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David Stemmerman, who has been picking stocks for decades, knows that investors like him are betting on returns.
He rose to become one of the best-performing managers of all time at Steve Mandel’s Lone Pine, and when he founded Conatus Capital in 2008 with $2 billion, he launched the largest business in history at the time. Ta.
But the world’s best stock pickers “aren’t as skilled at risk management and portfolio construction as you’d expect,” he acknowledged in an interview.
So when Conatus returned to the industry in 2021 after his unsuccessful gubernatorial bid, despite his pedigree and past success, he never launched another long-short equity fund (Conatus did not launch another long-short equity fund in 2017). (lower), which more than doubled the market’s return when the market was closed.
Instead, he partnered with Alpha Theory, a Charlotte-based portfolio analysis firm. Alpha Theory does not specialize in stock selection, but rather in helping funds get the most out of their stock selection through detailed analysis of position sizing and risk protection.
Centerbook uses the holdings of dozens of independent fund managers who are clients of Alpha Theory and receive a portion of Centerbook’s performance fees as compensation for their troubles, and Mr. We are creating our own books that we believe are harnessing the potential of alpha.
This construction is unusual, especially in an industry that is so paranoid about edge protection. It’s novel that dozens of funds (the firm currently has 28 different partner funds that feed data into the strategy and a waiting list of five other managers) share holdings.
This unique structure worked for CenterBook last year. The firm’s market-neutral fund, known as Centaur Global Alpha and most similar to the multi-strategy firm’s flagship strategy, returned 21%, according to a tear-out sheet for investors. The average hedge fund rose 7.5%, according to Hedge Fund Research.
The company clearly has a long way to go to match Citadel, Millennium, and industry leaders. While CenterBook has just $600 million under management in his two strategies and is trying to raise money and raise its profile, Stemmerman said the company will eventually “earn the right to be part of that conversation.” He said he was looking forward to it. People close to the company said they expect the company’s assets to be around $1.5 billion by the end of 2024.
A place where you can be independent
Stemmerman said the biggest question he had before signing the deal was whether managers would be willing to share data.
He said CenterBook is built on Conatus’ trusting relationship with client Alpha Theory and its management, and along with research credits for other Alpha Theory services and cuts, CenterBook will continue to provide information on how to make better deals. He said it also provides insights into a company’s data. Incentive fee.
CenterBook also has an advantage in making the same trades in its own books, Stemmerman said, because the managers affiliated with CenterBook set longer time horizons for their trades, thinking in terms of months rather than days. It is said that sexuality is not lost.
The company hopes this structure will be attractive to small business owners who are feeling squeezed by the ever-increasing number of multiple owners in the industry. Stemmerman said CenterBook does not interfere with the trading strategies of its partners and allows its own investors to take as much risk as is acceptable.
“Our goal is to be the partner of choice for people who don’t want to join a platform and want to remain independent, but still want advice on portfolio construction,” Stemmerman said. ” he said. CenterBook aims to attract 10 more partner funds this year if assets grow as expected, a person close to management told Business Insider. He has only 18 full-time employees at his management company, but he has more than 100 investment analysts working for his partner funds.
The hedge fund world has changed dramatically since Stemmerman started Conatus 16 years ago. The largest funds have always been powerful, but the industry has become increasingly top-heavy, and to disrupt that, CenterBook had to be unlike anything allocators had ever seen before, he said. said. Even if it was more difficult to understand at first.
“We knew we needed to build something that was structurally differentiated,” he said, comparing it to past technology investments he made while working at Lone Pine and Conatus. . He said bets on Apple in the mid-2000s and Amazon more than a decade ago were far from popular choices, but as a stock picker he was looking for companies with unique business models. That’s what it means.
“We wanted to do the same thing here.”
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