. The Inuksuk is also the symbol for Arctic Blue Capital, whose name is a Canadian inspiration, says Jean-Jacques Duhot, a Frenchman in London. The inspiration came after a friend brought him to Nunavut, at the very northern edge of Canada. “You can only go there in cargo planes. We go there and the sky was super crisp blue. The temperature was minus 47C. … On the plane, I started writing about it. That’s why I decided to call the company Arctic Blue, in memory of that incredible blue.”

London is the opposite of crisp on the day of our meeting, sporting that particular mix of hot and muggy that’s typical at the end of a British summer. But the Chief Investment Officer and Managing Partner doesn’t seem bothered by the sweaty weather, looking very much the part in a charcoal suit and classic white shirt. His cheerful demeanor is complemented by simple specs and quiff of grey hair, as the financier comes across as a man who’s not only passionate about his work, but also interested in the world and other people.

We’re sitting in the Mayfair offices shared between systematic macro hedge fund Arctic Blue and Stable Asset Management, the parent who seeded the firm in June 2014. It’s a good deal for Duhot: the housekeeping is taken care of, including regulatory compliance, broker relations, marketing, roadshows, and so on. That means Duhot and his team can get on with the business of “printing numbers”. The approach is purely systematic, explains Duhot, his perfect English underscored by a crisp French accent. I ask the CIO to provide some more details – the company website is literally a single page that says “email us”. Arctic Blue takes takes a mid-to long-term horizon on investments and the company’s commodities-focused systematic approach has outperformed its peers, says Duhot, “doing well, but slightly underperforming our historical average”. But, he adds, this is the case for all strategies and asset classes: “I think that’s the global impact of zero or negative interest rates on the entire structure of returns. We’re not in the same world anymore. That is very clear.”

The new world seems to be open to Arctic Blue, though – the current assets under management figure is $150m, up from $65m in the first quarter. The fundraising has gone well, confirms Duhot, but that’s on the back of steady effort. “We have people who’ve been looking at us for two years, who’re just investing now.” Duhot says he initially underestimated this prudence, although he expects AUM to reach $250m this autumn as the pipeline delivers. Part of the reason it’s taking time is that investors wanted to see if Duhot, and his fellow ex-Millennium Capital Partners cohort, could perform as effectively as a small operation. Then there’s the fact that taking a shot on a new name is always more risky than staying with the same old: “I think investors have a bit of a herd-type behavior.”

2016 is likely to be a pivotal year for systematic investing, asserts Duhot. “I think people are ready. … People have had conversation with friends in Europe, North America and Asia, and are really starting to think that this time it’s not cyclical, it’s structural. Algorithm- or systematic trading is taking over.” This realisation comes on the back of low interest rates, says Duhot, coupled with more indirect influences: “In the US, Uber is putting cars with no drivers on the road. It’s [in same vein as] robot vacuum cleaners. Well, what about funds run purely with computers?” Duhot believes the machines will take over: “The traditional economics don’t work anymore. We know this from the fact that we’ve never seen such high level of economic intervention by central banks and governments.”

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screen-shot-2016-12-06-at-13-29-04Arctic Blue marks the beginning of a new path for Duhot, one he is clearly enthusiastic about as it adds the “entrepreneurial dimension” he felt was lacking after 25 years in the markets. “I discovered myself as something of a salesman. I was ignoring this [before], viewing my screens and doing my thing.” Now, Duhot’s job involves creating a product, selling the story, and having more involved relationships. “I love having five, ten, fifteen meetings with one investor, because we know that at twenty, he will be on board. He did his due diligence.”

Duhot grew up in the Champagne region of France, moving to Paris at 17 to study law and international relations. “When I was a kid I wanted to be a jet fighter pilot, but then I got glasses so it was game over.” He laughs. A summer internship at the Paris stock exchange was a formative experience: “I decided that’s what I would like to do, because it brings the economics, the international relationships, the macro picture – but also some excitement.” Duhot spent his first 14 years in the industry at Societe Generale, during which he was given the offer to attended the Kellogg School of Management. He was 33 when he went back to the books: “I thought wow, it could only broaden my spectrum. It was a great opportunity. … I was trying to better understand the linkage between markets. I’m very interested in the big picture. I’ve never been interested in the little details of rates, value, arbitrage, this little thing versus that little thing. For me it’s more about the big picture and trying to understand the complexity.”

Duhot’s view started to truly extend beyond France while he worked in Hong Kong. “When you are at Societe Generale in Paris, you think you’re king of the world. Then you go to Hong Kong and you [realise] France is quite small, and the Franc is a very small currency. Maybe you should look at other things!” Duhot started to trade on American and Japanese markets, but it was difficult to keep track of the 24-hour activity. “I started to try and code some of my trading rules. I had no programming expertise, so I start to learn.” Duhot was working in London by this time, overseeing 17 traders. “I was interested in them as individuals. How are they taking risks? Are they patient? Rigorous or laid back? Are they looking at the big picture or are they specialised on some little discrepancy? I looked at some guys who were very good, and some who were not that good. I thought, in the perfect world they would be replaced with machines. That would be the most efficient world.”

Duhot stopped short of telling his staff about his scheming to get rid of them, but he did become convinced of one thing: human nature gets in the way of optimal trading, and a machine would be far more rational. Yes, he includes himself in this, he assures me. “I thought, I need to reinvent myself toward maybe the only asset class that will [always] respond to supply and demand: energy, agricultural, and so on. How about applying my rules to that?”

The algorithm experiment started in Canada, where Duhot worked at Caisse de depot et placement du Quebec and Canadian Imperial Bank of Commerce, but it’s the same strain that carries through to Arctic Blue today. Duhot is quick to point out he wouldn’t have been able to develop this system without help; Philippe Bareges, his Head of Quantitative Analysis and colleague of eight years, has been instrumental. But Arctic Blue is very much a culmination of Duhot’s personal experience, I suggest – he’s basically selling investors on his own history. “Yes, absolutely. That’s my journey, that’s where I’ve end up. That’s the recipe. That’s the sauce.”

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Duhot (49) is happily ensconced in London now, even though his three kids, currently studying in France, all speak English with a Canadian accent. Duhot likes London for being “super international” – part of this stems from the fact that the Frenchman decided to move away from the “froggy valley” of Kensington. He lives in Brixton now: “It has some good vibes. I like it very much. I also discovered the South Bank after ignoring it for years, and it’s full of life and interesting people.” He’s equally enthusiastic about the international food scene in London: the kitchens of Sri Lanka and Vietnam are recent favourites – not French food though, as his mother cooks better. Duhot also enjoys Brixton eateries like Franco Manca – sometimes he’ll just stay in Brixton Village for the weekend, enjoying all the little local places. There are these tacos, for £1.50: “The taco is done in front of you, like this,” says Duhot, gesticulating. “You eat it off a piece of cardboard.”

Duhot talks about London like a natural Londoner, I suggest: he’s found his favourite spots away from zone 1. Duhot nods – he prefers Battersea Park to Hyde Park. London lets you enjoy some greenery without having to drive for hours, he adds – you can’t do that in Manhattan. Primrose Hill is a good spot to go running too – Duhot laces up three times a week. The only thing about London that may not be ideal is how his name, Jean-Jacques, is a mountful for the Anglo-Saxon speaker. “All the Asians and Americans say JJ,” says Duhot, telling me how once, in Japan, he got a fax addressed to Mr Jean Jacket. His kids are still dining out on that, he laughs. “But the jean jacket story told me: we’re going to go with JJ.“

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