Hedge Fund Awards 2016

Hedge Fund Awards 2016 37 When looking at the fund they manage, it is worth considering the firm’s approach to managing risk and en- suring the best possible returns for investors. “Tarcan Capital LLC is the manager of “Eagle Rock Investments LLC”, a systematic FX Hedge Fund. We combine artificial intelligence with mathematical pattern recognition. Risk management starts with managing liquidity. We only trade G10 currencies and mostly the major ones among them. We want to make sure pricing is competitive, commissions are not outrageous due to lack of liquidity” explains Erdem Tarcan. “Also some very basic trading principles work very well. Limiting leverage, position size, cutting losses fast, rid- ing winners, etc. Let’s look at year 2008. What is the number one factor that brought down the whole financial system to the brink of collapse? Leverage. The actors of our financial system were leveraged from Wall Street to traditional banks all the way to the households” he adds. Alternative Investment Strategies When asked how they employ unique alternative investment strategies to help with manage risk, Tarcan explains, “number one we are not an equity shop. We are a currency shop. Therefore we do not have any correlation with equities, which has the highest allocation on most investors’ portfolios.” “Number two we keep leverage low. Number three we believe in science. Just like Billy Bean we believe it can offer a cure to the curse of Bambino. We use computer power to calculate the probability of a certain price pattern in sub-seconds time. We also believe there is information in every new tick data. The whole history has to be recalculated/analysed with every tick data for new price forecasts. To come up with new price targets within sub seconds by itself is a huge undertaking. Expertise in high speed data storage and retrieval is essential” he adds. Choosing funds to invest in When quizzed about the firm’s overriding philosophy in terms of choosing funds to invest in, Tarcan points out that they are quant shop. “Our edge is our skill to harvest our knowledge of financial markets along with artifi- cial intelligence. If you have advanced programming and optimization skills along with machine power you can crunch hundreds of millions of tick data within sub seconds which is beyond any human power” he explains. “Another crucial advantage of using a model is, computers don’t get emotional. They do not have discipline problem. The reality is the human nature is flawed to an unbelievable degree. If EURUSD moved up for 75 ticks, it is hard for a human being to short EURUSD at that moment, but computers don’t care. One it can calculate probability of success looking back this pattern in previous history in sub seconds. Two, it executes the rules no matter what. Three, artificial intelligence gives you the ability to detect and extrapolate patterns before there is a breakout (just for simplicity).” The hedge fund industry is an incredibly diverse and fast-paced place to do business. How then can Tarcan Capital ensure that they remain on the cutting edge of new developments? “We try very hard to be on top of the environment that surrounds us be it the regulation front, the central bank moves, macroeconomic trends or technology” Tarcan responds. “The theme has a diverse background and all additions are made to bring a new perspective to the table. It’s the people that creates the value for investors” he adds. “As you know currency Hedge Funds basically follow three themes; carry strategy, trend-following, and value. This is why some big Currency Hedge Funds were shut down last couple of years. Central Bank interventions and zero percent interest rate environment killed the conditions where these three styles used to work. We are pattern predictors, we do not use macroeconomic factors into account. Our models’ only input is price data. Volatility helps us.” Approach to people On the firm’s approach to people, what do they look for when it comes to choosing both staff and clients? “When we look for a new team member we look for diversity” Tarcan explains. “We do not seek for likeminded people. I find army veterans especially valuable. They have the experience to make hard choices in stressful environments and have the patience to build a company that lasts. As for our clients we look for investors who believe in the talent pool of Early Stage Hedge Funds and are open to invest in smaller hedge funds.” Conclusion Looking to the future, the last word has to go to Erdem Tarcan who says, “Our models work for Equity Index Futures, Oil, Gold as well. We are considering to launch another Fund based on that. We are very pleased with this award. The fact that we were nominated to be in the list and won the award among so many others means a lot for our small team. It shows that our hard work to build a Hedge Fund that lasts from a Start-Up won’t get unnoticed” concludes. Company: Tarcan Capital LLC Name: Erdem Tarcan, CFA, QFOP Email: [email protected] Web Address: www.tarcancapital.com Address: 2932 Hartzell Street, Wilmette, IL 60091, USA Telephone: +(1)(312) 375 4881