Firstly, who are the main individuals involved in the business?

Aref Karim, founder, chief executive and chief investment officer, also chairs the QCM board and its investment committee.  He is involved in all of the company’s research activity and formerly worked for 13 years in alternatives with Abu Dhabi Investment Authority, a sovereign fund. He is a chartered accountant by background.

Ershad Haq, board member and director of macro research, is also a member of the firm’s investment committee.  He joined the firm in 2000.

Gareth Roberts, director of systems research and member of the firm’s investment committee, joined QCM in May 2002.

Nishil Patel, board member and director of finance, operations and compliance, joined QCM in September 2007.

Faaria Kenny, board member and director of business development and marketing, joined QCM in June 2007.

Steven Howard, manager and head of trading and execution, joined QCM in October 1999.

How many hedge fund strategies does the firm run? What are they called and how do they work?

To avoid both emotional biases in its decision making, as well as bring consistency, the firm uses a proprietary systematic model-based approach that is directional. The investments are offered through two products:  the flagship Global Diversified Programme which trades 116 financial and commodity futures; and the Alpha Financials Programme , launched in 2012, trading 56 financial markets.

Combining fundamental-macro thinking with the power and discipline of systematic trading, the QCM strategy is differentiating and intuitive. Two decades of research have advanced the QCM model to reach its present form. The model brings together in a differentiated way the style attributes of momentum, value, volatility and correlation trading. The objective is to best align the portfolio in terms of risk and opportunity for a given environment.   

Do you have a "flagship" fund?

The flagship fund is the Global Diversified Programme which has been running since inception in December 1995. It trades 116 instruments across all major asset classes including: equities, fixed income, currencies and commodities. The GDP has a cumulative total return of 660 per cent over its 19 years.

Without giving away any intellectual property, can you explain how the strategies work?

The strategy adopts a rules-based approach to portfolio management. The objective is to generate returns by re-balancing the portfolio daily to arrive at the right proportion of risk assets and risk-averse assets as in government bonds, interest rates and currencies. Additionally we use a set of hedging tools to ensure the portfolio is correctly aligned between longs and shorts.

The process, fundamentally designed but systematically engineered, allows us to mon¬itor and adjust portfolio positions daily across hundred-plus markets in real-time. Not to suit the approach to only specific past environments, the firm avoids fitting the model design or its parameters. It treats all markets in a similar way. This robust approach makes the strategy more able to cope with the unknown.

Our approach differentiates in the following way:
-- Firstly, it combines fundamental-macro thinking with a systematic approach to make the overall strategy both intuitive and adaptive to changing market conditions;

-- Secondly, it avoids all forms of fitting, data mining and clutter. This leads to a parsimonious model that has no dependency on optimization and as a result requires infrequent changing of parameters;

-- It avoids price-based indicators to make directional calls. Moving away from traditional forecasting, the strategy has minimal dependence on past information, reducing potential errors. Volatility-changes drive the portfolio;

-- Finally, through one model, the strategy engages in: value, momentum, volatility and correlation trading.

Any indication on performance relative to industry figures?

QCM has generated 660 per cent total return to date. This annualizes at a compound growth rate of 11.16 per cent per annum. The 2008 global crisis, and the resultant Fed’s zero-rate policy, has very negatively impacted the Macro/CTA industry. Volatility reduced drastically leading to fewer opportunities. Global commodity prices collapsed and risk appetite shrunk as deflationary fears escalated.

In 2013 QCM embarked on extensive targeted research, particularly focusing on effects of changes in volatility regimes that persist for extended periods. The exercise led to major system upgrades in the Model in September 2013 which were completed in October 2014. Today, the QCM strategy is set up to efficiently deal with normal as well as the most difficult environments.

The 2014 performance comeback both for the industry as well as the QCM strategy has been vindicating.  With large increase in global capital flows resulting from divergent growth paths, together with plummeting oil prices, Macro/CTA managers have taken full advantage in making a big come-back. Our flagship GDP in 2014 generated a return of +12.65 per cent while the AFP produced +7.81 per cent.  

The continuing weakness in oil in January 2015, strong dollar and ECB’s quantitative easing decision of aggressive bond purchases, have all contributed to the strong positive returns for GDP of 13.51 per cent and 12.12 per cent for the AFP.

Have any of these funds been closed to new investors? What is the policy on redemptions, gating, side-pockets?

QCM investments are not just intrinsically very liquid because they use futures, but additionally the fund vehicles have no restrictive gates, lockups or side-pockets. The service providers are ‘blue chip’ companies and the offshore funds offer weekly liquidity which is easily changeable to daily on demand. Managed accounts carry daily liquidity. The fund shares are listed on the Irish Stock Exchange.

In terms of 2014, this hasn't been an easy year for hedge funds, although in recent days/weeks some big trends seem to have come through, such as the oil price slide. What in general has the market been like for your funds and what sort of decisions have you made?

Systematic strategies, along with QCM’s, have underperformed in the last few years mainly from compressed market volatility and resultant whipsaw conditions. Our upgraded current model shows considerably better performance for those years in the back-tests. That aside, the last months of 2014 brought attractive opportunities. The Fed made dovish statements on rates, hinting of keeping these low for an extended period.  European recessionary pressures mounted whilst US remained relatively firm.

 Oil plummeted as OPEC decided not to cut production while additional pressure came from supply of US shale oil. The US dollar soared as a safe haven currency, aided by prospects of rising rates. Other currencies weakened as deflation fears escalated elsewhere. QCM’s long fixed income exposure, its long dollar as well as short oil positions all boosted performance majorly in the last quarter.

Going forward, any forecasts/hunches for 2015?

Our outlook going into 2015 is not dissimilar to that of 2014. The US should remain stable on an upward trajectory with moderate growth. Europe and the rest will continue to be under pressure. Short of any major surprises from the continent, the ECB decision to enter into aggressive QE should be good for Macro/CTA’s.  

The rate-slashing steps from countries might worsen and this should present additional opportunities in currencies. The long-US dollar trade is to stay for a while. Bonds should remain firm particularly in Europe as the ECB pushes forth its QE program. US fixed income may be somewhat jittery with potential rate rises later this year.  

Oil weakness may further boost performance from the short side, although corrections are likely from such oversold conditions. Commodities, by and large, are likely to stay weak with slow growth and a strong dollar.  

Worth emphasizing is that irrespective of our views, in the end the trading decisions come from the proprietary QCM Model. This adjusts positions daily so as to have the most balanced portfolio for the given economic environment.

What sort of clients do you have and what sort of clients are you targeting?

We offer our investment solutions to institutions, pensions, family offices, wealth managers and qualified high net worth individuals. Historically the bulk of our assets have come from pensions and sovereign wealth funds with long investment horizons.  

To enhance our client coverage, QCM is in the process of launching a new UCITS fund. This will provide access to an onshore structure that is regulated and transparent. It will additionally help broaden our reach to retail investors in Europe, Latin America and Asia.

What has been the biggest surprise since you founded this firm? What has been the most satisfying part of the business? What has been the most irksome?

Biggest surprise:

That my enthusiasm for the industry is as undying today as it has ever been. Hours fly by without reckon when you are into an investment idea, exploring deep.
Most satisfying part of the business:

Using the firm’s intellectual capital and experience to innovate and design more efficient ways of compounding investor wealth.  The satisfaction is sublime.
Most irksome part of the business:

Witnessing protracted whipsawing market conditions can cause frustration and can be irksome. Market whipsaws are inevitable during periods that are trendless and usually portfolio diversification ensures costs of such conditions are contained. We upgraded our Model in October 2014 to better handle such unexpected environments.  The strategies are considerably more robust today.

Regulation and compliance issues loom increasingly large over the hedge fund industry? Do you think we have seen the high point in regulatory action or do you expect more rule-making to come?

It is difficult to say at this stage if regulations and compliance have reached a high point. The hedge fund regulatory landscape today is vastly different to what it was a decade or more ago. We see new regulatory requirements for hedge funds that result in high set up costs as well as increased recurring fixed costs.

Numerous rules impede marketing activities and thus inhibit asset growth especially for small to medium sized hedge funds. The existing MIFID and the new AIFMD passporting rules were devised in essence to allow marketing activities to freely take place across all registered European Countries. However this has not been the case because local country laws have restricted active marketing for many managers. We have seen a new UCITS V come into play which improves on its older form.

It is inevitable that rules and regulations will change in future as the market environment changes.