Niederhoffer Protégés Forge Ahead Despite Blowup

Nov 5 2007 | 12:20pm ET

The hedge fund universe is still mourning the second demise of Victor Niederhoffer, whose flagship Matador Fund reportedly lost more than 75% this year, forcing the contrarian trader to close his doors in September. Niederhoffer may be out of commission for the time being, but his disciples, including traders Toby Crabel and Paul Buethe, his brother, Roy Niederhoffer, and Peter Hansen, are all actively trading and making healthy gains in an otherwise rocky market environment. 

Year-to-date, the $348 million joint venture, the Buethe Crabel Diversified Futures program, which employs multiple, price-driven short-term trading strategies across a global portfolio of over 35 liquid futures and currency markets, is up 6.2%. Roy Niederhoffer’s $147 million Diversified program is up 15% and Hansen’s flagship $16 million Comprehensive program is up 10.4%.

“Part of the advantage the Niederhoffer alumni have is that short-term systematic traders tend to be less correlated with each other than long-term traders, for the simple reason that there are more things you can do in the short term,” said Hansen, who worked with Niederhoffer in the early 1990s as a trader.

Hansen credits Niederhoffer’s out-of-the-box trading style for his current success. “Even though he was not a systematic trader, he was using stats in a way that was not being done by other systematic traders,” said Hansen. “The statistical depth that we had just blew other traders away in the 1980’s and into the early 1990’s.”

Hansen called working alongside the famed trader a great experience, though he left the firm because he had “certain inclinations” that were different from the master’s.

“I wanted to have a rough balance of momentum and reversal trades, and he was always skeptical of any sort of momentum approach,” he said. “I also wanted to have a real systematic program and Victor was someone who crunches a lot of numbers but didn’t really trade systematically. I wanted to trade according to certain rules so I could spend my time researching and refining those rules, rather than having to decide how to trade the markets each day.”

Hansen also noted that recent news about Niederhoffer’s blowup “underlines that it was not the best place to learn about risk management, which was something I had to learn elsewhere.”

Investing with one of Neiderhoffer’s protégés may just be the closest one will get to investing with the legend himself. In an interview with FINalternatives early this year, months before the market troubles sank his latest fund, Niederhoffer explained that he enjoyed a second chance after his fund collapsed in 1997. But he cautioned that “there are no third chances,” and that, in the event, he would give up trading other people’s money.


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