LONDON A former executive at computer trading firm Superfund is betting that blending man and machine will help his new quantitative hedge fund buck a trend that has seen many rivals run up big losses this year.
Aaron Smith, a former managing director of Vienna-based Superfund's U.S. and Singapore units, has launched Pecora Capital and is now opening up the fund to external investors, he told Reuters in a recent interview.
He said the fund could grow to as much as $400 million.
Like many so-called managed futures hedge funds, Pecora tries to make money riding trends in global markets - in this case very short-term price movements in global currency markets.
However, unlike some rivals, the fund's managers, who run it from Switzerland, take views on macro events and then decide which of its computer models should be given more or less money.
Pecora's launch comes at a tricky time for the $188 billion managed futures sector, which has attracted billions of dollars in assets in recent years after making big profits during 2008's financial market chaos.
The average systematic diversified CTA (Commodity Trading Advisers) fund has lost 7 percent so far this year to December 14, according to Hedge Fund Research's HFRX index.
Funds have struggled this year due to an absence of direction in markets, on which they rely, or because trends such as rising commodities or a falling U.S. dollar have suddenly reversed and caught them out.
Aspect Capital, which runs $6.8 billion, has seen its Diversified fund lose 10.8 percent this year to Dec 17, while $26 billion Winton Capital's main fund is down 3.8 percent this year. Man Group's (EMG.L) $16.3 billion flagship fund AHL is down 1.9 percent from January 2 to December 17.
Smith's former employer Superfund, whose assets have dropped to $700 million from $1.2 billion over the past two years, has seen its flagship fund lose 8.2 percent this year.
Smith told Reuters that because volatility in some major currency pairs is so low he has reduced exposure to computer models that try to latch onto market trends.
Instead he has increased exposure to so-called counter-trend models, which look for signs that a market is overextended and about to rise or fall, and then trades on this.
The move to introduce human judgement into computer trading models echoes the unusual step taken by AHL, which told Reuters this summer it had built a computer model to cap exposure to ultra-low bond yields.
However, Smith added that he is comfortable with his computer fund's short on the Japanese yen - a position that a number of hedge funds are eyeing as pressure grows on the Bank of Japan to expand monetary stimulus.
"We have a tactical view on Japan. We're very, very comfortable with our short," Smith said. He added that so far this year Pecora has made small gains.
Superfund, Smith's former employer, was set up by entrepreneur and former policeman Christian Baha, who had a cameo role in the 2010 film "Wall Street: Money Never Sleeps".
(Editing by Mike Nesbit)