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New Managers July 2019

PROFILES: Pinnacle Quant, Measure 8, Parplus Partners

 

Emerging manager Parplus Partners argues investors should only pay fees when funds outperform

Should investors only pay fund managers when they outperform? One emerging hedge fund manager says yes. Parplus Partners, a New Yorkbased hedge fund manager, argues that investors should only pay fees when funds beat the market. "We think investors should only have to pay if we're providing a service. That service is beating the S&P500," says Parplus founder and CEO Jim Carney. Investors in Parplus only pay fees when the firm's flagship fund beats the S&P500. Parplus invests long on S&P 500 index positions, with a small portion of the fund's portfolio set aside for volatility trading through VIX options and VIX ETFs.

According to Carney, the combination of being long S&P500 beta coupled with volatility strategies is designed to provide a positive total return to investors. Carney was previously a proprietary trader and built the strategy around his background in volatility trading. He uses that background to identify opportunities for buying and selling volatility. If there aren't any, investors realize returns from being long the S&P500. "The biggest players in what we do used to be the banks, but they've been stopped from doing it because of changes in regulation," Carney explains. The strategy is designed to be more patient than many of the tactical hedge funds it competes against. The willingness to wait keeps the transaction costs of volatility trading at a minimum. Buying and holding volatility, for example, can be an expensive proposition if markets stay relatively calm for a long time. Carney and his team only make moves to put on volatility positions when they see a clear opportunity. "We want to be capital efficient," he says. The strategy, which launched in 2017, is starting to gain some ground with investors on the hunt for defensive strategies. The firm opened to outside capital earlier th......................

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This article was published in Opalesque's New Managers a top-down monthly analysis, news and research publication on the global emerging manager space.
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