Bailey McCann, Opalesque New York for New Managers:
Quant funds are having a moment. That’s leading some managers to bring on data scientists and developers so they can add phrases like “machine learning” to their pitch decks. But, they will have to go a long way to outperform quant funds like the RenTechs of the world, that have been in the game since the beginning.
The investment team at Data Capital Management was part of that beginning and is now launching its own fund. CEO and founder Michael Beal began his investment career at Morgan Stanley and then went on to create the JP Morgan Intelligent Services (JPMIS) big data investing team. Beal spun out and developed DCM with some of his colleagues from JP Morgan. At DCM, the team has developed a systematic trading strategy that trades equities based on analysis of vast amounts of public data.
DCM’s team is building on its skillset from JP Morgan to develop a proprietary trading technology driven by big data. “Realistically, we started building this strategy in 2010,” explains Andrej Rusakov, Partner at DCM. “We have developed a system that creates unique trading signals to capture alpha.”
The firm’s maiden fund will be capacity limited to around $150 million per share class. The founders class is already approximately 70% subscribed. “We think it is important to limit the capacity so that we can remain dynamic in our trades,” Rusakov says.
The strategy is sector agnostic and works by forecasting the market regime for 5-10 days at a time and creating trading signals based on how markets are likely to react over that period. Rusakov says the strategy tends to be low volatility and low drawdown, despite fairly frequent turnover in the portfolio. “Our turnover rate is consistent generally with many other quant funds. We aren’t going to hold on to positions for a long time, but our signals are uncorrelated to the market,” Rusakov adds. The fund is targeting a high double-digit absolute return.
So far, a few big name investors are on board. A large family office seeded the founders round and Howard Morgan, Co-founder and former president of Renaissance Technologies and Co-founder of First Round Capital is invested. Greg Gurevich of Maritime Capital, Andy Dunn of Bonobos, and Daniel Neidich of Dune Real Estate Partners are also on board.
Going forward, the firm plans to launch additional funds that use DCM’s big data platform to invest globally and by asset class. “We think there are a variety of applications for artificial intelligence driven investing, the key is to have a rigorous process for analyzing data and we think ours is both unique and more in-depth than many funds in the quant space today,” Rusakov says.