Black Tuesday Doesn’t Rain On Trace River’s Parade

Mar 2 2007 | 11:43am ET

It’s any new hedge fund manager’s nightmare: The day before the end of your first month, the global equity markets—and, along with them, hedge funds—have a historically bad day. But the industry veterans behind Trace River Capital Advisors took it in stride, and not only because they ended Feb. 27 ahead of the crowd.

“It’s the weeks and days before an event like that, and the weeks and days after it, that separates out those who are market neutral and those who are not,” George Corey, co-founder and CEO of the Stamford, Conn.-based quantitative equity market-neutral shop, cautions. That said, his fund was up about 20 basis points on Tuesday, and closed its first month up about 2.5% net, according to Corey.

“[Tuesday] was the culmination of something that had been brewing for the last week or so,” he says. “There was an internal flight to quality in the equity markets, and that fit really nicely into our portfolio. We were positioned nicely for this mini-correction.”

Corey and his fellow principals, Andrew Smith and Tom Van Riper, founded Trace River last year and have been utilizing their data-intensive trading models in separately-managed accounts since last January. The hedge fund, Trace River Capital Partners, launched on Feb. 1 with $16 million, primarily capital from the principals.

The strategies, which Corey has been developing for years, “incorporate over 40 different factors, both technical and fundamental,” explains Van Riper, the firm’s chief operating officer. The fund currently utilizes six models, whose output is run through a proprietary risk model to generate a list of daily trades.

“We have a very extensive research platform that George has built over the years,” Van Riper says, which Smith, the chief technology officer, has turned it into an institutional research and development platform. There are between 300 and 500 U.S. mid- and large-cap names in the fund on any given day, none of which exceed 2% of the portfolio.

“We also have a lot of experience on the trading side—we worked on the sell side for a number of years—so we factor that into how we build our portfolio models and how we implement them,” Corey, who was a principal at both the hedge fund Vector Capital and its sister broker/dealer, Vector Partners, says.

The trio behind Trace River are no strangers to one another, or to the hedge fund business. Corey met Van Riper in 1991 and the two have worked together for a number of years. Van Riper and Smith worked together on Bear Stearns’ program trading desk. Corey has been running market-neutral strategies since getting his start at First Boston in 1988.

Van Riper says that the fund, which charges a 1.5% management and 20% performance fee, did no marketing prior to its launch, but is now working with Goldman Sachs Capital Introduction to attract funds of funds, family offices and other institutional investors.

The minimum investment in Trace River is $1 million. Goldman Sachs is the prime broker. Van Riper says the debut strategy currently has a capacity of about $250 million, but adds that Corey and his team are continuously developing new strategies.


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