French Firm Discus Is the Top Quant Fund in 2011

Paris-based quant firm Capital Fund Management’s Discus fund is up more than 23 percent this year, exceeding most hedge funds.


The stock market’s recent rally is giving hope to many hedge funds currently losing money this year that they may be able to wind up in the black by the end of 2011.

However, one hedge fund that has been surging all year is Capital Fund Management’s Discus fund. The quantitative fund is up more than 23 percent this year, exceeding most hedge funds. And it made money in eight of the first ten months, according to one confidential hedge fund database.

Discus is one of four funds managed by Paris-based, quantitative-driven hedge fund firm Capital Fund Management, which has between $3 billion and $4 billion under management. It was founded in 1991 by Jean-Pierre Aguilar, who died in 2009 at the age of 49 in a gliding accident in the French Alps.

CFM is one of a number of so-called systematic investment managers, which use sophisticated algorithms to trade stocks with powerful computers. The firm says on its website that its automated trading systems are based on a statistical analysis of price fluctuations in the futures, equity, bonds and options markets. CFM further explains that it relies on the in-depth statistical analysis of terabytes of financial data for asset allocation, trading decisions and order execution.

Capital currently has offices in Paris, New York and Tokyo, and more than 100 employees. However, business school graduates need not apply: Most of the firm’s skilled people hold advanced degrees in physics, math or computer science. The research team alone is made up of more than 35 Ph.D.s, mostly physicists from prestigious institutions, as well as information technology and data specialists. CFM stresses that these individuals study fundamental problems posed by financial markets, publish their results in distinguished international academic journals and supervise Ph.D. students and postdoctoral researchers.

The firm today is headed by Jean-Philippe Bouchaud, who holds the titles of chairman and chief scientist. In 1994 he and Aguilar founded the research company Science & Finance, which merged with CFM in July 2000.

The co-CEOs are Marc Potters, who joined the firm in 1995 as a researcher in quantitative finance and currently heads the research team, and Jacques Saulière, who came on board in 2001. He manages administrative, legal and compliance issues, and is also responsible for IT.

The firm suffered a big setback in 2007 when it lost $400 million from the failure of Chicago-based Sentinel Management Group. The Securities and Exchange Commission accused Sentinel of improperly commingling, misappropriating and leveraging client securities, causing advisory customers to suffer “undisclosed losses and risks of losses.” The SEC alleged, for example, that Sentinel had placed at least $460 million of client securities in its own proprietary account.

Discus is outperforming other so-called systematic traders this year. For example, David Harding’s venerable Winton Capital Management fund was up less than 5 percent through October 18, while the Renaissance Institutional Futures Fund was up less than 3 percent through October 7.

On the other hand, Man AHL Diversified was down more than 4 percent through October 11. Tudor Tensor, managed by Steve Evans, was down about 5 percent through the first week of October, while the Tulip Trend Fund, which had been on something of a hot streak, was off by more than 21 percent through October 7.

For Tulip, this is a sharp reversal of fortune. The fund, managed by Rotterdam, Netherlands–based Transtrend, was up more than 38 percent last year and 51 percent in 2008. Its only losing year since its 2003 inception came in 2009, when it fell 26 percent in a mostly bad year for systematic traders.