Kalpesh Kinariwala, founder & CEO of CapVeda Capital (India) Advisory, a Mumbai-based firm that advises clients on quantitative investment or investment models based on mathematics and past data, is a happy man these days.
Not difficult to understand considering that two funds that his firm advises using computer-driven mathematical models — one for a PMS (portfolio management service) managed for India Infoline and another managed for a Mauritius-domiciled hedge fund — are generating better returns for investors since its inception early this year.
The PMS advised (on a non-binding basis) by CapVeda has also outperformed some of leading equity schemes of Indian mutual fund houses, claims Kinariwala. The Mauritius-domiciled fund has returned 15 per cent, net of expenses, he says. Not bad in a year when equity prices have remained subdued in India.
“Quant is non-emotional way of investing. Fund manager has little discretion and the investment decisions are made without the noise of emotion,” Kinariwala says. “It is a savvy approach to the market.”
CapVeda’s PMS for India Infoline is a long-only quant product, while the Mauritius-domiciled India Focus Fund is a multi-strategy equity long/short products that uses futures and options instrument.
The firm is among the growing number of firms that are trying to convince wealthy Indians to allocate a part of their investments to quantitative strategies.
Forefront Capital Management is also trying its hand in quantitative investment models in India. The Mumbai-based company sees increasing shift by Indian investors towards quant-based investing.
Says Radhika Gupta, founder, Forefront Capital Management, “Quant is about 10 per cent of an investor’s allocation globally and there is a huge opportunity in India.”
Though no data is available on the amount of money managed under quant in India, industry officials say in equity alone it may be around 3-4 per cent of the total assets of about Rs 50,000-odd crore under portfolio management schemes. “It is pretty unorganised in India and the market is now very small,” she adds.
One of the key advantages for quantitative asset management is that it is one of the most scaleable asset management models. “My team at AQR was 40 people managing a book of nearly $ 40 billion. You don’t need an army of research analysts,” she points out.
In India, ING Investment Management is the biggest player managing Rs 1,300-odd crore under quant, while others like Citigroup, Nomura, Edelweiss and Forefront Capital Management manage smaller funds under various quantitative strategies for clients. Among the mutual funds Religare AGILE, Reliance Quant, Canara Robeco Large Cap+ and Motilal Oswal M100 also quantitative strategies.
“The shift to quant is inevitable as more foreign players enter the market,” reckons Gupta.
Yogesh Radke, head of quantitative research at Edelweiss Securities, says, “Various strategies are employed depending on clients’ risk profile, their investment horizons and their requirements. Some of the most popularly used strategies include long/short, based on volatility and pair strategy.”
With markets trading in range bound for some time, which is the best strategy that can be adopted using quantitative analysis? “Absolute return quant strategies are a good idea for this kind of market,” says Gupta.
One strategy that Forefront Capital at present runs is ‘quant asset allocation’ where the managers allocate between debt/equity/gold.
Why is it then that the mutual funds are not performing well under their quant strategies? “MFs have had a harder time with quant than PMS because Sebi (the Securities and Exchange Board of India) requires them to completely disclose their investment strategy which no seasoned quant will do.
Also, many of them try to combine quant with subjective investing diluting the whole process,” she says.
Globally, quantitative investing techniques are employed by the most sophisticated and technically advanced hedge funds including the likes of Renaissance Technologies, DE Shaw and Blackrock — and most of them are in India as well as Sebi-registered FIIs.
Given that foreign investors are more aware of quantitative investing, CapVeda’s India Focus Fund, which is a blend of long/short strategy, statistical arbitrage and volatility trading, is aiming to raise $250 million from wealthy investors and family offices in Europe, North America and West Asia. “We will launch the West Asia road shows soon, where the mood is upbeat,” informs an official.