About us
Strategy backstory
We are transferring highly successful, leveraged, and capital guaranteed proprietary trading and investment strategies into algorithms.
My view is that human involvement in active fund management is largely non-productive, as shown by the large flow of capital from active managers to passive ETFs.
My investment products are founded in the absolute return world of investing, where stable returns and strong risk management protocols are essential. The products are designed for simplicity, accessibility, and very high risk return metrics.
Existing mindset
The fund management industry is captured by the idea that deep economic analysis by humans is the only way to generate outperforming investment returns. Large teams of analysts, advisers, academics and ‘financial storytellers’ perpetuate this myth.
An editorial in Institutional Investor magazine, quoting Professor Bradford Cornell from UCLA, discusses this point.
‘Explosively, Professor Bradford Cornell’s recent brief analysis of the performance of Renaissance Technologies (quantitative) Medallion fund states that “to date, there is no adequate rational market explanation for this (out)performance’’.
‘I find this conclusion interesting — not because of its contribution to our understanding of the Medallion fund’s performance (such efforts have devolved into a parlor game), but because it accidentally reveals an implicit worldview that, upon reflection, is a root cause of the dismal record of active management.
This belief rests on the conceit that investing is essentially a human activity — and therefore human reason must be able to explain the results of such activity. There is a continuum of expressions of this worldview, ranging from the dogmatic assertion that active investing must be based on either cash flow analysis or short-term price movement to authoritarian claims that there can be no investment activity without human talent.
Through dictatorial educational programs and a homogeneous workforce, we have reached a point where this perspective is unquestionably accepted. This acceptance allows us to pretend that everything worth knowing is already known and in use, making any alternative unimaginable’.
Tudibaring Asset Management (the company), will initially focus on listed Australian and US equity markets, but will scale across other asset classes, including fixed income, listed property, commodities and cryptocurrencies. One of my personal research projects is a low risk, (synthetic) dividend paying fund using Bitcoin futures as the underlying asset
Ocean Lab Expert Systems
The experts behind the algorithm development had very successful track records inside banks in the early stages of their careers. Consequently, they had the confidence to start their own businesses, investing and risking their own capital. They have done this for many years and consistently generated business revenue directly from the market- no fees, no customer flow, no access to research departments and no privileged access to information. Experience, skill, and a quantitative approach, fine tuned over time have been their ‘secret sauce’. They have generated consistent returns in normal markets, and returns as high as 1000% on equity during large market dislocations. The goal of the business is to scale these results by a product offering to external investors.
Testing the algorithm logic
After a discussion with a senior employee of a A$900 billion asset manager, I undertook a three year, real money trial of the algorithm logic. Usually, risk mitigation strategies involve one to five year maturities. To expedite the process, I used weekly trade maturities, which generated the equivalent of 150 years of information. The testing was extremely valuable for the refinement of the algorithms.
Competition
Historically, banks have been the primary issuers of investment products that include a capital guarantee. Bank revenue has been generated by very expensive margin loans, and an embedded put option that is expensive and does not perform. These products have disappeared post Royal Commission as they fail regulatory ‘investor outcome’ scrutiny.
Institutional fund managers issue leveraged funds with more competitive interest rates, but do not have the internal options/ derivatives capabilities to offer a capital guarantee. If they do try to deliver a capital protective structure, the funds usually come to a bank pricing desk for the option/ derivative component of the portfolio. I have quoted protective structures as large as $650 million per trade. I have also been asked constantly to design various capital protected products for a A$150 billion fund. The fund insisted on applying a 200 basis point management fee to the various structures which made the products I proposed uneconomical. A series of white papers are, or will be available that include discussions on: commonly used institutional risk mitigation strategies and why they don’t work; the impact of US yield enhancement funds on options flows and the opportunities they create for our strategy; the role of path dependency in investment outperformance; and the importance of active management (via algorithms in our case) of investment portfolios containing options.