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Capital Fund Management: Simply the best?

Discus Fund, one of CFM flagship funds, posted 23 percent year-to-date positive returns as of october end, the best performance amongst all the global systematic funds. This is the confirmation the know-how of the French manager which has shown exceptional trackrecords for more than 10 years…

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Capital Fund Management is on course to complete the year with success. With its Discuss Fund year-to-date performance of 23%, the firm deliver better returns than any European or American managers specialized in systematic trading. According to all available databases for this type of fund, Discus is doing better than industry leaders such as Renaissance Institutional Futures Fund, Winton Capital Futures Fund, Man AHL Diversified, Tudor Tensor or Aspect’s Diversified Program

And it would be hard to talk about luck or rare event: For over 10 years, the management company has shown consistent and convincing results. The performance analysis of Stratus diversified fund shows a complete decorrelation of funds to S&P 500. This fund is open to investors and and invests equally in three CFM’s sub strategies: Discus, Ventus and Nimbus.

Moreover, according to data provided by the Hedge Fund Journal, between February 2002 and April 2009, Stratus showed 70% of months with positive returns against 59% for the S&P 500, with an annual performance of 10.3% against -3.5 % for the S&P 500 over the period. All with a volatility of 6.2% for Stratus, against 15.6% for the S&P 500.

In order to align their interests with those of their customers, officers and employees of Capital Fund Management have invested in Stratus. They now hold 4% of the fund.

Discretion and modesty

However, if Capital Fund Management has an excellent reputation in the community of fund of funds managers or systematic trading experts, it remains almost unknown in France. The policy of the French manager is to provide a minimum of information as the house wants to be conservative and modest. Its founders, discrete, are at odds with the image of arrogant, confident and very talkative "frenchies". Perhaps a consequence of difficulties the company had experienced for several years.

After struggling to collects assets under management (AUM), from 145 million to 3.1 billion dollars between 2001 and 2007, Capital Fund Management has seen its AUM fall by more than 10% following the bankruptcy of Sentinel Management Group. This company based in Northbrook, Illinois, was responsible for managing the cash of management companies and high net worth individuals by investing in short-term, liquid and high quality assets. Sentinel froze client funds August 14, 2007, citing the high volatility in the credit markets. The company, pursued by the Fed for using clients’ assets as internal assets, will go bankrupt a few days later, erasing 407 million dollars in assets belonging to Capital Fund Management. Despite the transparent communication done by the fund’s president at that time, Jean-Pierre Aguilar, outflows are huge. Worried investors redeemed and assets decreased by 20%.

Two years later, a much-more dramatic event would come shaking the management company. In 2009, Jean-Pierre Aguilar died in a glider accident in the Alps. Liked by his team, the shock was brutal and Capital Fund Management had to manage the strong emotions surrounding this sad event within the company. It is with great pedagogy that the management company reacted, thereby reviving its march forward, despite the difficulty posed by the loss of an extraordinary leader.

A physicist revolution in economics

Today the company is managed in full collegiality between two CEOs and a President. Marc Potters, co-CEO, leads the R & D. He oversees the research and implementation of strategies, automated execution and funds risk control models. He holds a Ph.D. in physics from Princeton University. Jacques Saulière, co-CEO, is the administrative responsible for funds, back office customer accounts and relationships with prime brokers, administrators, auditors and regulators. A graduate of the Ecole Centrale de Paris, he also holds a Masters in Electrical Engineering from the University of Southern California and an MBA from INSEAD. Jean-Philippe Bouchaud, President of the management company, is also chief scientist. In 1994 he founded with Jean-Pierre Aguilar the Science and Finance Company, which merged with Capital Fund Management in July 2000.

Alumni of the Ecole Normale rue d’Ulm, he did his thesis on the transport of polarized gases. As a researcher at the CNRS, he focused among other, on varied issues such as the cooling of atoms, polymer solutions, plasticity of solids, or the possibility of a super solid state. He was awarded the IBM young scientist award and the CNRS silver medal. Today, detached from the Center for Atomic Energy (CEA), he seeks to show how statistical methods can be broken down in many areas where the notion of complexity is relevant.

He offers a true “physicist revolution” in the way of practicing economics giving, upstream of major concepts, more space to empirical data and thus the experiment. Indeed, he considers that in economics, unlike physics, beautiful hypotheses and conceptual beauty are way too present (rationality of agents, efficiency and market equilibrium, Markowitz Theorem, Black & Scholes model, etc.), even if they are not empirically verified ultimately.

That is how leaders of the management company chose to recruit physicians, preferably without luggage in economics or finance. Over the company’s hundreds of employees, there are more than 35 doctors in physics. The business or economics school graduates are rare. Data analysis is crucial there. Capital Fund Management saves huge amounts of data, nearly one terabit of data per day. Teams will tackle subjects as sharp as the temporal structure of the impact of transactions on prices, the endogeneity of market movements or the sub-optimal solutions in the choice of agents (cognitive biases, decisions in a hurry, neglect, etc ...).

This theoretical and experimental approach reflects in a concrete way in the three strategies of the fund. In terms of talent and skills, Capital Fund Management has nothing to envy the great quantitative English and American funds. However, the difference is still outstanding between its reputation and its AUM compared to funds such as DE Shaw, Renaissance Technologies, Man Investment and Winton Capital Fund Management.

Capital Fund Management manages approximately $ 4 billion, one third coming from funds of funds and one third from pension funds. "This type of fund is a bit too complicated for us and we do not always understand the risks, it is thus difficult for us to invest in those" recently admitted a French institutional investor. A complete educational work is yet to be done in France. Most institutional investors are Anglo-Saxon, even though half of the investment comes from Europe.

Yann Olivier November 2011

Article also available in : English EN | français FR



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