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- Maverick Capital started testing a quant strategy in two funds two years ago. Starting next year, investors will be able to give the firm money to invest in these funds. Maverick’s move drew attention because the firm is known for running a fundamental, stock-picking approach. The firm has underperformed recently, with sources saying its flagship fund has lost about 2% this year. In a client letter, founder Lee Ainslie says the effort has shown promise. The two funds have gained in the double digits this year – 16.9% and 22.1% through August – according to separate marketing documents seen by Business Insider.
NEW YORK – Lee Ainslie’s Maverick Capital may have cracked the code on quant.
Maverick recently held its investor day in New York, where it announced it would debut two quant funds to external capital. The announcement drew attention because Maverick is known for deploying a fundamental, stock-picking approach.
The firm has underperformed recently, with its flagship fund down about 2% this year, according to people familiar with the numbers.
The firm’s quantitative-research effort started a decade ago, and it hasn’t been easy, Ainslie said in an October 20 client letter seen by Business Insider. About two years ago, Maverick started looking into whether the alternative data sets it had researched could help its fundamental investing process, and it launched two funds internally to test it out.
“Our hope was that the data science, statistical and coding expertise and skills that we had developed over the years … would enable Maverick to be more successful than the many fundamentally-oriented hedge funds that have found such efforts unproductive,” Ainslie wrote.
“We quickly discovered why such research has proven so frustrating to many,” he added. “Eventually we discovered some very- short-term alpha signals, which were not highly relevant to our long-term strategically-oriented fundamental efforts but were well suited for higher frequency systematic trading.”
But things have turned up recently, he wrote (emphasis added):
“Through combining inputs from various data sets over the last few months, we believe we have begun to improve dramatically our ability to forecast revenues, cash flow and earnings of hundreds of companies across several sectors, and the number of industries and businesses for which we are developing such capabilities are both growing rapidly. Both in terms of idea generation and business monitoring, such insights should prove invaluable to our core, fundamental effort, and I believe that few, if any bottom-up investors have cracked the code.“
Earlier this year, the firm included a higher-frequency trading strategy in its two quant funds, which it said had boosted returns. Broadly, Maverick has been using what it calls the Maverick Quantitative Model, which drives a tool that recommends position sizes and that flags investment positions for the Maverick team. The combo of these two strategies “has proven powerful” and shown up in the returns, Ainslie wrote.
According to market documents reviewed by Business Insider, the Maverick Fundamental Quantitative Fund gained 16.9% this year through August, while the MFQ Neutral Fund gained 22.1% over the same period. The figures are after estimated fees, the documents said.
The first fund targets a 40% net exposure, while the second fund targets a 0% net exposure, the letter said.
A Maverick spokesman declined to comment.