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Domeyard is no ordinary HFT hedge fund, says co-founder Christina Qi

Video game nights, yoga classes and building an inclusive culture where people’s views are valued is par for the course at Domeyard LP, one of the industry’s most exciting high frequency trading hedge funds. Here, Christina Qi, who co-founded Domeyard at 20 years of age, talks to Hedgeweek about building a successful business. 

HW: Good morning Christina, thank you for speaking to Hedgeweek today. I’d like to begin by asking how you think about Domeyard – are you a hedge fund manager or a technology business?

CQ: That’s a really great question. When we started the business we faced identity issues. We had to decide whether we considered ourselves a hedge fund business or a HFT or a tech start-up. I quickly came to realise we could be all of them. 

Even though we run a HFT strategy, the business itself is structured as a hedge fund. It is rare to see that kind of legal structure combined with a HFT strategy but we’ve always been that sort of weird hybrid; one that at the same time goes out to raise venture capital (for the business) as well as fund capital. 

So we have the privilege of categorising ourselves in multiple ways. If you had to ask me which one to choose, my answer changes depending on what day it is! As we grow the business I think it will make more sense to call ourselves a broader technology-focused company rather than just a HFT firm. 

HW: The hallmark of successful hedge fund managers, such as Paul Ruddock’s Lansdowne Partners, is the perspicacity to separate managing the business from the business of investment management. How have you, and your fellow co-founders, Luca Lin and Jonathan Wang, thought about this since formally establishing Domeyard, and trading a live portfolio, in 2016?

CQ: There is some delineation but everyone at Domeyard has to wear multiple hats because of our size and the growth stage we are at; not to mention for risk management purposes as well. If someone were to leave, or to go on extended vacation, we need to make sure there is enough talent to fill in different skill gaps and roles at the right time. We are still less than 20 people, currently. Capacity is a very real challenge for us. Right now we want to focus on quality not quantity, and be smart about who we hire on the team. 

We do get pitched a lot by start-up hedge funds, looking for advice, and one of the bigger misconceptions we hear is, ‘All we need to do is have a good strategy’. Then they fall apart when I start asking them about their team, their legal structure, their fee structure, who their service providers are. The reason I ask these questions is because they can make or break their business, regardless of how good they think their investment strategy is. 

People tend to overlook these things. In quant trading, people assume all they need is a lot of computing power and a good strategy and hey presto, they can call themselves a hedge fund. 

They underestimate the amount of time it takes to really be smart about launching. It’s not something you can do in a week. Even if you have day one capital, it’s difficult to get everything in place in a short amount of time. We try to make people aware of that. 

I would further add that start-up hedge fund managers tend to overlook the middle- and back-office components, which are equally as important as to what is happening in the front-office. 

HW: How did you arrive at the decision not to charge a management fee but set a higher incentive fee? 

CQ: It was a simple decision for us. We knew that our strategies would be limited in capacity; we don’t require much margin capital because our typical exposures are small and we turnover our positions quickly. A 2 per cent management fee wouldn’t be able to cover our operating expenses sustainably. In many ways, our fee structure resembles the compensation structure of a team within a larger HFT firm, which is mostly driven by performance.

Domeyard can trace its origins to the dormitories of MIT and Harvard, where the electrical engineering student Wang and his fellow MIT friend Qi teamed up with Harvard physics and math student Lin to trade Europe’s markets with a few thousand dollars. Today, the HFT strategy trades up to USD1 billion.

HW: How would you summarise Domeyard’s trading strategy? What is the most important feature in your view?

CQ: We’ve always focused on high frequency trading, or ultra low-latency trading as some people like to call it. We actually built most of our trading technologies from scratch, and our systems place up to thousands of trades per day. Low latency technology has become less differentiated in the past few years with the consolidation of vendors for network equipment. What we’ve done differently is to invest a lot of effort into a research environment that makes it easy to test new ideas very fast, which many of our competitors have not put as much thought into.

HW: You point out on your website that over the years more than 500 investors have contacted you. Crucially, some of your early investors are true heavyweights: SoftBank Group, Long Term Capital Management, Howard Morgan of Renaissance Technologies. That’s an impressive endorsement of the strategy. How did you seek to build that early trust with these investors?

CQ: When we first started pitching the fund to allocators it was important to be highly aware of our position and highly aware of where we could fit into their portfolio, as well as what they thought our strengths and weaknesses were; and be able to address all of those things up front. 

For example, addressing the fact that we were a young team compared to your average hedge fund manager. Younger people tend, on average, to have a better sense of technology and can adopt things a lot quicker. We built all of our technology in-house. So we looked to address these issues, such as age, up front before they voiced concerns.  

We were very careful with our due diligence as well. 

We treat due diligence like a two-way street; we want to understand who else they’ve invested in and what are the risks they are taking on their end. A lot of emerging managers tend to overlook that and take capital from the first investor that comes along. Like our approach to building the Domeyard team, when it comes to investors we want quality not quantity. We have a quality group of investors in place, which has benefited us. 

There is a lack of two-way due diligence, it’s not something that emerging managers stress enough. We’ve had incidents in the past where the markets have crashed and our investors have incurred losses. We want each investor to be in the fund over the long term and not to pull out, just because of an unforeseen market event. 

Knowing your investor is a really important consideration. 

HW: I believe SoftBank recently took a 15.92 per cent secondary stake in the management company. How did Domeyard ensure it had all the proper processes and controls in place, in respect to risk management, reporting, compliance, cybersecurity etc.?    

CQ: That’s a great question. Last year we were audited multiple times so you have to be prepared in respect to cybersecurity and disaster recovery plans, making sure the compliance manual and all of the trading policies are in order. There are always going to be gaps though. One auditor came in and looked at our expenses from 2013 and questioned us on specific expenses and proof that we paid the appropriate taxes. 

We use the right accounting software and make sure every single expense, even if it’s for coffee, has the receipt and is accounted for electronically. 

We do employee training every year where they must take exams and in one audit we had to detail what the format of those exams was and provide a PDF version. There are lots of little things that a start-up hedge fund manager might overlook if they aren’t careful.

The audits really drive us on to make sure we are careful about what we do. I want us to do well in any audit we have, because it impacts the company and the brand reputation. 

Culture is something that new hedge fund managers, run by millennials, spend a lot of time thinking about. They have to, in a way, given how much allure there is for top graduates to work in technology companies that are seen as having a vibrant, energetic work environment. Domeyard is very much a progressive, ‘modern’ hedge fund manager.  

HW: How do you think about culture in the firm? What does it mean to you?

CQ: I think about culture all the time. I started Domeyard when I was 20 years old. I knew we were hiring people sometimes three times my age and I needed to be aware of that. It meant establishing an environment where, even though we did not have the reputation or the pedigree of an established manager, we could create the right environment where the views of all employees – including older ones – are valued and we earn their trust and respect through making the right choices.

When people think about culture, part of this involves thinking about perks. In the early days, we fell into the Silicon Valley trap. In Google’s offices you have slides, beautiful communal spaces etc. We did something similar but we soon began to realise people weren’t staying because we had yoga classes, or book clubs; they were staying because their work was being valued. They saw progress in their careers and their voice was being heard. 

Consequently, we decided to cut some of the perks and focus only on those that would immediately benefit everyone. We offer free food every other day of the week. It brings people from different teams together, they can talk about the week they are having and it can foster interesting discussions. We wanted to get rid of activities that excluded people like Friday drinks. A lot of our employees don’t drink so we are careful about encouraging a drinking culture. 

HW: That culture of inclusivity can go a long way to keeping people motivated and reduce the fear of isolation.

CQ: I believe so. We don’t want anyone to feel siloed in their work or to feel like the success or failure of the team rests on their shoulders. Too much pressure can make people feel lonely. For large companies, if someone feels isolated from their team, that’s when they decide they want to leave, regardless of what money they might be making. 

Ultimately, it’s about who they want to work with, and who they want to become as individuals. 

As long as each member of the team works honestly while they are with Domeyard, I will help them to find their next position. We’ve had former employees who have gone off and done some great things. We don’t want anyone to feel scared about taking on a better position somewhere else.

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