Sigma Capital Advisors LLC
Sigma Capital Advisors is a financial and technology consulting firm focused in advising corporate and institutional clients on complex financial products and risk management solutions, as well as in creating financial technology solutions aligned with their strategic growth needs. We specialize in more sophisticated financial products, risk management, economic development topics, data analytics and machine learning solutions as well as technology oriented platforms.
Our Fintech team has broad expertise in data analytics, artificial intelligence, cloud computing, business intelligence, data integration were products or services can be tailored to the client needs.
As independent consultants with more than 60 years of combined experience in the fields of finance, economics, statistics and computer science and technology, we also identify and outsource some of our consulting services to our large network of affiliated consultants and freelance experts within the financial industry in New York, Washington DC and across Latin America.
Structured Products and Risk Management
For sophisticated large investors looking to invest in structured notes or trade other over-the-counter derivatives across asset classes for portfolio diversification, obtain better risk adjusted profile or for speculative trading strategies, we can help identify the right product given investors objectives and current market conditions, aid in the structuring and origination for more tailored solutions. We can also advise long and short term investors and businesses on hedging market and credit risks exposures or assist in analyze and identify other appropriate structured financing vehicles for small and medium companies in Latin America.
We can assist in the evaluation, structuring and origination of such products. We can also engage in valuation projects, although on a more limited long term project arrangement. Therefore, we can assist in a holistic consulting approach into investing in these products, whether they are used for buy and hold, speculative, hedging or financing. Our services are crucial if you have structured products or derivatives in your portfolio and would like to understand how they might impact your asset allocation. Alternatively, for internal or external compliance there might be a need of assistance in identifying key features of these products. Similarly, we can assist in identifying when certain vehicles are a good or bad idea given the underlying general market conditions, when to buy, sell or just hold on to them.
In addition, investors and companies have many other uses for structuring an over-the-counter (or listed) derivative product, as they can tap a particular market or asset class with specific payoffs, speculating and leveraging a position. Alternatively, they may find them predominantly useful in hedging an exposure with certain risk profile and payoff. Some of these products and strategies are being used heavily by more sophisticated hedge fund investors. We can evaluate the different strategies used by a hedge fund manager as part of an allocation to a wider portfolio and review the suitability for the outcome you are targeting.
Financial Advisory, Project Funding and Evaluation
We can help companies, project sponsors, nonprofits, startups and larger Public Private Partnerships (PPP) in Latin America, evaluate and obtain infrastructure and energy project financing, identify potential investors or funding sources. Also help startup companies and projects by introducing them to VCs, angel investors, seed capital etc.
In addition, throughout our affiliated consultants we can provide technical assistance and training of human resources for sovereign, quasi sovereign and local government agencies at the federal, province or municipal level, with a special emphasis in improving administrative effectiveness, in addition to the economic and financial analysis of public investments on infrastructure and other social sectors, as well as for public private partnerships and projects. and recommend local governments with policy evaluations and data systems integration.
Ex-ante and ex-post evaluation of budgetary decisions, including the use of regular budget resources and the utilization of development aid funds provided by bilateral and multilateral agencies (World Bank, Regional Development Banks, and similar), as well as management information systems and implementation of results indicators.
Performance and impact evaluation of programs and projects in various areas using both traditional methods and new instruments incorporating technology for the establishment of benchmarks and baselines, collection and processing of data and innovative tools.
AI and Financial Technology Solutions
Our goal is to provide the best integrated technology solution to make our client’s new or existing business a profitable venture. We use a “fit-to-need” approach in integrating scalable artificial intelligence solutions to our client needs throughout our engagement in a workflow process best suited under the client’s time restrictions. We establish a baseline level of performance based on a joint review of the client’s current practices. Steps in this AI integration process comprise of manual decision making, automation using simple scoring and fully automated machine learning solutions. A fully functional AI solution, whenever applicable, consists of four parts – data gathering, algorithmic technique, cloud infrastructure identification and regulatory, compliance and data security considerations requirements to scale up the business model.
ARTICLES AND EDUCATIONAL BRIEFS
Latest dynamics and trends in Financial Markets: Challenges and Opportunities in the years ahead
The US and global economy in general, and financial markets in particular are being challenged not only by the immediate external shocks inflicted by a health crisis and subsequent government imposed restrictions around the world and across industries, but also by more profound structural shifts that defies conventional wisdom and poses significant questions to future policy making. As part of a series of consulting rounds with the aim of delivering alternative, prioritized data points that inform and enrich the decision making of stakeholders in different industries and with special relevance in the continued response to the COVID-19 crisis, we put together a small brief with some of the macro and emerging trends and dynamics that have affected financial markets in recent years, as well as the shifts that have occurred as a result of current health crisis, who is leading them and what might be the immediate and long term consequences. We also briefly discuss some of the areas that need to be addressed in the current situation and future events of similar magnitude.
Guide Questionaire for Financial Risk Management - Post Covid19
The current pandemic-induced economic crisis has brought several immediate and long term financial risks for companies across all sizes, sectors and industries. CFOs and Treasurers must anticipate, assess and mitigate these contingencies and their impact along the different areas and business lines. Therefore, it is crucial to add clarity and precision into the decision making process. For this purpose, we’ve synthesized a series of relevant questions for C-suite management to address before formulating a holistic and comprehensive financial risk plan. We invite you to read on this brief questionnaire in order to take targeted and effective action.
Hedging Credit Risk: A premier on CDS
Proper identification of the risk of default of a debt issuer in an investor’s portfolio has always been crucial for sound credit portfolio management. However, the assessment and risk mitigation at a portfolio, security/loan, issuer or even sector level remains highly ineffective and at times very costly. Therefore, investors and risk managers should try to implement, or at the very minimum remain cognizant, of alternative derivative tools available to them.
In addition to natural hedgers (e.g. banks, hedge funds, private equity funds, mortgage companies and agencies, insurance, pension funds), active investors in the credit space (e.g. market makers like banks, proprietary trading firms, hedge funds) can utilize outright or net spread position strategies to take advantage of opportunities or arbitrage away dislocations or other disruptions in the cash and derivatives market (e.g. negative basis spreads).
Recent regulation in the over-the-counter market, enforced in the US markets as part the enactment of the Dodd Frank Act, such as the utilization of swap execution facilities (SEFs) and central counterparty clearing houses (CCPs), have added liquidity and efficiency in their trading as well as transparency and strength to their risk management, by standardizing contracts, netting positions, streamlining and consolidating the whole clearing process. Consequently, extreme attention should now be placed at CCPs risk mitigation structure and their members’ initial/variation margin and guarantee fund valuations to avoid the calamity of 2008.
This product brief should serve only as an introductory snapshot into some of the more popular credit products available for market participants. But they could also be used as building blocks to other more esoteric products like synthetic CDOs and other credit linked notes and securitizations.
A Premier on VIX: The "Fear" Index
Given the stock market return correlation with its volatility, investors started using an option price implied volatility index (the VIX index) - first developed by CBOE in 1993 as a theoretical gauge of the overall market "fear", as a tool to diversify portfolios, trade speculatively and hedge their market volatility exposure by replicating it with a portfolio of SPX options. In 2004 and 2006, the CBOE introduced the first VIX futures and in 2006 launched the first VIX options. Subsequently, many other indices where developed around the VIX futures and options in order to replicate long/short positions in volatility, which were later used as benchmarks by wrapper products like ETFs/ETNs and other structured products.
A Brief on Inflation Swaps
The inflation market is relatively young in comparison with other debt markets. The earliest inflation adjusted government bond was issued by the UK treasury in 1981 and US Treasury TIPS, first issued in 1997, is now the largest and most liquid market. Today, all developed and most emerging market economies have developed an inflation adjusted bond and real yield curve. In addition, major central banks now take this market to gauge implicit levels of inflation expectation and real interest rates. The product has established itself as a separate asset class in every institutional fixed income portfolio, due to its lower volatility, longer durations, high liquidity, and growing outstanding volumes.
Participants in the inflation debt and derivatives markets use them to better match and manage their assets and liabilities, enhance diversification of market and credit risk of their portfolios and exploit relative value opportunities.
Payers of inflation can be governments and government agencies (due to their inflation correlated tax revenues), commercial and real estate property investors (given their inflation adjusted rent income), and large project financing companies (because their revenues are mostly linked to inflation) as well as commercial banks if their funding short-term deposit rate is highly linked to inflation levels. Pension funds on the other side, are inflation receivers and can better match their inflation linked pensions with or inflation bonds or derivatives.
The inflation derivative market has grown in line with the cash market, and is most liquid for those products that use the same indices as the government bonds. (e.g. UK RPI, US CPI, Euro HICP, French CPI etc.) The following plain vanilla inflation swaps represent just a small subset of the universe of products in the asset class but a very liquid and popular set of asset liability management tools, especially in G7 currencies.
Cryptocurrencies – A Premier Overview
A cryptocurrency (or altcurrency) is a digital asset designed to work as a medium of exchange using cryptography to secure the transactions and to control the creation of additional units of the currency. Cryptocurrencies are classified as a subset of digital currencies and are also classified as a subset of alternative currencies and virtual currencies.
by Leonardo Reos, FRM
Hedging Currency Exposure in Volatile Markets
Currency markets have experienced significant volatility in the past few months, especially after recent global geopolitical and global events. Global trade and direct investment have suffered in the meantime as larger uncertainties take hold in decision making. For multinational companies, exporters and importers, higher currency volatility can take a significant toll in their bottom line. Therefore is paramount to consider different hedging strategies.
by Leonardo Reos, FRM
Carry Trades As Money Market Alternatives
High liquidity in the FX markets combined with meticulous and rigorous money market management can provide a pickup in yield and a sound alternative to a short term, low volatility product.
by Leonardo Reos, FRM
Structured Notes Market Updates
Currency Notes, Apple ELNs, Swaps and Volatility - Latest trends in the markets across asset classes affecting issuance.
Mortgage Hedging Tools
Fundamental Concepts in Hedging a Mortgage Portfolio - A brief but torough analysis of interest rate, prepayment, volatility, spread, mortgage basis and credit risk.
Structured Products 101
Controling Risks and Choosing Rewards - A brief introduction to the world of structured investment products for either retail and institutional use.
What is a Structured Product?
There’s no single definition of a structured product. In the most general sense, they are packaged investment vehicles that wrap a derivative strategy based on one or more underlying and is sold, traded and valued as a single security. They can be linked to a single security or a basket of securities, interest rates, indices or benchmarks, commodities, credit spread, foreign currencies, or hedge funds. Some SPs offer a “principal guaranteed”, meaning that the principal amount is protected at maturity by its issuer, though the security could trade higher or lower in its life. As an example, if an investor invests $100 in a 5yr principal protected note tied to the S&P500 index, the issuer simply invests in a risk-free bond that has sufficient interest to grow to $100 after the five-year period. This bond might cost $80 today and after five years it will grow to $100. With the leftover funds the issuer purchases the options, forward/future, swaps and or other strategy tied to S&P500 index. Most other SPs take a non-principal protected, meaning they do not guarantee their principal at maturity. Even though investors can just trade both separately, the cost and transaction volume requirements of many options, swaps and other derivatives are beyond many individual investors.
While SPs are for investment or speculation purposes and include some form upfront principal investment, some are tailored to hedge a particular exposure to the market, therefore are just a structured OTC derivative without the use of a principal investment, using only the notional to derive its value. Risks are usually much greater, and there’s a need of extra documentation or higher collateral margins.
As such, structured products were created to meet specific needs that cannot be met from the standardized exchange or OTC traded financial instruments available in the markets. Structured products can be used as an alternative to a direct investment, as part of the asset allocation process to reduce risk exposure of a portfolio, or to utilize the current market trend.
The U.S. Securities and Exchange Commission (SEC) Rule 434 (regarding certain prospectus deliveries) defines structured securities as "securities whose cash flow characteristics depend upon one or more indices or that have embedded forwards or options or securities where an investor's investment return and the issuer's payment obligations are contingent on, or highly sensitive to, changes in the value of underlying assets, indices, interest rates or cash flows".
WORLD BANK CHALLENGES OF A POST PANDEMIC WORLD
The sudden and powerful nature of the ongoing health crisis has swiftly devastated large portions of the economy across developed and emerging markets in a matter weeks. Governments around the world are struggling to cope with different realities given their limited budgets and constraints. Coordination among countries becomes essential not only for stemming the advance of the pandemic, but arguably to hamper a self-induced destruction of supply and demand. This is especially true in developing economies, where their precarious, and in some cases financially unstable scenarios, a treacherous path to recovery and sustainability warrants social unrest, further debilitating any chance of recovery. Within this context, multilateral institutions such as the World Bank have a critical role in providing economic and financial assistance to back stop or alleviate a downward spiral dynamic by extending emergency loans, guarantees and other forms of risk sharing products with affordable terms. In this article we identify the most important benefits of international cooperation through multinational development institutions, such as the World Bank. (Spanish Version)
EMPIRICAL EVIDENCE IN PUBLIC POLICIES
Based on the years of academic work by the 2019 Nobel laureates on Economics, similar rigorous experimental tools and methodologies that are applied to measure results in hard sciences, such as physics, chemistry or genetics, can be used to determine and validate the impact, efficacy and efficiency of controlled random trial groups in the planning of sound development policies and public projects. This article lays a brief discussion on the effectiveness of empirical evidence in the design of public policies, and suggest some recommendations and best practices in their preparation and implementation, aimed at tackling or correcting large social and environmental problems (e.g. poverty, health or education).
A BRIEF INTRODUCTION TO PUBLIC-PRIVATE PARTNERSHIPS
In the last few decades it has become normal that Governments in both industrial and developing countries use Public-Private Partnerships (PPPs) to confront the challenge of meeting a growing demand for new and better services. Private participation has been increasing all over the world and a large variety of sectors are currently serviced by means of PPP contracts. In the following article, we aim to provide just a brief overview of this project financing vehicle and describe some of its mayor benefits and risks.
HEALTHCARE LABOR MARKTES: RECENT TRENDS AND EXPECTED GROWTH
In March 2018, the University of Mendoza will organize a Panel and Workshop on “Training of Human Resources for Healthcare Management in the presence of new technologies challenges. Crisis or opportunities?”. The event will be carried out in parallel to the Annual Meeting of the Inter-American Development Bank to be hosted in the city of Mendoza, Argentina. The following article contributes to the workshop by proposing a basic framework of policy action, laying out the labor market challenges, opportunities and requirements needed to be implemented in the sector in the next decade. Sigma Capital Advisors LLC is preparing and will participate in the event.
HISTORY AND CHALLENGES OF THE INTERAMERICAN DEVELOPMENT BANK
The Inter-American Development Bank (IDB) is a multilateral institution based in Washington, DC, whose objective is to contribute to sustainable growth and poverty reduction in Latin America and the Caribbean through financial and technical assistance to governments and private sector companies in the region. In the following analysis, Orlando Reos presents a brief historical overview of the organization with reference to its institutional nature and governance system, as well as some strategies in place to achieve the established objectives. In addition, future challenges, such as reducing inequality and poverty, technological transformations affecting the labor market, demography changes and pension systems, as well as the importance of genuine savings to ensure macroeconomic sustainability in the region are analyzed. These topics were presented on August 18, 2017 in the legislature of Mendoza, Argentina, with the presence of the vice governor and other high provincial and academic authorities. as part of a cycle of talks and conferences related to the IDB 2018 Annual Meeting to be held in that city.
CHINA'S INVESTMENTS IN LATIN AMERICA AND THE CARIBBEAN
In early 2015 China and the Community of Latin American and Caribbean States (CELAC, for the Spanish acronym) signed an agreement in Beijing aimed at increasing the economic cooperation among the parties, with the purpose of creating great opportunities for the development of Latin American and Caribbean nations.Add paragraph text here. However, this commitmitment needs to be planned, managed and executed along with a sound, transparent and legitimate public policy framework by the individual governements of the region. Otherwise, it could potentially lead to highly ineffient allocation of capital and disruptive relationship with the asian giant. Read the full article below.
Leonardo Reos, FRM
Founder / Chief Investment Officer
Mr. Reos, has over 20 years of combined experience in asset management and structured finance, advising domestic and international clients on capital markets, investments, risk management and structured finance transactions.
Before founding Sigma Capital Advisors LLC and becoming a financial consultant, Mr. Reos was an executive portfolio manager at Primex, a small boutique investment bank firm in NYC, managing and advising investment portfolios for high net worth individuals and corporate investors.
Previously, he was a Senior Investment Advisor at Deutsche Bank Asset and Wealth Management unit in New York, managing and advising corporate and institutional clients in Latin America. Before being an advisor, Leonardo served for many years as the head of the structured products and over-the-counter derivative solutions desk at Deutsche Bank AG for international clients, responsible for the structuring, origination and trading of customized investment and hedging products and transactions.
Prior to his Wall Street experience, he worked as a senior financial and risk analyst at Fannie Mae, Amtrak and Deloitte LLP in Washington DC and as a bond trader in Banco Sudameris SA (now Banco Patagonia SA) in Argentina.
He brings expertise and background in areas of debt capital markets, over-the-counter derivatives, structured products, and risk management, within the financial services industry and other corporate sectors in the United States and Latin America and is well-versed in new Machine Learning techniques and Data Analytics.
Mr. Reos has a degree in economics from the National University of Cuyo, Argentina and holds an MA in economics and mathematics from Torcuato di Tella University, Argentina, an MS in finance from Johns Hopkins University, and a post-graduate degree in Structured Finance from NYU. He holds a Financial Risk Management (FRM) certification from the Global Association of Risk Professionals (GARP), of which he is currently a member, as well as other specializations and certifications in Machine/Deep Learning techniques and Blockchain technologies.
Senior Consulting Partner / Economic Development
Mr. Reos is an independent consultant with more than 40 years of experience in the preparation, analysis, assessment, implementation and evaluation of public and private investments, fiscal management and tax administration, fiscal decentralization and sub-national governance.
For more than seventeen years since 1991 he worked in the Inter-American Development Bank (IADB) in Washington, DC where he was involved in the design, preparation and evaluation of IADB’s operations in most Latin America and the Caribbean. He headed the Operations Evaluation Office and later had direct responsibility for leading project teams that prepared and submitted loans and technical assistance operations for approval by the Executive Board of the Bank in countries of the Southern Cone (Argentina, Brazil, Bolivia, Chile, Paraguay and Uruguay). Loan operations focused on improving the capacity of government institutions and public agencies to fulfill their core missions and serve the public. Areas covered, among others included: public financial management, accountability and control of public expenditures, formulation of public sector economic and fiscal policy, modernization and reform of the civil service, implementation of trade agreements, reform of legislative and judiciary processes, improvement of public debt management.
He was member of an independent Review and Technical Assistance Team of the World Bank for the Tax Administration Reform Program (TARP) in Pakistan (2008-2011).
Earlier in his career he worked at the United Nations in Chile and New York supervising the support provided by the Department of Technical Cooperation for Development (UN/DTCD) to developing countries in the Americas and Africa. He has also worked at the private sector in Argentina and was professor and researcher at universities in Argentina and Chile. He holds Argentine and US nationalities.
Kiran Pandey, PhD.
Senior Data Scientist
Dr. Pandey is a senior data scientist and economist with extensive experience leveraging data for complex business strategy and policy decisions in the finance and public sectors. He is a known as a consensus builder around fit-to-purpose decision management and decision modeling to help his clients reorient their business processes to focus on the decisions that must be made – rather than the data available or the systems in place. Dr. Pandey is well-versed on the full spectrum of data systems -- legacy to the latest artificial intelligence driven algorithms.
Dr. Pandey has a BSE in electrical engineering and computer science from Princeton University and a PhD in Economics from University of Maryland.
Mauricio Capra, PhD.
Senior Technology Consultant
Dr. Capra is a professional with over 15 years of experience in global consulting and financial services program management. By providing leadership and expertise in high performing multicultural teams, business, and technology process design, Dr. Capra successfully delivered a post-merger banking operations integration project on time and within budget, integrating Business Process Modeling, Business Intelligence, and Project Management, utilizing Scrum frameworks. He also served as an effective bridge between business operation requirements and technical specifications across global project teams and users.
Dr. Capra is computer science engineer from ULBRA in Brazil and obtained a PhD. on Augmented Reality at the University of Nottingham, U.K.
This website and its blog is a publication of Sigma Capital Advisors LLC, a company incorporated in the state of Maryland. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. Information on this website and its blog do not involve the rendering of personalized investment advice. A professional advisor should be consulted before implementing any of the options presented. No content should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation. Information on this website and blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein. Case studies are for illustrative purposes only and should not be construed as a testimonial. They do not represent the experience of any specific advisory client. Each investor situation is different, and goals may not always be achieved. It is unknown if the client approved or disapproved of the services rendered. None of the persons photographed is a current or former client of Sigma Capital Advisors LLC. These photos should not be construed as an endorsement or testimonial from them. Hyperlinks on this website are provided as a convenience. Sigma Capital Advisors LLC disclaims any responsibility for information, services, or products found on websites linked hereto. Additionally, Sigma Capital Advisors LLC is not liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, websites, information and programs made available through this website. When you access one of these websites, you are leaving our website and assume total responsibility and risk for your use of the websites you are linking to. Sigma Capital Advisors LLC is NOT registered as an investment advisor with the U.S. Securities Exchange Commission ("SEC") nor with any US state. Its owner and president is currently an Exempt Reporting Adviser ("ERA") in the state of Maryland that is not required to register as an adviser with the SEC or the state regulator, but must still pay fees and report public information via the IARD/FINRA system, and currently only transact in states where it is excluded or exempted from registration requirements. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for your portfolio. All investment strategies have the potential for profit or loss and past performance is no guarantee of future success. Historical performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results. Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark.