UK financial services group Schneider is to launch the Biosphere Strategic Capital Fund through its investment management arm, PCE Investors Limited.
The fund will focus on liquid futures instruments and use over 30 strategies investing in energy, forex, metals, agricultural commodities, interest rate and equity indices. Biosphere will target net returns to investors in excess of 30 per cent with a targeted annual volatility of approximately 9 per cent.
The fund's investment concept relies on robust risk management and state-of-the-art decision-making technology refined over the last eight years by a team of traders, analysts and software engineers. Using fuzzy logic and neural network modelling, the technology was designed to emulate judgment and decision-making faculties of expert traders and analysts in order to generate consistent trading decisions, free from emotion or distraction.
The investment advisor, Alex Krainer, was formerly the managing director of Monaco-based energy trading company Greenoil, an affiliate of a larger Swiss commodities group, and has been active in derivatives trading since 1997.
In collaboration with Dr Gorazd Medic of Stanford University, Krainer has turned his team's efforts towards decision-making research and designing an intelligent trading expert system.
Commenting on Biosphere's trading concept, Krainer said: "I like to think that we've done a few things differently," says Krainer. "Lots of sophisticated math can make it easy to lose your way in the complexities of markets. Our breakthrough came when we embraced uncertainty as the pervasive reality underlying our endeavours to generate returns. From that point, the challenge has been ensuring that our research remains firmly rooted in coherent reasoning, valid hypotheses, and rigorous testing of the technology."
Part of that rigorous testing included a successful simulated private trading account. The annualized return on that account exceeded 36 per cent (as at 31/12/2004), a remarkable feat in a year in which hedge funds - particularly managed futures and directional trading funds - struggled to perform. These results were highly uncorrelated with traditional treasury and equity markets as well as the more widely followed CTA/directional hedge fund indices.
And according to Krainer, it seems that Biosphere may be coming to life at a particularly favourable moment. "We are very excited about the interest shown by many investors who seem to welcome judicious risk taking," he says. "Many investors seem somewhat exasperated with benchmark hugging and overly risk-averse management. We are confident that we have a superb product for such investors".
Background notes: Schneider Group's hedge fund platform was founded in 2003 to streamline the set-up process for emerging hedge fund managers and has since been providing facilities, trading access, administration and a regulatory framework to nine hedge funds.
The group's investment management unit, PCE Investors Limited, is authorized and regulated in the UK by the Financial Services Authority in the conduct of investment business.