Topos Partners is gearing up to launch its first fund, a long/short quantitative vehicle, later this year. Marc Groz, founder, managing partner and chief investment officer of the Stamford, Conn.-based firm, is aiming to do everything he can to make the fund successful, but he isn’t banking on the star power of traders. Rather, Groz, a math-wiz and a former chief risk officer for two multi-billion-dollar hedge funds—Sailfish Capital and Aladdin Capital Management—prefers funds that employ quantitative discipline.
Topos will use trading models instead of portfolio managers for its first fund, which is being developed specifically for the institutional market, though future funds may utilize a combination of models and portfolio managers.
“Traders are generally not the best at managing businesses and they are not properly positioned to enforce risk controls or manage technology,” explained Groz, who is aiming not only to build a profitable business, but to bring the hedge fund industry to a new, higher standard of accountability. He said that Topos will advocate risk management, ethics and fiduciary responsibility in the firm’s corporate culture, creating a hedge fund firm that can be looked to as a model for best practices in the industry.
Groz, who founded and ran The Quaternion Group, a mathematical consulting firm, for 10 years prior to his stint at Aladdin, said that the culture of ‘greed-is-good’ is all too pervasive in the alternative investment industry.
“It’s not enough for a hedge fund manager to run a business as if they are not fiduciaries. And too often they are doing just that,” he said.
Groz may hail from a large firm, but he breaks the mold of a portfolio manager hanging out his own shingle. While he does have the names of lofty firms etched on his resume, including that of Van Eck Associates, where he served as chief information officer, as far as he knows, he is the only former chief risk officer of a large firm to set up his own shop and serve as its chief investment officer. But while some may question Groz’s lack of portfolio management experience, the New York-native believes that embodying the risk head and the investment head in the same person is actually a cure to what ails many firms.
“When chief risk officers are hired, they are still working for the guy whose risk they are supposed to manage,” he said, adding that in many hedge funds there is a culture of fear, and that those in charge of mitigating risk may stifle their own voices in order to keep their jobs, while those who do express their concerns are often sidelined by portfolio managers aiming to generate high returns no matter what the risk.