AFX Capital launches QuanticAM Lab hedge fund incubation program

CySEC regulated retail forex broker AFX Capital is reporting that its Quantic wealth management unit is launching something called QuanticAM Lab. The lab’s aim is to discover trading talent and leverage the existing Quantic infrastructure to allow money managers to grow their assets under management and succeed more rapidly.

Quantic’s head of sales Francois Nembrini told LeapRate:

QuanticAM Lab is our hedge fund incubation program. We did two 500k allocations in the past weeks.

Francois Nembrini, QuanticAM

Francois Nembrini, QuanticAM

According to Quantic, beyond trading performance the main hurdles that an aspiring FX money manager must overcome in order to succeed are threefold:

1. Regulatory framework. Distribution of an asset management program can only be successful if the proper regulatory framework is in place. Quantic can host traders both under its asset management license or can create sub funds under its existing UCITS fund structure. This gives start-up money managers a quick access to the market, by allowing them to distribute their programmes in a compliant manner to a broad audience outside the initial seed assets typically raised from friends and family circles.

2. Raising capital. Below $100M under management, it is near impossible to get institutional investor mandates. Asset managers can only invest 10% in a single vehicle, while costs related to the due diligence required to open a new relationship are extensive. Going through this process is not worth their time, if they cannot even invest at least $10M with one counterparty.

Novice money managers then need to rely on private investors and typically go through networks of investment advisors and private bankers to raise capital efficiently. Forex is a niche asset class and it is very difficult to find high-net-worth individuals ready to invest in FX products.

Quantic has grown in the past 5 years through its distribution network and has direct relationships with a worldwide investors community. Moreover, the firm has a limited line of products and could get those investors to put more assets under management with new quality products. Quantic is thus highly motivated to offer new rewarding programmes.

3. Low cost trading, risk monitoring & best execution infrastructure. Serious investors do not put significant capital with managers who cannot prove that they have a low cost execution setup with proper risk monitoring framework in place, and that they follow best execution practices. Forex is also a 24hrs market which increases the setup complexity. QuanticAM Lab invests in the fields of technology, credit and risk management, so that investors can be confident in the ability of their manager to deliver consistent alpha:

  • Technology. While the price of technology has dramatically reduced in the past years, a full liquidity aggregation, OMS and smart order routing system still costs well above $1m a year.
  • Credit. The days of cheap credit are over and top-tier prime services allowing direct market access at low cost are now only available to large institutions with strong balance sheets. The initial margin required by top-tier prime brokers to deliver their services used to be as low as 250k. With the introduction of new regulations prompting the strengthening of bank capital requirements, such as the Dodd-Frank Act and the MiFID directive, and since the SNB event in 2015, those minimum margin requirements are now around the $15m mark.
  • Risk management. Quantic invests in the latest credit management systems to avoid situations such as over trading or fat finger issues and employs an experienced team of risk managers to monitor traders and make sure that investor mandates are duly followed.

Why join QuanticAM Lab? Quantic believes that asset managers working with QuanticAM Lab can take advantage of:

  • Expert advisory services on the best way to present products to both the public and regulators in a compliant manner (description, bios, results, monthly investor updates etc.).
  • Professional insights on where to advertise such material effectively and how to raise the manager’s profile through PR activities. One example of that is Quantic’s partnership with TopTradr – a social trading network – that allows traders’ interviews to be distributed to TopTradr’s 30,000 Twitter followers and 200,000 lead base.
  • Automatic participation in QuanticAM Lab’s multistep asset raising programme, where Quantic allocates funds to managers.

How to get started?

The three-step process to join QuanticAM Lab’s asset raising programme, involves:

Step 1: Six months observation period, with no capital allocated. Targets are to be agreed with the manager, but typically the guidelines are along the lines of:

  • Minimum capital at risk: $100,000
  • Max leverage: ideally at 5 or below
  • Standard deviation: below 20%
  • Sharpe ratio: A desirable ratio is above 2. Usually, an investment with a sharpe ratio below 1.5 is not considered interesting in terms of risk-adjusted returns.
  • De-correlation from traditional asset classes, with performances not linked to a specific benchmark.
  • Max drawdown: below 10% on a monthly basis

Step 2: One year initial investment, Quantic will design for the manager a package to get more credibility with the future investors in step 3.

Step 3: Quantic’s sales network leverages the 1.5 year track record established by the money manager on Quantic’s own books and on Quantic’s own capital in order to distribute the product to its network of active managed Fx investors. The target is to significantly raise assets under management.

More on the QuanticAM Labs program can be seen here.


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