GAM's systematic trading unit plays a key role in the Swiss asset manager's growth prospects. The Cambridge-based quant unit has suffered a setback to CEO Alexander Friedman's turnaround efforts.
Last year, Cantab's quantitative fund returned 30 percent – grist to the mill for GAM boss Alexander Friedman, who splashed out more than $200 million two years ago to acquire the firm.
The plan? Highly-specialized quant traders promised returns untethered to wider market moves, part of a rapidly-growing trading strategy which includes algorithmic to high-frequency outfits.
GAM built its systemic unit around the 56 employees it acquired through Cantab, which was founded ten years ago by a former Goldman Sachs quantitative specialist.
Sharp February Drop
CEO Friedman, who was criticized for the high price of the deal, would undoubtedly like to tell an encouraging story around Cantab when GAM reports full-year results next week. Instead, he has to explain how its quant fund lost 15 percent this month alone – a figure calculated by «Financial News» (behind paywall). The fund was hit by January's extreme pickup in volatility, the newspaper reported.
The computer-based investment models, meant to work impeccably in one-track markets, don't seem to stand up to unexpected levels of turbulence. Systemic strategies drew in $25.2 billion last year, according to data firm Preqin. Cantab's quantitative fund manages $1.6 billion.
Beat Expecations, Then...
To be sure, Cantab's fund is in good company: hedge fund powerhouse Leda Braga's «Systematica» dropped 10.2 percent, along with other quant and similar funds. Last January, Friedman told a business audience that Cantab's fund had beat expectations and highlighted the product as a shining example of technology supporting investing.
A spokesman for GAM told «FN» that most strategies had struggled with the sharp volatility in various financial markets last month, including passive, active, discretionary as well as systemic ones. All GAM systematic funds had responded within expectations to the turmoil, and their risk management had held. With Cantab, GAM still needs to prove that computer-based trading can outperform in tumultuous market conditions.
