A particular type of hedge fund would rather not be discussed. Its founder won’t appear on financial television, its name won’t appear on CNBC chyrons during earnings season, and it won’t be advertising on the side of a bus in Manhattan. Chicago-based Alyeska Investment Group is definitely in that group. However, it’s one of those names that appears in 13F filings that traders actually take the time to read, quarter after quarter, in the peculiar world of institutional money.
You would never guess what’s inside the West Madison building if you were to walk by. There were no eye-catching signs or a trading floor with glass walls that could be seen from the sidewalk. It’s just another tower in the Loop, with the typical mix of professionals in suits coming in for coffee at seven in the morning and then vanishing back into the elevators. This discretion might be a component of the plan. Since starting the company in early 2008, Anand Parekh has spent the better part of 20 years building a reputation based on results rather than rhetoric.
It’s worth stopping to consider the timing of that launch. early in 2008. Bear Stearns was on the verge of failure for weeks. Lehman was barely hanging on. That spring, the majority of people launching hedge funds were either incredibly confident or delusional. The latter appeared to be Parekh, a former member of Citadel under Ken Griffin. He introduced a basic equity market-neutral strategy, which theoretically generates profits regardless of market fluctuations. That’s more difficult in practice than it seems. Market neutrality is a claim made by many funds. In reality, very few consistently deliver it.
The intriguing thing about Alyeska is that it has grown without appearing to grow loudly. Following the firm’s late 2010 SEC registration as an investment adviser, the pattern has been consistent accumulation. More than 600 holdings are spread across the portfolio, according to recent filings, suggesting something more akin to a research factory than a concentrated bet shop. Observing these filings gives the impression that Alyeska manages more positions than most funds of its size. Depending on your level of skepticism, this could be interpreted as either a sign of disciplined diversification or a means of diluting any one thesis that isn’t working.
An excellent illustration of how the company functions is the recent action taken against NioCorp. On Reddit forums, where regular investors search through institutional filings for hints, a 169.6 percent increase in its position, bringing the holding to approximately 4.3 million shares, attracted immediate attention. Questions are raised by that level of conviction in a comparatively small-cap name. Is Alyeska placing a wager on the rare-earths theory that has captured the attention of both Wall Street and Washington? Or is it just pair-trading the position against something else that hasn’t been noticed yet? The headline figure rarely provides a complete picture of market-neutral funds.
The company’s chief compliance officer, Brent Cunningham, has been with the company for many years, and the leadership bench has remained remarkably stable in a field where talent usually moves every three years in search of a better cut of the carry. That stability is important. Culture is just as important to hedge funds as alpha, and portfolio managers tend to lose their advantage covertly before anyone notices.
However, it’s difficult to ignore how Alyeska fits into a larger Chicago narrative. Back to the pits at the Merc, the city has long been a counterbalance to New York in quantitative finance and derivatives. Alyeska, DRW, Magnetar, Citadel, and Citadel Securities all have a hint of that Midwestern disposition. less dramatic. Less narrative, more engineering. It’s still up for debate whether that results in higher long-term returns. It does result in a different type of firm, one that rarely bothers to add commentary and instead lets the filings speak for themselves.
Observing Alyeska from the outside gives me the impression that this is precisely how Parekh wants things.
