Javno – Last week, New York University and Carnegie Mellon sent a new class of math whizzes out into a profession that is both blamed for the financial collapse and charged with preventing it happening again.

Many of these so-called quantitative analysts, or "quants," graduating from elite financial engineering courses will end up writing computer programs that handle an ever greater share of market trading.

Because some of their mathematical models failed to take into account factors that later turned out to be crucial, quants have been blamed for compounding risk and exacerbating the crash in financial markets.

But far from going into decline, those with financial engineering degrees are still in demand as hedge funds and banks seek ways to measure previously unforeseen risks and factor them into their models.

The profession’s reputation took a beating in August 2007, when some quant funds — which try to beat the market by crunching vast amounts of data at lightning speed — lost a third of their value in a matter of days.

Many blamed the math commandos for failing to factor in extreme events, in this case unprecedented numbers of home mortgage foreclosures.

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Tags: account factors, carnegie mellon, commandos, computer programs, engineering courses, extreme events, financial collapse, financial engineering, financial-markets, home mortgage, lightning speed, math whizzes, mathematical-models, mortgage foreclosures, new-york-university, quant funds, quantitative analysts, unforeseen risks, unprecedented numbers

West Palm Beach (HedgeCo.net) Canadian hedge fund manager, Rival Capital Management launched the Rival North American Growth Fund and since 2007 it has gained more than 80 accredited investors and $15 million in assets under management (AUM).

Headquartered in Winnipeg, Manitoba, the hedge fund is focused on small/midcap Canadian as well as US growth companies, with up to $2 billion Canadian market cap and $10 billion US. Also under development by Rival Capital Management is the Rival North American RRSP Growth Fund, which will buy units in the underlying Rival.

The fund uses a combination of a technical and a fundamental approach, using a proprietary filtering routine that accesses a database of 8,000 US companies and 2,000 CDN companies tracking approximately 2,000 variables, focusing on leading industries and stocks within those industries. The fund also focuses on protecting downside risk through strategies to limit leverage and limit losses.

While the S&P/TSX SmallCap index is down 43.23% year-to-date (to Oct 31, 2008 ) the Rival North American Growth Fund has used its proprietary risk management strategies to keep its loses to a minimum (-9.82 %) during this unprecedented period of volatility and downward pressured markets.

When asked about conditions that may cause the hedge fund to sell, CIO Tony Warzel said, "We normally look for a change or reversal in the underlying attributes that caused us to originally take a position in a stock. For example, if the momentum is slowing we can usually directly attribute the change in sentiment in one or more of our predefined triggers such as sales or earnings. The sell message can be very clear and come very quickly which is why we monitor our portfolio continuously and very closely."

"Because we keep our portfolio small we know each company well and we pay close attention to their chart action," Warzel said when asked about risk management, "We also have proprietary risk mitigation techniques and tools available to us. If warranted, we will use limits on the way up and the way down. In addition, we limit the size of each holding and will use shorts to counteract what we see as an overweight in a particular area. Once we generate alpha, we like to protect it. Therefore if we make a bad trade we work to exit quickly and minimize the downside. We have a 10% rule where if we are down 10% on an initial trade we sell out the position. Yes you can occasionally get whipsawed but that one rule alone has saved us an immense amount of pain this year. In addition, we do not add to losing positions, based on our style averaging down is something we avoid; given the market action this year that too has worked well for us." Warzel concluded.

Warzel has experience as a Small and MidCap Equity Manager, managing AUM in excess of $1.3 billion for a variety of funds.

Tags: boston, capital-partners, due-diligence-service, external-managers, madrid-spain, mathematical-models, maximum-drawdown, money-managers, prison-term

Carbon prices are rebounding and diverging from an overall decline in commodities and oil on Tuesday as London-based Camco International [London: CAO] recorded a $2.6 million (US Dollar) profit on the sale of 151,288 tons of carbon credits on the spot market. The CERs were sold to an undisclosed buyer outside of the European Union for an average price of just over 19 euros per ton versus an average acquisition price of just 7.5 euros per ton. With Certified Emissions Reductions (CERs) currently trading around 19.75 euros per ton on Tuesday, Camco’s portfolio of carbon credits is worth over $1.2 billion [USD] at current market prices — including over 150 projects which are expected to generate 151 million CERs by 2012 (of which 41.8 million will go directly to Camco).

EcoloCap Solutions [pdf file] [OTCBB: ECOS] is a US-traded stock that I own based on its carbon credit hedge fund business model; whereby the Company generates CERs in emerging and frontier markets such as Vietnam at a below-market cost and then sells them at higher spot market prices in developed countries such as the US. EcoloCap is focusing its initial efforts in Vietnam and China (which account for over half of all earned carbon credits followed by India at around 10%) through an extensive network of contacts in Eastern Asia — leveraging upon its technical expertise in the implementation of clean energy projects and experience in obtaining United Nations certification for these projects. EcoloCap currently has a total of seven signed renewable energy projects which will generate an estimated $39 million in revenues (versus a market cap of just $21.5 million) and $15 million in cumulative cash flow through 2012, in addition to tradable carbon credits.

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Tags: aum, geffen, korea-times, london-club, mathematical-models, related-industries

BloggingStocks- With the plunge in the equities markets, there are certainly some compelling opportunities. Just look at Napster Inc., an online music operator. The company has $69.8 million in the bank and a market cap of $66.4 million. Yes, Wall Street is valuing the business at below zero.

Well, hedge funds are taking notice (this is a according to Bloomberg.com). For example, Eminence Capital LLC has increased its equity stake to a cool 9%. This is usually the first step in forcing a company to sell out.

One possibility is for Napster to go private. However, this will probably not carry much of a premium.

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Tags: fund-management-company, journalism, mathematical-models, pacific-ocean