Taaffeite Capital Management

"Quants Are Eating Away at Wall Street’s Edge"

- Bloomberg

A letter from our CEO

For years, quantitative investing has been about using computers to find patterns or inefficiencies in market data that can be exploited systematically for profit.


Quant 2.0 is the next generation of quantitative investing.  It is about using artificial intelligence (AI) techniques that avoid over-fitting, look for all profitable patterns in data (not just trends), only trade liquid markets, and are much more disciplined on left-tail risk (not just using volatility to measure risk).  This is what makes TCM's Program so significant.
 

We seek to deliver absolute return that is scalable, uncorrelated with major asset classes, and consistent over diverse market conditions. We see that machine learning is beginning to have a significant impact on asset management, but firms with deep expertise and a robust, sophisticated, tested strategy are very rare. Our name Taaffeite (one of the world's rarest gemstones) was chosen to connote this sense of rarity, and we will utilize our unique expertise and technology for the benefit of our investors.

 

We look forward to working with our investors at the forefront of the technology of asset management.

 

Howard Siow

TCM on Investing

TCM discusses quantitative investing.

Our History

The strategy of Taaffeite Capital Management was researched over 10+ years and commenced managing investor capital in 2013. Our success is a function of our hard work and 15+ year dedication of our CIOs to develop systems that generate robust returns for our investors.

 

Taaffeite utilizes a machine learning trading system, that takes positions opportunistically across global markets with an average holding period of 2 days.   This trading strategy identifies highly-complex, persistent price patterns that are used to predict future price movements of a strategic portfolio of global indices and currencies.

 

“A seismic shift in assets and resources toward data-driven, systematic strategies and shorter-term investment strategies, which tend to rely on access to better, faster and larger stores of data is underway.”

-Bank of America Merrill Lynch

What We Do

TCM Liquid Alpha Program (TLAP):

 

TLAP seeks opportunities across global markets by identifying relationships among instruments, detecting anomolous mispricings, then structuring trades to profit from a return to normalcy. The statistical arbitrage strategy takes advantage of the idea that the market sentiment continuously overreacts, then adjusts.

TLAP takes long and short positions in liquid global indices and currencies.  These positions are systematically rebalanced based on a probabilistic forecast of how those indices will move over the next 24-hours.  The system trades index futures and currencies, as opposed to other instruments, to capitalize on the liquidity and lower transaction costs of futures.

 

Examples of the indices traded:

  • Equities:  S&P 500, FTSE 100, Euro STOXX 50, DAX 30
  • Interest Rate:  US Treasury Notes, Euro-Bund, 10-Year Govt. of Canada Bond
  • Foreign Exchange: Euro, British Pound, Japanese Yen, Canadian Dollar

Our Investment Process

TCM’s investment philosophy is based on the notion that price patterns exist but profitable price patterns are highly complex and short-lived.  Furthermore, identifiable price patterns that exist in single markets are already crowded and unlikely to yield significant profit and could incur significant tail risk.

 

Instead, the key is to search for and identify price patterns involving a large number of markets simultaneously.  Because of the huge number of variables and possible interdependencies that must be considered, humans have little hope of successfully identifying such patterns with any reliability.  TCM’s AI-based system is well-suited for such complex pattern recognition tasks.

The TCM Liquid Alpha Program executes four steps in real time:

Monitor asset price movements

 

Identify divergences in correlated assets

 

Utilize AI to optimize trading decisions

 

Execute trade and manage risk

 

Risk Management

The TCM Liquid Alpha Program constructs the portfolio each day with a focus on capital preservation.  Protecting investors’ capital against tail events means adhering to five core principles:

Rigorous Exposure Testing and Monitoring

New enhancements and current exposures (VaR) are stress tested under a number of “what if” scenarios.

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Highly Liquid Instruments

System only trades liquid instruments and limits position size to 1% of the instrument’s average daily trading volume.

Robust Left Tail Management

System has a longer fatter positive tail, demonstrating its robust tail management.

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Tight Stop-Losses

Trailing stop losses limit the maximum portfolio loss to 3%. TLAP selects position size according to calculated risk.

High Risk-Return Threshold Before Entering Position

System continuously calculates the risk-adjusted return of global opportunities and only executes three to four trades per day on average. It does not trade when liquidity is too low or volatility is too high.

03

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“Up and down Wall Street, algorithmic-driven trading and the quants who use sophisticated statistical models to find attractive trades are taking over the investment world. The computers are outperforming humans at picking investments.”

-Wall Street Journal

 

Mr. Raymond holds a Bachelor of Science in Finance from Rutgers University.

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Stureplan 4c, vån. 4

114 35 Östermalm, Stockholm, Sweden

 

(917) 924-8460

 © Taaffeite Capital Management LLC. All Rights Reserved