Quant Shop Poised for Significant Growth

Published by Hedge Fund Alert

 

Artificial intelligence is propelling the two sides of Quantumrock Capital’s business: running a hedge fund and operating a financial-technology unit. Based on current investor interest, the Munich firm is confident that its hedge fund, Quantumrock GmbH, and its separate accounts, which run $60 million, will grow to a combined $100 million in the next three to six months and to $500 million in 12 to 24 months. The fund is powered by the firm’s proprietary artificial- intelligence technology dubbed Volatility Special Opportunities Program. It’s designed to predict and capture volatility spikes induced by downturns in equity markets, while also seeking alpha in bull-market periods. The vehicle trades futures linked to the CBOE Volatility Index, or VIX, the S&P 500 Total Return Index and 10-year Treasurys. VSOP delivered a gross return of 2.5% on the year, including about a 2% gain on Black Friday, when news of the omicron variant’s spread dragged the S&P 500 down 2.3%. The program gained 30.9% on a gross basis in 2020, including a 23.2% gain in March, when the S&P 500 lost 12.4%. Quantumrock pitches its strategy as an unusual one because it is designed to protect investors from so-called tail-risk – or rare events that cause severe losses – but which also profits during long periods of a bull market. Such a strategy differs from most tail-risk funds, which tend to lose money during prolonged bull markets and are viewed by investors as a kind of insurance premium covering them against the rare stock market calamity. VSOP has delivered a gross average annual return of 13.1% since inception on July 4, 2016. In marketing documents, the firm said several of its peers suffered losses during the same period. Like several other quantitative firms, Quantumrock monetizes its technology by using it to customize strategies for investors with specific demands. For instance, Quantumrock is finalizing a deal with an undisclosed bank in Singapore to use Quantumrock technology for its own customers. The Singapore bank would mark the third such client for Quantumrock.In this case, the bank asked Quantumrock to customize its VSOP program to protect its customers from risks less severe than tail risks. Quantumrock developed four new strategies for the bank. Two strategies address Treasury exposure and short-duration risk. The other two are equity-protection strategies. While VSOP is covering actual tail events effectively, the four new strategies provide a hedge for different scenarios. They protect against smaller volatility moves stemming from events including market corrections and rising interest rates. 

Quantumrock was founded in 2012 by chief executive Stefan Tittel, an entrepreneur who previously founded Masterpayment AG, a European online-payment and working-capital finance provider that serves customers in 33 countries.