Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Axius joins with NY boutique for liquid alternatives
ARP Investments, a New York-based global quantitative manager, has entered the Australian market through a distribution partnership with a Sydney-based placement agent, Axius Partners. The staff-owned ARP is currently raising capital for its liquid alternative strategies, which have proved popular strategies in Australia in recent years.
ARP, which was formed in 2013, manages about US$2 billion in assets.
It is a boutique technology and innovation-driven alternative quant firm, which has grown to about 40 staff, according to founding partner DeWayne Louis. The strategies aim to provide risk-adjusted returns which are uncorrelated with equities and bonds. He said from New York last week (July 16) that ‘Systematic Alpha Global Macro’ strategy served clients particularly well during the first quarter of this year, when markets suffered their first hit due to COVID-19, because of its diversification attributes.
“The strategy tends to be better [relative to the markets and other managers] during periods of heightened volatility and dispersion,” Louis said. It has returned 8.10 per cent annualised since inception in 2017 and 8.94 per cent in the past 12 months. In calendar 2019, the strategy returned 18.18 per cent. The manager’s other main liquid strategies are: ‘Alternative Risk Premia’ – hence the name of the firm – and ‘Systematic Alpha Merger Arbitrage’ and ‘Systematic Alpha Trend Following’.
ARP has five founding partners with experience in hedge funds and quant investing back to the 1990s, including managing partner Deepak Gurnani who said last week that in the early years of global macro strategies, they tended to be dominated by fundamental managers. “When we compare ourselves to discretionary managers like that, they tend to take a few concentrated bets,” Gurnani said. “It’s very rare that they are diversified. For instance, you can make money from the large banks but then you get drawdowns. With systematic investing we invest through diversified factor models across asset classes. We are more comfortable with our style.” Fundamental managers in the global macro space can also have unintended trend-following exposures.
The ARP global macro strategy uses more than 40 alpha models specific to asset classes and more than 80 futures-related instruments. Gurnani said that in periods of market weakness there tended to be dislocations, which allowed the strategy to perform slightly better in stressed environments.
George Giovas, the managing director of Axius Partners, and fellow founder John Maragiannis, an experienced funds management marketer, have built a diversified firm of their own, encompassing third-party marketing, capital placements, capital advisory and funds management across Australia and New Zealand. It is as much a boutique investment bank as it is a placement agent and marketer.
– G.B.
