Q: How does your methodology work? Describe your strategy.

We use SEC public holdings disclosures to derive “virtual fund of funds” strategies that seek to leverage the intellectual property of established hedge funds. We can do this because funds who manage more than $100 million must file their holdings quarterly with the SEC. Our firm specializes in tracking and analyzing these funds through their disclosures. Our research shows that managers tend to have longer holding periods than most would perceive. The average holding period is about one year. We also have shown that hedge funds tend to generate their performance from their long positions much more often than most would think. Finally, our proprietary research platform gives us a long historical data set that allows us to test the efficacy of following a manager's disclosures over a long period of time. Simply put, through our platform we have a pure view of the manager's long selection skill unfettered by the use of leverage, shorts, or trading strategies – we call this a “Clone Score”.

Just like any successful fund of funds program, the key to our success begins with manager selection. Even though our strategies ultimately invest directly in the disclosed positions of the managers we select – our methodology seeks to select managers and not their holdings. Our process then seeks to mitigate risks in its many forms. We combine multiple managers into any one strategy so as to mitigate performance risk, blow up risk, fraud risk, style risk and data or filing risk. We employ a process called dynamic hedging in our strategies that seeks to allow our strategies to run long during generally increasing markets and be well hedged during generally decreasing markets. In this way we can mitigate systemic market risk while still maintaining an aggressive long only posture during rising markets. Ultimately we seek to give the investor top quartile hedge fund returns at lower overall volatility than the market over time.

Q: What distinguishes it from other similar strategies?

Current liquid alternative products either seek to deliver pure beta returns through factor replication or seek to replicate the fund of fund legal structure with a mutual fund. We're going for a best of both worlds approach: offer top quartile hedge fund returns and still get the benefits of low fees, transparency and no lockups. 

Q: What inspired you to develop it? Did you have a certain conversation or “lightbulb moment” in developing it?

AlphaClone started as a research project borne from my frustration at not being able to access well established hedge funds personally.  Having spent my career performing data analysis of one form or another, I'd characterize myself as a problem solver. Combining technology with a publicly available data source to leverage hedge fund investment ideas seemed like a good ideas at the time there were several academic and industry papers that had demonstrated.  I wanted to see if it was possible and if so, whether it was desirable.  On the strength of the results we were seeing, I decided to launch an online platform in 2008 that would give anyone intelligent access to these managers. Soon after we launched our research service, our clients began asking for ready-to-go investment strategies that leveraged our best research. We registered as investment advisors in late 2010 and began managing client accounts inside a handful of investment strategies that we developed. From there we began offering our strategies on different platforms and in different investment vehicles such as an exchange traded fund.