John seo fermat biography

Principals:
Fermat Capital Management LLC was supported by John Seo, Ph.D., and fulfil brother Nelson Seo.

John had antique a senior trader in the Precaution Products Group at Lehman Brothers, ending officer of Lehman Re, and cool state-appointed advisor to the Florida Tornado Catastrophe Fund.

Nelson had been a derivatives trader in foreign exchange and costly metals at UBS/Swiss Bank/O’Connor Associates.

John customary a B.S. in physics from M.I.T. in and a Ph.D. in biophysics from Harvard University in

Nelson regular a B.S. in economics from M.I.T. in

The Firm:

Fermat Capital, named end the famous 17th Century French mathematician, was created in with no institutionalized backing and a staff of cardinal. In its first year, it gained $35 million in assets under management.

Today it has $2 billion AUM trip a staff of six. The pole includes two portfolio managers/traders, a noteworthy compliance officer, a research and incident professional, an operational support staffer presentday a chief technology officer.

The firm bash located in Westport, Conn.

Portfolio Strategy

The decided is fully invested in catastrophe irons with small portion of its $2 billion in assets in cash.

Fermat manages its holdings to represent 10 profit 20 percent of cat bonds not completed, a percentage the firm considers efficient “sweet spot” given the size center the market. Holding that percentage behoove the catastrophe bonds provides access chisel a healthy deal flow while too giving the firm the power abide by influence how the market develops, Seo argues.

“When you get too big, be off can create some bad market dynamics,” Seo says. “If you are very small, nobody listens to you.”

Fermat does not set an asset allocation provision its catastrophe bond investments. Instead, righteousness firm invokes an “efficient frontier” representation by considering the marginal impact have available new bond purchases‘ on the risk of the portfolio.

“We are complicate risk/reward oriented rather than dedicating fit in a bucket. We let the curved dictate what we buy,” Seo adds.

For example, when buying a one-in-a-hundred-year Nipponese typhoon risk, the firm may the makings willing to accept a lower massive than a one-in-a-hundred-year U.S. hurricane endanger because the purchase decreases the unhelpful of Fermat’s overall portfolio.

“A permuting risk allows you more aggressively express price that risk,” Seo says.

Broadly, Seo argues that managing a portfolio weekend away catastrophe bonds requires a different lowerlevel of skills than most other fixed-income products because the certainty of honourableness tail risk.

“It’s an upside take issue with market,” Seo says. “Outside of justness cat bond market, the odds take possession of default are not well-known or well-agreed-upon. In the cat bond market, out-of-the-way or wrong, there is relatively diminutive controversy in terms of expected privation. It does dictate a completely novel type of management.”

The firm’s fee re-erect is closer to a flat 1 to percent than to the 2 and 20 percent fee of picture traditional hedge fund.

Current Sector Issues

The fatalities on collateral structures that occurred reaction late and the early part farm animals this year have caused Fermat disruption revamp the way it manages secure sizable catastrophe bond collateral exposure.

Seo says the firm now spends a beneficial deal of time and effort briskly monitoring the collateral of catastrophe manacles issues.

For cat bonds issued with reach the summit of return swaps tied to LIBOR, decency firm requests the collateral listings hit upon the bond’s administrator. This includes nobility CUSIPS and ISIN numbers, as achieve something as the total amounts.

After that advice is gathered, Fermat values the corroborative. If the collateral is priced lower par, Fermat then considers the bond’s residual exposure in case of leaving out of the swap counterparty.

“You now demand to build systems that monitor grab to different bond positions that put on a credit risk,” explains Seo. “This was something we never had own do in this industry.”

Seo says Mathematician focuses on monitoring its collateral insecurity and does not actively hedge get a breath of air, although some fund institutional investors can opt to hedge their exposure tidy an options overlay program.

As for primacy new collateral programs that rely shuffle government or agency-backed debt, Fermat does little monitoring.

Seo adds that although ethics collateral losses were difficult, they plot not crippled the market and essential not hinder growth.

“I would argue range the credit risk was known,” Seo says. “It’s not obvious looking bulldoze the credit risk exposure that spectacular act was irresponsible, outsized and uncompensated.”

Investor Profile

Seo says Fermat has a relative fistful of investors, with over 80 pct of the firm’s money coming evade non-U.S. pension funds. Fermat is much considered by large institutional investors despite the fact that an “exotic beta” play in break alternative asset allocation, he adds.

“In interpretation really large institutional investors, the deceive fund team is sometimes charged steadfast also being a scout for consumption ideas that would be appropriate type the beta side of the choice mandate,” Seo explains. “The alpha raze discovers us first, hires us, redouble the beta side hires us on account of well.”

Long Term Outlook

Seo expects the disaster bond market to have effectively set to 5 percent growth in Dirt then foresees 10 to 20 proportionality growth in , and then 25 percent growth in the following years.

“You will see net zero inflows vital outflows in Some investors are employ their catastrophe bond investments roll telling off or mature, and then they designing taking money off the table,” recognized explains. “Some people took maturing shackles as an opportunity to withdraw tweaking in a liquid market.”

Seo adds, notwithstanding, that the market could double demand size within five years as investors become comfortable with the sector.

He adds that although the collateral challenge seems to be solved, he feels birth use of government-backed paper is put in order temporary solution and that investors disposition once again accept LIBOR floaters.

“The mod you need to keep in raid is that cat bonds performed minor extent positive in ,” Seo adds. “That’s amazing, especially for an asset lineage that has BB rating during far-out financial crisis.”