Manager of Billions Explains How He Returned 20% During Terrible Hedge Fund Year

2014 was arguably one of the worst years for hedge fund industry. However, Capital Fund Management (CFM), one of the largest French hedge fund with assets under management of $6 billion (as of 2012) and offices in New York and Tokyo managed to return 23 percent for the year.

Philippe Jordan, president of Capital Fund Management, was on Bloomberg Monday to talk about how his fund managed to perform so spectacularly in a year that saw many hedge funds closing shop.

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How Did You Manage To Return 23 Percent in 2014?

When asked about the gains made, Jordan replied that it was a product of time and energy. “It’s a combination of a quarter of a century’s work. So, it wasn’t instantaneous; a lot of work,” Jordan said.

What Did You Do Specifically?

“We had a good year across all of our P&Ls, and our P&Ls are composed in our hedge fund business of one part what we call directional trading – and that’s directional trading on futures contracts and it’s not just long-term trend following,” Jordan replied.

“It’s systematic macro-trading. It’s doing carry-on currencies. It’s doing a number of strategies that are not linked to long-term trend following. It’s equity statistical arbitrage, equity market neutral. Quants on a global portfolio of 4,000 stocks worldwide.”

What Makes You Different?

When asked how he differed from others, particularly Cliff Asness and AQR Capital Management, Jordan responded, “I don’t know what Cliff has in his box, but I do know what we have in ours,” Jordan said.

“Well, the way we think of the world and the way we try and tackle the problem is we don’t want to be in the prediction business. We want to be in the risk business.

“So, we start by figuring out how much risk we want to take and how to quantify it and how to realize it. Then we figure out what types of returns are rational in line with that risk expectation that we can generate, and how many of these returns can we find that have low correlations to one another.”