Neil Scarth is a former European equities salesman who launched his New York-based hedge fund, Symmetry Management, in June 2001. Symmetry is a European long/short equity hedge fund catering primarily to institutional investors.
The firm actively monitors industry sector developments between the US and European markets as a key component of its equity strategy. Assets under management are in excess of $80 mn, and the fund has returned 24 percent net of all fees since inception.
Scarth will speak at Investor Relations magazine’s Eurozone conference in Amsterdam on October 14. The following is a typical day in his life from late 2001.
Managing a hedge fund is like treading water in purgatory – a finely tuned balance between terror and ecstasy. This duality haunts me even as I awake at 5 am. I carefully pad around my Upper East Side apartment in the dark, hopefully avoiding the nocturnal offerings of my wife’s small dogs, who may have succumbed to the charms of the carpet versus the terrace. It is the least risk-controlled element of my day.
Having survived that challenge, it’s off to work and onto the phone with our sleep-deprived trader who has the misfortune of living in New York but working London hours. Such are the vicissitudes of managing European equity markets from New York. Our reasoning is that following the US market from New York gives us insights into how European stocks may behave.
First thing in the office is to monitor our portfolio positions and stock watch lists while catching up on the morning’s news and research in advance of our morning meeting. This event is a lively exchange of news and views among our staff. It ranges from the practical (will another failed attempt at banking reform in Korea exacerbate overcapacity in the global semiconductor industry?) to the theoretical (does it matter that the web site of a Sudanese bank apparently controlled by a well known terrorist lists one of the banks we invest in as a correspondent?).
Later I call a brokerage analyst about a French company that makes commercial aircraft interiors. ‘Won’t the collapse in civil aviation orders in light of the terrorist attacks be negative for the company?’ I ask.
‘Non, of course not,’ she sniffs.
‘Why not?’
‘Pffft… it is completely clear that so many bankrupt airlines will have to merge and they will redo the interiors of the planes so that they have the same marque, the same style.’
I have come to treasure these extremely complex arguments as to why the stunningly obvious is not remotely relevant.
Next is lunch with the management of a mutual fund company that trades at a very high valuation. ‘Isn’t the precipitous decline in the stock market a challenge for your mutual fund business?’
‘Quite the contrary,’ they reply. ‘You clearly don’t understand that our client base is far too sophisticated to take their money out of mutual funds just because the stock market collapses.’ Illumination is a virtual constant in this business.
Back at the office I field a call about our new office space at Park Avenue and 54th Street. It seems we must choose a ‘facilitator’ so our building permit application doesn’t ‘disappear’ at City Hall. I opt for the cheaper of the two choices – cheaper because her overhead consists of a cell phone and a lawn chair parked in a dingy corridor in City Hall. I resist contemplating our relative cost bases.
Meanwhile, potential clients have arrived for the obligatory PowerPoint presentation – correlation, volatility and standard deviation. They seem impressed with our results to date, but I wonder if they’re sophisticated enough not to mind losing large amounts of money – like the clients of the mutual fund company I saw at lunch.
Relieved at not being asked whether we have stress-tested our risk control methodology through a simulated nuclear war, I return to the trading room to catch the US market close and run our quantitative models in preparation for the next day.
We check the correlation and anomaly models to determine the long, short and hedged positions we want to execute tomorrow morning. For the umpteenth time, I review the various military scenarios and how they could affect our portfolio. And thus, the cycle begins again. If only I could figure out why the dogs don’t like the terrace.
