Current ESG structures and practices focus on strategies that are based on fundamental analysis and security selection in traditional asset classes (e.g. equities and credit). In the case of fully systematic hedge funds that trade derivatives such as futures and forwards, no discretionary analysis of single stocks take place. Our indirect exposure to underlying securities, through equity index futures, does not entitle us to active ownership and/or voting rights in any companies. Further, we always close contracts which approach maturity and, therefore, never allow for the physical delivery of the underlying security. These factors, which are specific to systematic strategies, make existing ESG framework application challenging as the definitions and objectives are more relevant to traditional fundamental approaches.
Nonetheless, Quantica Capital AG ("Quantica") is committed to conduct its business operations and to implement its quantitative and systematic investment strategy by taking into consideration environmental, social and governance factors. Quantica’s role in the financial markets is as an investor rather than a producer or a commercial hedger who takes futures positions in order to insure the business. We take positions based on our expectations on how market prices will move in the future. By trading, we supply markets with liquidity and we allow reliable market prices to emerge via the transactions between buyers and sellers. Capital is being supplied and allocated more efficiently to where the consensus view of the market decides it should go. The additional liquidity provided by any participant is beneficial to the investor community as it enhances the stability of the markets.
Historically, lack of liquidity in financial markets has often been the cause of devastating economic disruptions. Such periods have been harmful to investors’ funds which lost large amounts of money and caused harm and hardship for large parts of the population. While Quantica, as a boutique player, can only supply a limited amount of liquidity, it can disproportionally support the stability of markets in periods of stress by injecting liquidity when many other investors take money out of the markets.
Quantica constantly monitors and minimizes its footprint by carefully managing its execution of buying and/or selling financial instruments. It is imperative that we do not affect market prices when we execute trades and, therefore, we avoid markets with insufficient liquidity.
To assess markets, we have a dedicated ESG committee that screens all investments and assesses them regarding our ESG policies and guidelines. In Quantica’s case, these assessments are focused mainly on the eligibility of financial markets, their regulation and the political environment.