Chidem Kurdas
New hedge fund businesses have always faced daunting odds. Today it is even harder for them to succeed, squeezed as they are between financial markets that no longer seem to offer profit opportunities and investors who are afraid to commit their money.
Only managers with distinctive strategies have a chance to raise enough capital for a viable business. One noticeable aspect of new strategy development is the increasing application of computer models to markets where such methods are novel.
Such is the case with Maritime Capital, which uses “Big Data” methods and a specialized algorithm to trade municipal bonds. People typically buy and hold munis for years. By contrast Maritime’s system takes advantage of price movements on a daily basis, processing millions of pieces of data a day.
The unusual combination of cutting-edge computer capability with an old, traditionally stodgy market seems to be catching on. This year Maritime received capital every month despite some months of negative return, says Maritime marketing director Christine Egan. She was speaking at a conference at Thompson Hine, a law firm.
Maritime makes 150 or more muni bond trades a day, feeding the algorithm various data to identify inefficiencies in the market—which is notoriously inefficient. The firm was founded by Greg Gurevich, who earlier in his career worked at BlackRock, where he helped develop bond risk analytics software.
There’s a trend for financial businesses to become more like technology businesses and BlackRock is often mentioned as the prime example of an investment company that is as much a technology company.
Maritime shows this blurring of categories. “We’re a technology firm that looks and acts like an investment partnership,” said Ms. Egan.
The firm started up in 2010 with $10 million in assets, grew to over $30 million by 2013 and over $300 million this summer according to industry sources. By the most recent regulatory filing, assets as measured for regulatory purposes were at $274 million. Still small however you measure it, but fast growing.
This raises a few questions. Why are investors attracted to muni bonds right now? Puerto Rico’s fiscal crisis, Detroit’s bankruptcy and myriad other local government financial troubles are often headline news.
Their reasoning seems to be threefold. One, this strategy is different from conventional muni investing; two, this is promising amid a severe lack of investment opportunities; and three, the majority of muni bonds are highly creditworthy.
Another question: who’s holding the other end of all those daily muni trades? Apparently Maritime has developed relationships with brokers and found a sufficient number of counterparties.
Technology comes to play at this end as well. The firm claims to have electronic connectivity to all major market participants.
Tags: BlackRock, Maritime Capital, Municipal bonds
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