Venus Capital was established in Boston in 1994 and regards itself as North America’s first India-focused hedge fund. The firm was registered with the SEC in 2000 and manages the assets of a variety of private clients, principally family offices, funds of funds, pension funds and endowments.
Vik Mehrotra is the firm’s founder and chief executive and is also portfolio manager to the flagship Venus Relative Fund. Dylan Tinker is Venus Capital’s second portfolio manager and trading strategist, who assists across all funds. The other members of the management team include trading strategist Tajinder Singh, an ex-Fortis prop trader, and chief operating officer Vikas Chawla. A number of analysts and traders make up the rest of the investment team.
Currently, Venus manages four funds: the Venus Relative Value Fund, an emerging market-focused market neutral strategy, the Venus India Opportunities Fund, which targets Indian small caps, the Venus Event Driven Fund and Venus Global Macro Fund, both of which have a global mandate.
The firm specialises in generating risk-adjusted returns using niche strategies that target emerging markets such as Brazil, India and China, as well as pan-Asia. With the Venus Relative Value Fund, Mehrotra uses systematic proprietary models to exploit short-term price differentials in emerging markets created by large institutional block trades and behavioural inefficiencies. “Our niche strategies can deploy a limited amount of money, and hence are ignored by large hedge funds and prop desks,” he says.
Mehrotra is a seasoned veteran in trading emerging markets, having launched the first long-only India-focused fund in 1996. Asked how the alpha component is generated in the Relative Value Fund, which uses no leverage, he says: “Short-term thinking by market participants creates aberrations in the price of securities, and we use volatility as a friend.”
The fund, which was launched in August 2008, uses quantitative strategies such as pair trades, exchange-traded fund trading, algorithmic trading and volatility trading, and attempts to capture returns by targeting the most liquid emerging markets, India, Brazil and Hong Kong. When appropriate, Mehrotra will also engage in event trading. Fundamental and statistical inputs also help identify trading opportunities.
Last year saw reasonable performance, although the firm admits that making money in the fund was tough. Liquidity tightened toward the end of the year in response to China raising its interest rates, but according to Mehrotra, the best opportunities came from large block trading and cross-country relative value pairs.
In 2011, he believes the slow European recovery could be an opportunistic time to increase exposure to European equities and believes US equities look far more attractive than fixed income as a result of the second round of quantitative easing. The firm also likes emerging market equities due to high GDP growth, despite inflationary pressures.
Says Mehrotra: “In the near term, the outlook for emerging markets looks cloudy as they face the threat of inflation and possibility of an economic slowdown, but the second half of the year will show that consumption remains strong and governments should be able to navigate a soft landing.”
On winning the award, he adds: “It is an honour to be chosen by readers of Hedgeweek as the Best Relative Value Fund. The trading and research team’s discipline is the key reason for this success.”