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Penny Aitken, head of investment research, FQS Capital Management

FQS Capital: “Our current mandate and process is focused on finding and blending a portfolio of alpha driven managers”

FQS Capital Management is a dynamic multi-asset management firm that utilizes proprietary quantitative models and integrated risk analysis to maximise risk adjusted investment returns.

GFM: What is the history and background of your company, principals and products? 

Dr Robert Frey, who has extensive experience in both the academic and business world, founded FQS in 2009. Dr Frey leads an experienced team in London and New York. FQS was created as an evidence-based culture with unique quantitative expertise applied to the hedge fund space.

The key principals of the firm are:

Dr Robert Frey, who acts as Chief Investment Officer. Dr Frey holds a PhD in Applied Mathematics and Statistics from Stony Brook University and is a noted fund manager and academic in quantitative finance and hedge fund management. Prior to founding FQS Robert was a Managing Director of Renaissance Technologies Corp, one of the world’s most successful hedge fund firms. At Ren Tec Robert led the development of the Nova Fund, a high-frequency, market neutral hedge fund trading US equities using statistical arbitrage which was then absorbed into the flagship Medallion Fund.

Penny Aitken (pictured) heads up FQS’s investment research. She was previously Head of Research at International Asset Management. She has previously held roles at Tisbury Capital Management, Bradshaw Asset Management, Cazenove and Deloitte – where she trained as a Chartered Accountant.

Pacome Breton runs the Risk group and reviews all hedge fund investments. He was previously Head of Quantitative Research & Risk Analysis at Pioneer Alternative Investments.

Eric Lazear is Head of Operational Due Diligence. He was previously Director of Operational Risk Due Diligence for Duff & Phelps.

Our product is a multi-strategy fund of hedge funds, focussed on diversified sources of alpha and capital preservation determined by low volatility and drawdown tolerance. Current AUM is around USD100-150 million

GFM: What is the structure of your product? 

FQS: We have two funds that parallel invest in underlying managers, with the FQS Onshore fund using the onshore offering of the underlying manager and the offshore FQS fund investing in the offshore offering of the underlying manager

1. Delaware LP: US taxable investors

2. Cayman Islands Exempt Company: US tax-exempt investors and non-US investors

GFM: Who are your main service providers? 

The main service providers for our Cayman fund are:
Cayman Counsel: Harneys
Administrator: Citco Fund Services
Auditor: BDO
Prime Broker: N/A as FQS are not a primary fund

And for the Delaware Fund:
US Council: Alston & Bird
Administrator: Citco Fund Services
Auditor: BDO
Prime Broker: N/A
GFM: What is your distribution strategy and targeted client base?

FQS: Originally organised as a family office, founded to protect capital from generation to generation, we believe our focus on wealth preservation will resonate with other family offices. However our goal from inception was always to develop institutional quality tools, systems and infrastructure. We believe there is capacity to work with institutional investors using our extensive, innovative and proprietary quantitative analytics.

GFM: What impact has the recent global financial crisis and economic downturn had on your business?

FQS: Our company was set up in the wake of the crisis to address areas where we felt there was a gap in the marketplace: namely a more evidence based and scientific approach to hedge fund investing. Our focus lay in combining the power of quantitative techniques with technological efficiency. We were able to hire very senior and experienced people in the wake of 2008 and exploit systems advances to put together a new and more efficient type of business model.

GFM: Please describe your investment process and how your product works?

FQS: Our current mandate and process is focussed on finding and blending a portfolio of alpha driven managers. We have built a database that integrates our innovative tools (including the FQS factor model) to filter funds over a wide range of standard and proprietary metrics. We then undertake extensive analysis both qualitatively and quantitatively driven by primary sources of evidence to form and validate an investment thesis.  We have a cultural commitment to R&D: to test & integrate cutting edge mathematical techniques and concepts into our processes. The quantitative analysis is supported by evidence- based qualitative work covering both investment and operational risk factors.  Our investable funds are then optimised using our in-house tools and techniques to create a portfolio that targets diverse sources of alpha in a multi-strategy mandate.

GFM: What is your approach to managing risk?

We first try to understand the various sources of risk using our unique quantitative tools. For example, we can use our own factor model to disaggregate sources of risk and return and separate market beta from alpha. This empowers us with the ability to identify and manage these systematic risk factors at both fund and portfolio level through diversification. We then overlay the process with our qualitative insights to mitigate business and operational risks.  

GFM: What developments do you expect to see in your investment sector or industry field in the coming year?

FQS: We will continue to see cost pressures in our industry that may drive further consolidation or attrition. We believe the investor community will continue to grow in their understanding and sophistication of our segment (hedge funds) and this will drive a demand for more ways to measure, tailor and demonstrate investment or portfolio edge.

GFM: How will these developments affect your firm and the performance of your product?

FQS: We are well positioned to share our unique ways of measuring and monitoring the quality of returns both at single manager level and in portfolio construction with investors. We are confident in our unique ability to understand and respond to clients’ requirements and share our insights into structuring complementary allocations to alternatives.

GFM: What do investors currently expect from managers?

FQS: We cannot comment on what other investors expect from managers. What we expect is transparency, honesty and integrity. We believe our interests are best served by working in partnership with our managers to help them run their businesses optimally. To this end we will (if desired) share our insights and make recommendations to ensure that they are adopting best practices and positioning strategically for long term success.

GFM: What differentiates you from other managers in your sector?

FQS: Our differentiators are threefold:
1)   Our experience spanning hedge fund practitioners, academics and investors
2)   Our unique quantitative edge
3)   Our evidence-based culture

GFM: How do you view the environment for fundraising over the coming 12 months?

FQS: The environment will remain challenging but that the rewards are there for those that can listen, understand and demonstrate their ability to partner with clients’ to meet their varied investment objectives.

GFM: How do you expect your business to be affected by current and proposed regulatory changes?

FQS: We see new alpha opportunities opening up for managers due to regulatory changes such as Dodd-Frank. However, we also see heightened business risks for managers as they adapt to increasing administration and costs.

GFM: Do you have any firm plans for further product launches?

FQS: We are exploring the opportunity for a quant-focussed product.


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