Quest Partners has been having a difficult time with its global macro fund, which is down 27% year-to-date through November. The New York firm that manages $270 million has been struggling with its Alphaquest Composite Fund partly due to falling volatility, said Nigol Koulajian, principal.
The fund uses a systematic trading approach with a long exposure to volatility. "This year has been the exact opposite with volatility contracting dramatically," Koulajian said. The reason for being long volatility, he added, is because the firm makes long-term bets. "When you make [money], you make much more than what you lost," he said. As an illustration, he pointed to the fund's returns of 41.6% last year and 80% in 2002. Another reason not to short volatility, he said, is because the strategy is risky, as evidenced by the example of Long-Term Capital Management, which was involved in short volatility plays.
The fund, which took a 1.5% dip in November, is also down because of leverage. "It is a question of higher leverage," said Koulajian. He declined to quantify the leverage but said the fund employed large amounts. "When you lose, you lose a lot," he quipped.
