Taaffeite Capital Management

"Is a new kind of quant, combining AI wizardry with old-school biology to trade futures."

- Bloomberg

A letter from our Founder

For over 10 years, my academic work has focused on unraveling the complex interactions that underlie living cells using machine learning and other computational methods.  As I did this work, it occurred to me that financial markets are similar to cells — both are highly-complex systems that arise from networks of interactions. So I utilized ideas from my work in computational biology to develop systems that predict the behavior of financial markets and applied them to trade my own capital.  Eventually, after many years of work, I developed an automated trading strategy with remarkable performance in 2013 and built a track record for it over the next three years.

 

Taaffeite was founded in 2016 to bring this trading strategy, and a unique expertise in machine learning and data science based on complex biological systems, to institutional and private investors. 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.

 

Dr. Desmond Lun, Founder & CIO

An Interview with

Dr. Desmond Lun

Dr. Desmond Lun discusses his background and why he started Taaffeite Capital Management.

 

Our History

Taaffeite Capital Management was founded by Dr. Desmond Lun, a renowned academic with a 15-year career spanning MIT, Harvard, and Rutgers, and a leading global expert in computational biology and artificial intelligence.

 

Taaffeite utilizes a machine learning trading system, TCM Liquid Alpha Program, that Dr. Lun developed over 10+ years.   This trading strategy, which leverages ideas and techniques from Dr. Lun’s extensive academic work in computational biology, identifies highly-complex, persistent price patterns that are used to predict future price movements of a strategic basket of futures contracts.  Dr. Lun began trading his own capital using the Taaffeite AI system in 2013, and the TCM Liquid Alpha Program was officially launched.

 

“Dr. Desmond Lun's research into one of the natural world’s most byzantine systems — the biological cell — has given him an edge in untangling the secrets of financial markets.”

-Bloomberg

What We Do

TCM Liquid Alpha Program:

 

The TCM Liquid Alpha Program trading strategy holds a diversified strategic basket of long and short positions in 25 liquid global indices.  This basket is systematically rebalanced once a day based on a probabilistic forecast of how those indices will move over the next 24-hours.  The system trades index futures, 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 if they use rules like stop-losses.

 

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:

Find predictive relationships in the data

 

Forecast movement of instruments over next 24 hours

 

Construct the portfolio with focus on capital preservation

 

Learn and improve

 

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:

Investment Objective

Portfolio is selected for capital preservation.

Diversifying into negatively correlated positions.

01

04

Alpha Decay

Kolmogorov-Smirnov test is used to determine if last 20 days of daily returns are distributed as expected.  If otherwise, the Program is paused for analysis.

Highly Liquid Instruments

Less than 1% of daily liquidity of instruments so the Program does not get stuck in any positions.

02

05

Positive Skew

Many strategies have negatively skewed return distributions.  TCM’s strategy has a longer, fatter, positive tail. (see chart)

Position Management

100% Systematic.  Actively scales in and out of trades.  This allows the Program to maintain some exposure if timing is early and market moves against position.

03

“Causal interactions are important for both biological and financial systems. It’s what makes them complex,” notes Dr. Desmond Lun. “If you have a causal relationship, you can make predictions and be somewhat confident in them.”

-Bloomberg

Our Management Team

Dr. Desmond Lun is the Founder and CIO of Taaffeite Capital Management.  Dr. Lun is one of the leading global authorities in mathematical models that predict the behavior of biological systems.  Prior to joining Rutgers University in 2010, where he is now a Professor in the Departments of Computer Science and Plant Biology, he was an Associate Professor in the School of Mathematics and Statistics and Director of the Phenomics and Bioinformatics Research Centre at the University of South Australia.  From 2006 to 2008, he was a Computational Biologist at the Broad Institute of MIT and Harvard and a Research Fellow in Genetics at Harvard Medical School.

 

Dr. Lun received his Ph.D. in electrical engineering and computer science from the Massachusetts Institute of Technology (MIT) in 2006.  Dr. Lun’s scientific accomplishments includes several U.S. patents and co-authoring the book Network Coding (published in 2008) and over 30 academic papers, which have collectively received over 4,000 academic citations.

Dr. Desmond Lun

Founder & CIO

Howard Siow is the CEO of Taaffeite Capital Management.  He joined Dr. Lun at TCM in 2014.  Previously, Mr. Siow was the CEO of MyPak from 2007 to 2013 where he was responsible for operations across Asia, USA, Europe and Australia.  He is an experienced former management consultant with PricewaterhouseCoopers, Bain International and Accenture.

 

Mr. Siow holds a Bachelors of Engineering and Bachelors of Commerce (Finance) from the University of Melbourne (Australia).

Howard Siow

CEO

Ronald Raymond is the COO and CCO of Taaffeite Capital Management.  He joined TCM in 2017.  Previously, he was COO and CCO of Blueshift Capital LLC, a $230M hedge fund, where he was responsible for all business activity including human resources, compliance, technology, operations, NAV confirmation, audit, and client relations.  Prior to Blueshift, Mr. Raymond was Director of Operations at $2.8B AUM Vermillion Asset Management LLC (later acquired by Carlyle Group); Vice President of Operations at $18B AUM Dreman Value Management; Application Development Manager at Fiduciary Trust/Franklin Templeton International; Vice President at $15B asset manager Arnhold and S. Bleichroeder; Head of Operations at $150M AUM March Partners LLC; and Portfolio Administrator at $1.9B AUM Appaloosa Management LP.

 

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

Ronald Raymond

COO & CCO

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150 Monument Street, Suite 270

Bala Cynwyd, PA 19004

 

(518) 282-4300

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