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Systematic Investing

Our mission is to deliver direct access to diversifying Hedge Fund Strategy Risk Premia ("HRP"), a sub-set of Alternative Risk Premia, in a transparent, liquid, and predominantly systematic format.

The Opportunity

Hedge fund strategy returns have been gradually decomposed over time, but a key component has been missing, until now...
HFP 4 by 4 boxes
HFP 4 by 4 boxes

HRP is a sub-set of the Alternative Risk Premia universe, distinct from Style Premia. At Magnetar we have focused on the development and extraction of HRP.

We define HRP as the return streams derived from exposure to specific hedge fund strategies that are extractable via a targeted systematic approach.

HRP
Comes from systematic exposure to a hedge fund strategy. E.g., risk arbitrage investors receive a return analogous to a "reinsurance" premium for taking on deal break risk.

Alpha
Comes from manager skill. E.g., the risk arbitrage manager must select the transactions most likely to close relative to the market-implied break probability.

We believe that HRP provides the following benefits:

Portfolio Construction

We believe HRP can provide diversification benefits to investors whose portfolios are focused on traditional and style-based risk premia.

Manager Assessment

Our HRP seeks to decouple manager selection from strategy selection. These strategies can serve as benchmarks for manager returns or as standalone return streams.

Cost Optimization

We believe HRP represents an opportunity for investors to access the systematic portion of hedge fund strategy return streams with transparency in pricing.

Our Practitioner's Approach

Intuition

Practitioner Lens refined over decades of active management.

data

Combination of publicly available, self-sourced, and self-generated.

Conclusions

Isolation of Practitioner-based, data-affirmed risk premia filters.

Improved Approach

Augmented rule parameters target only the most attractive opportunities in which the risk premia compensation is sufficient.

Blunt Force Approach

Broad rule parameters often fail to delinate opportunities with sufficient risk premium vs. insufficient risk premium compensation.

Systematic Investing

Event Driven

We define “event driven” as strategies seeking to profit from investments in companies experiencing a material change in their ownership or capital structure.

  • The opportunity set includes investing in stocks undergoing mergers, as well as investing in companies engaging in spin-offs, divestitures, major stock or debt repurchases, and other key events in the corporate life-cycle
  • One of the hallmarks of event driven strategies is habitat rotation, which describes how owners of a stock (typically fundamental investors) will seek to quickly reduce their ownership position due to a corporate event. Event driven investors who are willing to accumulate shares during this habitat rotation are often able to earn a positive risk premia
  • Our HRP focus is to efficiently extract the risk premia associated with event driven strategies

Long-Short

We define “long-short” as strategies seeking to profit by buying stocks (or other instruments) deemed to be attractive on various bases (e.g., fundamental), and shorting stocks (or other instruments) deemed to be unattractive.

  • The opportunity set includes investing (long or short) in stocks, debt, and other instruments
  • The strategies are also underpinned by human behavioral biases and market structural constraints that tend to cause investors to under-appreciate an instrument’s quality and value characteristics
  • Our HRP focus is to efficiently extract the risk premia associated with fundamental long-short investing

Relative Value

We define “relative value” as strategies seeking to profit from the relative mispricing of related assets.

  • The opportunity set includes the relationship of different instruments related to a single issuer as well as the trading relationship of instruments of multiple issuers
  • Relative value strategies can be implemented across the opportunity set via a quantitative approach, focusing on theoretical and historical pricing relationships
  • Our HRP focus is to efficiently extract the risk premia associated with these strategies

Quantitative

We define “quantitative” as those strategies seeking to profit from statistical anomalies.

  • The opportunity set includes investing (long or short) in stocks, futures, and other instruments
  • Human behavioral biases and market structural constraints often combine to generate anomalies, which quantitative investors can spot and take advantage of
  • Our HRP focus is to efficiently extract the risk premia associated with quantitative strategies
  • Our HRP quantitative strategies currently include systematic equity mean reversion and systematic trend / counter trend

Senior Leadership

Magnetar's Systematic Investing team is led by Joe Scoby.

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