Quant Partnership

Through exclusive Investment Advisory relationships R-Squared helps investment managers to design and manage quantitative investment strategies that measurably enhance performance by more efficiently harnessing the manager’s selection skills. We work very closely with a small number of fund management firms, whose portfolios’ benefit from what we have learned and techniques we have developed since we first began this type of work in 1983.

Stock Selection

Our work usually begins by enhancing an existing stock selection process, although we have also built quantitative stock selection models from scratch. Typically, the manager will suggest a number of potential factors, which we then test and use to build a multi-factor stock selection model. This works whether the existing process is top-down or bottom-up and works equally well for any long-short, 130-30 or conventional portfolio.

While the basic techniques for testing individual stock selection methodologies are well-known, we have developed a number of more powerful, proprietary techniques for determining which factors are useful, both individually and in combination with each other.

Portfolio Management

In order to be able to manage the risk structure of the portfolio effectively, we also build a customised hybrid risk model to complement the stock selection model, and work with the manager to design the portfolio implementation strategy. At this stage we can incorporate other potential sources of return, such as the manager’s views on the relative performance of different sectors or markets, or on the merits of particular individual stocks. As always, our primary goal is to generate enhanced returns by continuous risk adjusted assessment of the performance of the stock selection methods, sector selections and stock picks.

Once the fund is launched, we provide regular analyses of the evolving risk structure of the fund strictly in relation to the desired and unwanted exposures, and will recommend trades to improve the expected return and/or manage the risk of the portfolio.

Performance Attribution

The only valid test of the value of risk forecasting is to quantify how well it forecasts risk. Performance evaluation is an important aspect of Quant Partnership.

R-Squared Services are provided on an exclusive basis with our clients, and as part of our commitment, we undertake not to work for any competitive fund product. Thus, if we have developed a US Small Cap fund with a particular client, we will not work on a similar fund for any other client. If there is any doubt in a particular case, we will always consult with the client to decide whether another fund represents competition or not.