Reprinted from Hedge Fund Alert (HFAlert.com), April 15, 2015
Value Investor Employs Quant Tools
A long/short equity manager who takes a systematic approach to picking value stocks is getting ready to launch a commingled fund.
Nathan Rex, who holds a Ph.D in physics, has been employing the strategy since 2011 — first at a family office named Kokino and, for the past year, at a Stamford, Conn., firm he co-founded called Eigenvector Capital. Eigenvector’s separate-account program generated a 12-month return of 18.5% as of Feb. 28, trouncing a 2.3% advance for the HFRI Equity Hedge (Total) Index. The separate accounts, with a total of $47 million, gained another 1% in March. The family-office account has earned a 6.7% annualized return since 2011.
Rex developed algorithms that sift the financial statements of publicly traded U.S. companies and rank them based on 10 factors including free-cash return on invested capital, consistency of operating performance and share price. The multi-pronged approach has outperformed traditional value-investing tactics focused on companies’ price-earnings ratios.
Eigenvector’s marketing materials emphasize that while it employs quantitative tools, it picks stocks based solely on fundamental analysis, ignoring technical factors such as momentum and mean reversion and eschewing high frequency trading. “Eigenvector is not a ‘black box’ strategy,” the pitchbook says.
The planned fund, set to begin trading on May 1, typically would hold 50-70 long positions and 110-140 shorts, with net long exposure of about 50% and gross exposure of not more than 250%. While it has the flexibility to target companies of all sizes, the average market capitalization would be about $2 billion.
Rex, who holds the title of chief investment officer, founded Eigenvector with chief executive Sean Ballard, who has held senior-management positions at Palestra Capital, Titan Capital and Lionstone Capital. Ballard, whose duties encompass operations and marketing, is focusing his fund-raising efforts on family offices and funds of funds.
The first $100 million in the door is eligible for a founders share class that will impose a 1.5% management fee and a 15% performance fee. Once assets reach $500 million, the founders class no longer would charge a management fee. All other investors would pay fees equal to 1.5% of assets and 20% of gains.
Before Eignevector, Rex ran an internal fund for the family office called TRQ Analytics. Prior to that, he spent about eight years at a predecessor firm called Troy Capital, led by former Perry Capital executive Alex Troy. Troy now serves as a senior advisor to Eigenvector along with Keith Danko, who has held top management positions at ACAM Advisors, CQS and Titan.
In addition to his work at Eigenvector, Rex continues to manage a long-only separate account for the family office. That vehicle has earned an annualized 14% return since June 2008, compared to 8% for the S&P 500 Index.