Stephen Stonefield, CSFB's former Asia Pacific chairman, has teamed up with Rene Reiss, ex-Merrill Scientific, to set up a Singapore-based hedge fund, Precise Capital. The team will launch its first product, an Asian model-driven quant fund, in early 2005.
Stonefield says that the group will launch with a minimum of $50 million although he expects to raise between $250 to $500 million from institutional investors and private banks at an early stage. The Precise principals have invested $7 million of their own money into the new fund.
The eleven-strong Precise team includes David Gong and Gosta Bjorkenstam as part of the investment team. Gong has 20 years of experience managing Asian equities and was previously a member of staff with the Securities and Exchange Commission's enforcement division in Washington, DC.
Bjorkenstam was previously the regional president of ABB Southeast Asia. The Precise team also draws upon an academic advisory panel of four including two Wharton School of Business professor Roberto Mariano and Bulent Gultekin.
"We've invested in a very substantial and experienced team, a high quality infrastructure and an institutionalized set up," says Stonefield, executive chairman of Precise Capital. "We're not just another Asian hedge fund starting up with two men and a Bloomberg screen."
Precise CIO Reiss has worked on developing the intellectual property for the model over the last six years and $3 million has been invested in developing the model.
"The model is scaleable and can be applied to various markets and geographies," says Reiss. "Given the current market appetite for Asian products and our base in Singapore, we decided to launch initially with an Asian fund. As the business grows we expect to launch European and US funds using the Precise model."
Investors in Precise's Asian fund will have the option to invest in an Asia ex-Japan, Asia including Japan or a Japan-only version.
"We've tried to build a model with no bias or preconceived notions. For example, the LTCM investment process was built on the assumption that sovereign nations never default," says Reiss. "In our model, any investment decision is the product of a structured multi-layers quant analysis. No investment decision is the product of a single variable or assumption."
Reiss explains that the Precise model makes investment decisions by analysing the relationship between individual equities, related industries, larger sectors, and broader markets. The model analyses 10,000 equities on a daily basis.
Upon that foundation it builds a pyramid of 920 industries, 250 sectors, 47 markets and 7 regions. The information is distilled to provide the basis of investment decisions in the most liquid equities across global markets. The Asia-Pacific fund will be divided into six units representing the developed markets of Korea, Taiwan, Australia, Hong Kong, Singapore and Japan.
No specific stock selection occurs. Rather the model autonomously analyses the most liquid stocks in each market and recommends an allocation between 0%-100% of position size. The portfolio involves a combination of long positions in individual equities, and short positions in specifically related indices.
As the fund invests in only the most liquid stocks and shorts indices rather than individual stocks, Reiss believes that the Asia Pacific fund could have a capacity of up to $5 billion. The fund has appointed Citco as its fund administrator and CSFB as its prime broker. ComplianceAsia will provide third party compliance for all Precise's corporate activities.