Abacus Shuts Down Hedge Fund, Shelves Quant Strategy

Dec 6 2006 | 5:27pm ET

Westport, Connecticut-based Abacus Asset Management recently pulled the plug on its Abacus Small Cap Growth Fund, a long/short equity small-cap vehicle, because of lack of investor demand. The firm’s Abacus Quantitative Strategy, which can be used as a long-only equity strategy or as a risk-neutral strategy when combined with short positions, has also been shelved.

Jay Arnold, Abacus’s founder, said the hedge fund closed about a month ago because “it was just too difficult for a small fund to get to critical mass.”

“We had a solid infrastructure but we couldn’t get there and we didn’t want to wait it out. I thought that if you build it they will come, but they didn’t come,” he lamented.

The fund, which started trading in August 2003 with capital from the firm’s friends and family, has not gained any traction in the institutional investor marketplace since then, according to Arnold.

The Abacus Quantitative Strategy, which was introduced to the institutional crowd starting August 2005, has also been inactive since then. “It’s still available but we haven’t actively pursued it so it is shelved until we find the right opportunity,” said Arnold.

In an interview with the now-defunct MARHedge, Robert George, a professor of finance at Fordham University and the developer of the Abacus Quantitative Strategy, expressed enthusiasm for the strategy’s return potential. “The Abacus Quantitative Strategy is unique in that it is based on fundamentals and only trades once every quarter – unlike a lot of other quantitative strategies,” George said.

“The strategy uses a factor model to find stocks that have at least one better characteristic than the overall market measured by the S&P 500 without having any worse characteristic. It usually finds about 150 stocks every quarter and another program determines the weights for each stock so that the volatility is the same as the S&P’s but, because the selected stocks have better characteristics, you’ll get better returns.”

Currently, Arnold is trading capital for an institutional investor as well as for himself, and said he’ll reassess the firm’s direction in a year or two after the economy has “shaken out a little bit and things become more logical” in the hedge fund space.

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