AlphaGrep banks on quant trading expertise as it expands into mutual funds 

India’s mutual fund industry now has over 50 players, with several new players entering the market amid the exponential investor growth seen in the last 4-5 years. Earlier this month, a global quantitative trading and investment firm AlphaGrep received the green light from the Securities and Exchange Board of India (SEBI) to launch a mutual fund business. The company will look to leverage its expertise in quantitative trading and investments to differentiate itself and launch products in the mutual funds space, AlphaGrep Investment Management’s CEO, Bhautik Ambani tells Business Today.

“We have been a systematic quant-based investing firm. Large part of the 16 years we have been doing this, the group has only managed proprietary capital. Around three years back is when we took a decision of managing external capital. The idea was to leverage the institutional scale, research and tech capabilities that were created for proprietary capital and also offer that on an asset management platform,” Ambani said.

He believes structural trends that have been observed in the asset management space that have played out in the developed markets over many years, eventually catch up in India as well. He points to the growing base of passive mutual fund schemes and the underperformance of many active funds to their benchmarks. Similarly, he feels, the quant space will also see a lot of traction in India in coming years.

“One of the trends that we have seen in the US is that along with passives, there has been a huge amount of assets which have gone into the active systematic or active quant space. The entire active quant space is broadly miniscule in India. This is a blank space today, which will get filled up over the next few years. And considering the fact that AlphaGrep’s DNA is only quant; everything that we invest or trade is using quantitative methods, we believe that we have a right to win in this space,” Ambani stressed.

Among the first schemes that the company intends to launch in its mutual fund business will be a flexicap, with philosophies similar to what it runs on its PMS (portfolio management services) business as well, he said.

The other scheme that it intends to launch will be in the multi-asset space, based on a proprietary model, where the money will be actively allocated between equity, debt, and gold and possibly even other commodities.

“The thresholds that we put in is broadly around 10-60 per cent on equity and fixed income and up to 40 per cent on commodities. Our 20-year backtest shows an average allocation to equity has been around 32 per cent, which for most multi-assets is between 50-60 per cent,” Ambani explained.

AlphaGrep, however, has no plans to launch pure debt-only schemes, since it’s not their expertise, pointed Ambani.

“Our expertise is more around equities, and we are looking at launching products, which are more targeted towards retail investors. We might just have something like a liquid fund, more from a perspective where investors may need to do systematic transfer plans. Equity and hybrids is what we will focus on,” Ambani stated.

While, the company may be only starting out in the mutual fund space now, in a couple of quarters, it also has plans to apply for a Specialised Investment Fund (SIF) license. Sebi had introduced SIF as a new category last year, essentially looking to bridge the gap between mutual funds and portfolio management services. In SIF, investment strategies are allowed across equity, debt and hybrid, and they are also permitted to have some derivatives exposure.

As per SEBI rules, companies wishing to start SIF need to have a mutual fund in operation for 10 years or should appoint a chief investment officer having an experience in fund management of at least 10 years and average AUM managed of at least Rs 5,000 crore.

“Ultimately, there will be certain few core strategies, which can be scaled up over a period of time. The idea is to seed them and then start building a track record,” said Ambani.

He pointed that SIFs provide certain flexibility, like long-short investment strategies, not available in traditional mutual funds, something AlphaGrep was already doing in its alternative investment funds.