New Hedge Fund Seeks Aquiline Viewpoint

Oct 25 2012 | 12:34pm ET

Anuj Mathur admires—envies, one might say—the amazing eyesight of the eagle. So what better name for his deep-research hedge fund than Aquila, Latin for eagle?

“They're able to see both forward and to the side at the same time and to identify their prey from 1,000 feet in the air while they're gliding,” Mathur told FINalternatives. “In much the same way, I try to not only look forward but also to have a real good understanding of what's going on with companies currently.”

Mathur's Aquila Investment & Capital Management runs a market neutral long/short equity strategy focused primarily on information and energy (read: green and clean) technologies. He's been mixing finance and technology for some time, having started his career as an investment banker in Solomon Smith Barney's technology group in Palo Alto, Calif., before moving to Alexandra Investment Management. He started as a mid-level analyst at the New York-based multi-strategy hedge fund and worked his way up to sector head for technology, media and telecommunications. He also sits on the boards of directors of a number of tech companies, which he says has given him insights that have proven valuable in his new venture.

Mathur says Aquila seeks to find “really well-thought-out ideas, which involves understanding fundamentals, catalysts and the dynamic of buy-side and sell-side sentiment.”

“I deeply research all the ideas, and the goal is to generate value from both sides of the book, so I'm not investing in index hedges or exchange-traded funds," he said. "I try to create an uncorrelated long and short portfolio that's very catalyst-driven. All of our names will have a very specific event path—it might not be just a single catalyst that I'm looking at but a sequence of catalysts that's mapped over an estimable time horizon.”

Data is key to Mathur's approach.

“The amount of data that we have, not only about companies but about our own performance, has jumped massively over the past few years. So at the center of the technology that I use is a proprietary, multi-variate database that serves as the 'memory' of the fund. It includes all of the ideas that we've invested in and looked at, and includes a number of metrics and different aspects of those ideas."

“Aggregating and tracking that information not only tells you something about why you've performed well—it also gives you insight about ideas you may have missed and how you could have better invested in ideas you did invest in," he explains. "Additionally, the manner in which the technology helps to give the portfolio manager a high-level view of all available investment ideas at any given time helps Aquila’s strategy to be quite scalable. As I expand, it's going to allow me to plug additional investment professionals seamlessly into the investment process, without too steep of a learning curve.”

The "big data" trend is also behind some of his best ideas on the long side of the investment book.

“Leveraging data is obviously a trend that's not just impacting investment firms, but is impacting companies on a much broader scale," Mathur says. "We have a lot of companies that are naming themselves 'big data' companies—anybody who's doing any sort of data analysis—but I'm especially focused on the ones that have sophisticated, predictive analysis tools. Companies that are not just aggregating data, but ones that are able to analyze that data and provide predictive insights to optimize and modify company behavior, ultimately driving higher returns on investment.”

On the short side, Mathur says he's interested in firms that are overly dependent on government subsidies—he cites European solar- and wind-power companies as an example.

“I've spent a lot of time looking at companies whose business models have been tied closely to government subsidies, and so those are naturally companies that are at risk as governments continue to tighten up the coffers.”

Another short side bet is companies, particularly in manufacturing, that find themselves unable to compete with their Chinese rivals.

"For example,” Mathur says, “in the LED industry we've seen a massive manufacturing expansion across China. They have huge amounts of capacity funded by subsidies for manufacturing equipment. Additionally, the lower cost structure for labor allows China-based companies to produce products much cheaper than people are able to abroad. And these are companies that are incentivized in very different ways—they're incentivized to grow their businesses to employ people and gain market share. This ultimately results in large amounts of low-cost product flooding the market, often occurring at the expense of companies that are trying to set themselves up in a profitable manner.”

Mathur, who officially launched his fund in August, has received some seed capital from one investor and now runs about $10 million. He's chosen Liquid Holdings, a fund services company, to provide office space and infrastructure.

“It's basically a turnkey operation that allows growing funds to get up and running in a built-out trading environment while outsourcing all of their back-office functions,” he said. The custodian is Credit Suisse.

Mathur says the fund is up over 5% since inception and he's about to start serious fundraising. The minimum investment requirement is $250,000. The fee structure, he says, is “based on the view that management and performance fees should have an inverse relationship, depending on what type of investor we're dealing with."

“In the early stages I am especially focused on finding the right investors who are going to work with me to grow the fund over the next few years.”

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