Billionaires back new shipping quant fund
Google’s Eric Schmidt and a clutch of billionaires have backed a new quantitative hedge fund that mines global shipping data to track and trade international commodity flows, underscoring the burgeoning interest in new, technology driven approaches to investing as traditional hedge funds fall out of favour.
About 90 per cent of global trade moves by sea, and Boston-based CargoMetrics uses VHF radio transmissions to track the movements of more than 120,000 ships across the world, monitoring where they dock to gauge their type and size of cargo. The data are used to trade commodity prices and, occasionally, currencies and stocks via automated algorithms.
“Humans are better than machines at some stuff, but there’s an explosion of data around the world that if you exploit it scientifically you can find a lot of alpha,” said Scott Borgerson, the founder who is a former Coast Guard officer.
As well as Mr Schmidt, the company is backed by Israeli shipping billionaire Idan Ofer; former Lotus chief executive Jim Manzi; Texan automotive billionaire Billy Joe “Red” McCombs; and Genel Energy founder Mehmet Sepil. The advisers include former senator Bill Bradley; Ed Morse, head of commodities research at Citi; and Gerald Rosenfeld, vice-chairman of investment banking at Lazard.
Mr Schmidt, who also owns a big stake in DE Shaw, a pioneer of the quantitative investment industry, declined to comment on his backing of CargoMetrics, but a spokesman confirmed that his family office, Hillspire, had invested in the company. CargoMetrics has so far raised about $20m, and its most recent funding round in September 2012 valued the company at more than $100m.
Blackstone, the alternative investment firm, is invested in the fund itself, but Mr Borgerson declined to give its size and performance since it began trading in March 2015 because of regulatory and legal constraints.
But Mr Ofer, Israel’s richest man, said that the returns had been “more than acceptable”.
“That gives me confidence that this machine can continue to learn and make serious progress and become a financially successful quant fund,” he told the Financial Times.
Mr Manzi, one of the firm’s earliest backers, said that CargoMetrics was “still scratching the surface of the proprietary data generated”.
The hedge fund industry has come under increasing pressure in recent years because of high fees and underwhelming returns, with investors pulling money from the industry in six of the past eight months.
But a survey by Morgan Stanley showed that investors were happier about the performance of their computer-powered “quantitative” hedge funds than any other strategy.
“Right now there’s a whole sea change in how people view hedge funds . . . Since last summer they’ve run into some real challenges,” said Patrick Daly, a partner at Park Hill, a firm that helps introduce investors to asset managers. “But the quantitative world has generally been performing well.”
Mr Borgerson said that CargoMetrics planned to integrate other data sources such as satellite images to better trade commodity price movements, such as by scanning crops around the world to gauge their yield.
“We’ve built a platform that can be deployed on other unstructured data sets,” he said. “It might sound a little Orwellian, but we want to measure everything, and create a real time map of the global economy.”
fromft 