Quantitative strategies Market neutral
1 Investment overview
1.1 Investment strategy:
Equity Market neutral (+/- 10% net Delta-Beta)
Systematic and quantitative (proprietary models)
Low (daily rebalancing) to mid frequency (10 days average holding position)
Average Return 10 to 15% - SR = 2.5 to 3 – portfolio running lived for the last 6 years on the buy side.
1.2 Investment approach:
Quantitative and disciplined investment process
Qualitative investment methodology and Systematic risk management
1.3 Investment universe:
Underlying : stocks and indices
Product : cash and index futures (90% of the portfolio), only listed and highly liquid products
Region: Europe (85%) and US markets (15%)
Liquidity : Highly liquid underlying (Portfolio liquidity ratio: less than half a day) – Portfolio highly scalable 2
1.4 Investment Process :
‒ My portfolio is built around uncorrelated systematic strategies classified in 2 pockets :
• Relative value (85% of the portfolio)
• Opportunities (15% of the portfolio)
‒ The portfolio is market neutral : very little net delta-beta (though less 10% on the whole portfolio).
‒ The process is quantitative and systematic : each of the strategies is quantitative driven, following its own signals and indicators. Between them, there is little to no correlation.
‒ Risk management is at the core of my portfolio management, following a disciplined risk management per position and for the entire portfolio. A risk reduction process (position sizing down) is triggered in case of drawdowns.
‒ A relevant ratio VaR utilization per profit target is maintained in order to optimize our risk utilization. We are running 70% of our VaR limit on average to have a risk buffer in distressed markets to capture the best opportunities.
‒ Risk parameters used on the portfolio are a VaR (99%, 1Y historical) capped at 1,5% of the NAV, stress test (-5%, -10% Spx) and 10% net Delta-beta limit of the NAV.
The portfolio is solely focused on:
➢ Equities ➢Exclusively Single stocks, ETF and indices
➢ Universe : Europe and US ➢80% Europe /20% US repartition ➢Strategies run on a geographical area / index basis
➢ Highly Liquid Stocks and futures ➢Stoxx 600 - SXXP in Europe
➢SPX, Russel 2000 and Nasdaq in the US ➢Top European futures ➢Top US futures
3 Alpha Combination
• My Alpha stems from focusing on the final product, ie the portfolio
I have built a multistrategy quant portfolio, adopting the multi manager/ funds approach
Risk management Portfolio construction Experienced PM
4 Portfolio Construction
•the alpha generation comes from combining :
•Portfolio construction : Focusing on a portfolio not just combining a mix of profitable strategies
•Strategies selection : 2 pockets a strong core long/short quant pocket and a smart opportunistic one
•Strong individual strategies are selected with the best risk adjusted returns for the portfolio
•the focus is therefore on volatility and drawn-down of the portfolio
•Focusing on cross-strategies correlation, notably during their respective draw-down and high volatility periods
•Backtesting them on a 15 years horizon basis and have run them live for more than 7 years on the buy-side
PnL per Pockets Low to High Mid High to Low versus Market correlation correlation correlation transition
Relative Value ++ ++ +/-
Opportunities ++ +/- +++
5 Strategies Selection
5.1 Relative value : Quantitative long / short equity (80% of the portfolio)
Composition : Some example of the independent and uncorrelated sleeves rebalanced daily to bi monthly
Daily news scoring models on European Single stocks within SXXP Index members
Multi fundamental factors model on European and US Single stocks rebalanced weekly
Basket of 100 equally weighted single names long versus basket of 100 equally weighted short (Cash)
Multi technical factors model on European and US Single stocks rebalanced weekly
Mean reversion and technical models on blue chip European single stocks rebalanced weekly
5.2 Opportunities (20% of the portfolio)
This pocket is driven by quantitative triggers and is not always fully invested. The approach is based on
quantitative indictors while seeking asymmetric risk/reward opportunities. 2 sub-strategies are in this
pocket. For each position a take profit / stop loss trigger is defined at inception as well as a time buffer.
Market pattern : Spot versus Volatility (smart delta)
SPX Futures against VIX futures (delta-beta neutral) takes advantage of the asymmetric pattern spot/volatility in certain environment. The investment decision is driven by a quantitative model.
Mean reverting Spread : VIX Futures spreads and V2X (only 2nd or 3rd maturity)
Smart alpha generation by exploiting the mean-reverting property of those spreads thanks to a multi-variables proprietary model.
5.3 The Portfolio : advantage of 2 pockets combined
Both pockets complement one another allowing us to deliver a positive steady PnL profile exhibiting low volatility.
Most importantly, in distressed markets, it allows to take advantage of the best mispricing and opportunities.
With the current environment, the end of synchronized QE among central banks, we should keep seeing higher volatility and spike of correlation which is very favourable to our portfolio.
Date Return on AUM Equity capital AUM
2009 ING 18,2% AUM = $30M $30M x $30M
2010 ING 16,6% AUM = $30M $30M x $30M
2011 Visium AM 18,8% AUM = $25M $25M x $25M
2012 Visium AM 15,6% AUM = $25M $25M x $25M
2013 Visium AM 8.7% AUM = $100M $50M x $50M
2014 Visium AM 7.4% AUM = $200M $100M x $100M
2015 Visium AM 5% AUM = $200M $100M x $100M
7 Risk Model
Risk management and discipline are key to the investment process. It translates at different levels:
➢ Money Management Rules ➢ Clear hard limits on both portfolio and strategies levels
➢ Exposure constraints
Delta / Beta < +-10% NAV Factor constraints (Momentum, value, growth, low beta…)
Country/ Sectors FX exposure
100% NAV that can be liquidated in 1 day Taking into account volume per stock selection
➢ Market/ factor shocks and stress test scenario > quick set up
➢In terms of Execution :
➢DMA of Bloomberg’s : EMSX (flexible)
➢No need of special connectivity (low latency, high speed)
➢In terms of Reporting :
➢Reconciliation Front office management system with PB account
➢In terms of IP :
➢100% ownership on our IP 12
Key facts : ➢ more than 12 years of experience running money, half of it on the buy-side ➢ 7 years running the portfolio on the buy side
➢ Hadrien Darmon, Portfolio manager – Quantitative Equity L/S
Hadrien has 12 years experience in equity trading with a focus on quantitative strategies. He started his career in 2005 working for the proprietary exotic desk at Societe Generale. Then he moved in 2009 to the proprietary trading desk of ING prior to joining Visium Asset Management.
Hadrien has a quantitative background, he holds a master degree of applied mathematics to finance from Ecole Centrale Paris, a top tier French engineering school, as well as a master of banking and finance at University Pantheon-Assas Paris II.