James Casper, chief executive of algorithmic trading fund Olive Tree Capital, explains the methodology it uses to source and evaluate automated trading systems.
James Casper, chief executive of algorithmic trading fund Olive Tree Capital, explains the methodology it uses to source and evaluate automated trading systems.
HW: What is the background to your company?
JC: Olive Tree Capital is a segregated portfolio company, which enables the fund to structure new segregated portfolios within the company and integrate new trade systems into our portfolio while remaining a single entity. Olive Tree sources more than 400 algorithms per year, and evaluates each trading system through its comprehensive due diligence process.
Olive Tree will be launched in February 2007, with myself and Alex Waldman as principals, and an initial USD5m in assets under management. I bring 13 years of experience in the financial and hi-tech industries, having previously been founder, chief executive and marketing director of FXUC Solution, an online foreign exchange services company.
I have also served as global marketing director for Opcom Fiber Optics, Israel’s leading telecommunications company, introducing the company’s sales to 15 countries on three continents and heading distribution. Earlier I was an account executive and group manager at Blair & Co., a leading boutique brokerage house specialising in hi-tech and biotech IPOs and bridge financing.
Alex Waldman is founder and chairman of Waldman Diamond Group, established in 1978, a leading Israel-based diamond manufacturer with global mining and marketing enterprises that he and his management team have built up unto a vertically integrated group encompassing all aspects of the diamond industry.
HW: Who are your service providers?
JC: Our lawyers are Appleby Hunter Bailhache, our administrator is Custom House, and our broker is Interactive Brokers.
HW: How and where do you distribute the funds? What is the profile of your current and targeted client base?
JC: Olive Tree allocates its funds to the automated strategies that are integrated and incorporated into its portfolio. Our target clientele is high net worth individuals, funds of funds, pension funds, private banks, family offices and other financial institutions.
HW: What is the investment process of your funds?
JC: Olive Tree screens more than 400 algorithms per year, and evaluates each trading system through its comprehensive due diligence process. Ultimately, a select few algorithms are chosen, optimised and integrated into the fund. We look for automated trading systems that focus solely on liquid markets, hold short-term positions and have scalability.
HW: How do you generate ideas for your funds?
JC: We constantly seek out new automated trading systems and manufacture new trade ideas. Moreover, our screening, risk management, and allocation processes are continuously refreshed and refined.
HW: What is your approach to managing risk?
JC: Each trading system is evaluated against Olive Tree’s risk management criteria, and risk parameters are tailored and set on a per strategy basis. Risk parameters are established concerning instruments traded, instrument criteria, leverage per position and exposure. The risk management process also involves a series of stress tests using historical market data to examine the behaviour of each trade system under catastrophic circumstances.
Once live trading occurs, each system is consistently monitored by Olive Tree, and end of day reporting is performed with reference to outstanding positions, exposures, and P&L per manager and on an overall portfolio basis. All reports are reviewed daily.
HW: Has your performance been as per budget and expectations? Do you expect your performance or style to change going forward?
JC: Our simulated results for the past five years, based on real and simulated back-testing, show an average yearly return of above 20 percent with drawdowns of less than five percent.
HW: What opportunities are you looking at right now?
JC: We constantly seek new automated trade systems that fit our investment criteria.
HW: What events do you expect to see in your sector in the year ahead?
JC: We see multi-strategy funds as an emerging space, and we aim to capitalise on that growth.
HW: How will these changes/future events impact on your own portfolio?
JC: Olive Tree Capital’s diverse, market neutral portfolio focuses on short-term trading in non-correlated markets, so we don’t see any events that would impact the portfolio.
HW: What differentiates you from other managers in your sector?
JC: Olive Tree Capital’s selective screening process, risk management procedures, and allocation methods distinguish it from other funds in its sector.
HW: Do you have any plans for similar/other product launches in the near future?
JC: No.
