Michael Schauben is the owner and CTO of Exbury Capital Management, a systematic multi-strategy hedge fund that specializes in the research and development of fully-automated algorithmic models & portfolios. A Chemical Engineering graduate from the University of Florida, Michael leads Exbury’s computer network infrastructure and company troubleshooting. After teaching himself financial trading and computer programming, Michael’s specialty became creating computational models based off of new mathematical theories.
In this exclusive interview with Michael, he shares with us his vision and process for his hedge fund, Exbury Capital Management.
DarcMatter: Please provide a high level overview of your investment process.
Michael: Our investment process begins with a fundamental idea based on logic. We then create automated trading models to take advantage of the perceived alpha. We have multiple signals from separate ideas on each symbol we trade, for each and every symbol we trade. Our investment process has the added bonus of being systematic, meaning, that we are able to test exactly what would have happened historically for robustness when running any programs. We also watch our testing engine in real-time to verify that live execution lines up with what our “historical engine” reports.
DarcMatter: What is your approach to managing risk?
Michael: Firstly, being automated cuts out the human emotion of an advisor- a real risk. In addition, computers never make position sizing/buy/sell errors. We have zero open-ended trades; each and every order we send to our broker has an entry order, a maximum loss limit, and a maximum profit limit. Our portfolio manages risk from a time aspect as well, as our average trade length is about 2.5 days, leaving us mostly cash a lot of the time.
DarcMatter: What differentiates Exbury from other firms in the sector?
Michael: Only 7% of Hedge Funds are considered “Systematic”- that is, 95% or more of its capital is handled by computers.
We have created a complex portfolio structure in which each separate strategy is successful on its own, but also acts as a hedge to another strategy. Combining this hedging with the use of the Futures market, we are able to keep our maximum exposure under 20% margin-to-cash ratio when we are “all in.” This makes is one of the only funds that can guarantee the redemption of up to 80% of our company’s investment capital within 30 days without having to interfere by liquidating any positions early.
The math/engineering/programming team at Exbury does not have previous Wall Street experience, rather, started straight from college. We believe this is a good thing, as the pre-conceived barriers to creativity were never an issue. Our creativity will never be dampened, and we will be creating more algorithms, year after year.
DarcMatter: What’s going on in the hedge fund industry today? Is there too much capital out there?
Michael: There is an inflow of investment capital into alternatives, which indicates investors are beginning to crave Hedge Funds again, however it is more likely caused by the diminishing returns in the fixed-income sector. Even mutual funds are considering a much larger allocation to alternatives. In my opinion, there is no such thing as too much capital, as long as your investment strategy is successful and scalable.
DarcMatter: Finishing off on a fun note, tell us a little known fact about yourself.
Michael: I began my first computer business when I was 14, and have been successful ever since. In addition to running Exbury, I tutor all levels of science and math, offer computer networking and disaster recovery services, and tinker in small engines like motorcycles.