Monday, 23 January 2017
Last updated 8 min ago
Feb 17 2006 | 12:00am ET
Augustus Capital is gearing up to open its beta-neutral, quantitative, global, long/short equities fund to outside investors within the next two months. Mark Abeshouse, chairman of the Scarsdale, N.Y. firm, has been running the fund with his partner, a Dallas-based trader, for over a year with partner money.
Abeshouse declined to name the trader he is working with because they are still drawing up papers. The Augustus Capital MJK Fund will officially launch with between $7-10 million in assets under management, but it has a large capacity and could handle up to $500 million. In 2005, the fund had a net return of 29.9%. The target, once the fund is open to outside investors, will be around 15% net of fees, with a maximum monthly draw down potential of 3%.
“The expectation on most market neutral managers is between 7-11% net returns in today’s environment of low interest rates and low intra-day trading volatility,” Abeshouse said, adding that he believes the Augustus Capital MJK Fund will be able to do better because of the “structural competitive advantage the fund enjoys” and the strategy he and his partner employ, which is based on 30 proprietary trading and valuation models which use different criteria and algorithms.
“Typically, when people quote the beta of the stock they quote the historical average, but we’ve noticed that there are two betas: one when a stock goes up and one when it goes down,” Abeshouse said, adding that for this reason, the aggregate long beta tends to be greater than the aggregate beta in the fund’s short positions. “So, in order to achieve beta neutrality, we have to overlay the net beta exposure on individual stocks with an additional short position or two, usually in an equity index like the Russell 2000. As a result, typically, we are net short dollars in the portfolio, 5-15%,” he said, suggesting that this contributed to his fund being up over 3% net in April and October of last year when many funds were struggling with large losses. “That being said, the fund is usually still profitable in months that the market is up, such as January 2006,” he said.
Augustus Capital will provide unconditional transparency on a daily basis if requested by investors, as well as monthly liquidity. Fees will be 1.5% for management and 20% for performance, though the managers are open to negotiating lower rates or guaranteeing future capacity if angel investors, seeders or institutions would like to join early on. There is no lockup and the minimum investment will be around $1 million, though this is negotiable in the first few months of the launch.
Abeshouse said that the fund may be attractive to institutional investors because of its structure, which is a standard master feeder with both domestic and offshore components, making it a good fit for tax-exempt organizations.
In addition to co-managing the hedge fund, Augustus Capital runs a small family office. The firm also provides customized portfolios of alternative investment products, provides asset allocation and advisory services in the alternatives industry, incubates emerging hedge fund talent and has an affiliated broker/dealer.