Accidental portfolio manager looking for options

FOHFLady's picture
Rank: Orangutan | banana points 305

Would love experienced feedback on my situation..

I work at an investment research firm, independent. CEO pulls me aside a few years ago and asks me to create a systematic US equities strategy based on his factor research. Ok. I put together a security selection model, and let it run. First two years were mediocre, in line with market, but 2017 was a grand slam. We put up amazing numbers, and feels like we are just hitting our stride.

For a dozen reasons, I need to get out. But I would like to run a similar strategy with improved risk management at prop shop, fund, family office, etc. The track record overall is solid, its been audited by a highly respected firm. Lifetime, real $ sharpe ratio ~4.

Whether the numbers are portable/reportable is a good question. I have no idea, but im probably covered by a strict NDA blanket.

I have no idea how to shop it around, get a foot in a door, or who is even willing to entertain a conversation. Has anyone made a jump like this? How'd you do it? Lessons learned?

** * What are my options?

Please keep in mind its: long-only (but thats flexible), medium term (call it a 1 month holding period when things go to plan), and needs at least a couple $MM to be economical (75 positions out of universe of ~3-4k), 90% monthly turnover. Does not use/require leverage.. I have no finance or accounting degree.

Comments (13)

Best Response
Jan 7, 2018

With a sharpe like 4+ and capacity > 500M the only thing holding you back is the relatively short track record. If you had sharpe > 4 in multiple years (not just one great year and 2 mediocre years), and high capacity, you should be able to get a gig at any hedge fund/prop shop. Just get a headhunter.
The higher risk/reward move is to raise your own capital and trade it yourself. With those metrics and high capacity, this is not as daunting as it sounds. you can pm me if you would like more detail. I did exactly this 5 years ago.

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Jan 20, 2018

is the sharpe based on the 3 yearly return figures? If you used monthly return, whats the sharpe/sortino?

Jan 20, 2018

Realistically, if you have a Sharpe ratio of 4 or over, you should NOT go and ask for external money. Instead, you should try to keep all of the alpha to yourself. Maybe you should be looking for the first loss capital?

Je suis un connard et je m'en fous

Jan 21, 2018

If I were evaluating this here's my concerns. Short track record but everyone starts with that.

Strategy has mostly only been used in a bull market (2015 was sort of a bear market). I would want to hammer thru the performance on 2015 to see how the sharp ratio held up there.

2017 is interesting but it's been a great bull market. Any equity rotation strategy would crush. A simple sell whats rallied and run to what's lagging on a monthly time frame has done pretty well. Plenty of chances to rotate being snp Dow small cap Nasdaq. Etc

Factor investing also got more popular this year. Could just be strong performance because money was flowing into factors.

Sounds like you have a shot at putting something together. Either can get a real job to pay the bills and try to raise a few million on the side or you can apply to the multi-strat, quant, and prop funds and see if anyone gets excited.

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Jan 21, 2018

thanks for weighing in, everyone.

Im going to do some research, put together a list of options, clean up the data/history/track record and see how the performance is after 2018q1.

Jan 23, 2018

Very impressive, but probably still hard to raise significant money with a non-official track (non-official b/c your NDA will prevent investors from being able to verify from the source). I'd say best out right now is to find a platform that will give you capital and a payout. If you can generate 2+ sharpe at scale the big platforms will literally give you as much capital as you want. If the strategy can put up those #s with any kind of capacity over just a year or two you will then be very rich in short order

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Feb 4, 2018

In a little known corner of banking sit teams who help with exactly this problem: how do I take a money making strategy and spin it out in a fund wrapper? Should I/am I ready to do it? How do I market it to investors/raise capital, what are my legal, operational and tax considerations, do I need to hire and whom? What systems do I use? Who's investing and what do they like? Can I find a seeder?

Hesitant to talk business on a public forum but OP please PM me. We work with everyone from single digit million SMAs to multi Bn launches. We know who's investing, where, and who's hiring be it analysts or PMs. We're not recruiters and I'd argue we know the landscape better than most of them do.

Shoot me a message within 48h if interested.

Offshore liffe

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Feb 6, 2018

This is more specific to factor models, but for a factor model you would need to back test it 10-20-30 years and produce a statistically significant result to have anyone take you seriously. 3 years with one good year isn't going to cut it. Forget about telling anyone about your "lifetime real $ sharpe" when it's skewed by your one good year. Plus 90% turnover seems high for a long-only. You need to determine if you've developed a strategy that is repeatable and that has shown (via back tests) that it works throughout different cycles for anyone to really get interested. If you can prove out the strategy and present it with supporting research you'll have more luck.

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Feb 6, 2018

Backtest is 35 years, using nonbiased data (no revisions, real time signals, transaction costs, assumed slippage) averages 22% return vs S&P 11%

Sharpe ratio is consistent across back test, real $

Feb 6, 2018

There you go, turn that into a slide deck and you probably have something that people will want to see.

Feb 6, 2018

Sharpe of 4? Can you hire me?

Feb 6, 2018

The Sharpe of MSCI AWI in 2017 was >4. Obviously pre-VIX blowout, but a data point worth keeping in mind. Managing to sharpe ratio is dangerous for this exact reason

"Do not go gentle into that good night"

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Feb 7, 2018

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