(Bloomberg) - A New York hedge fund whose value-stock strategy made 11% in January is opening up the quant trade to new clients willing to lock up their money for the next two years.
Versor Investments has started marketing the Versor Value Dislocation Opportunities fund more widely after it returned 13.5% last year, according to a person familiar with the matter.
The quant firm with $1.7 billion overall will charge no management fee and will collect 20% of the profits in two years’ time, said the person who asked not to be identified because the details aren’t public.
Founder Deepak Gurnani is tapping into demand on Wall Street for trades riding cheaper, economically sensitive shares in the wake of the rate-spurred shift away from growth equities.
The fee structure reflects growing expectations that the value rotation will endure but could prove bumpy as the Federal Reserve seeks to tighten policy without throttling the economic recovery.
Between their tech-loving public portfolios and private venture investments, institutions are waking up to the perils of their “tremendous” growth bias, Gurnani said, citing Meta Platforms Inc.’s historic rout Thursday after disappointing earnings.
“Several of these growth stocks are priced to perfection in earnings growth and any kind of disappointment or slowdown is having a disproportionate effect,” the Versor managing partner said in an interview.
More managers are asking clients to commit capital for longer given the challenge of handling redemptions in markets prone to volatility.
Versor is the latest hedge fund to make a big value bet, with prime brokerage data showing rising exposure to the factor across the industry. Billionaire Paul Marshall has loaded up on bank and financial stocks this year in his $24 billion Eureka fund.
The Versor strategy, which started trading with some existing client money, is a long-short style that defines value by metrics including cash flows and price-to-earnings ratios. It aims to strip out industry biases -- an approach often taken by hedge funds that sets them apart from low-cost factor strategies.
The cheapest global stocks are still trading near the steepest discount to growth counterparts since 2000. That’s helping a market-neutral value benchmark to net fresh gains after its best year in 12.
Bargain valuations alone have failed to cement a sustained value recovery in recent years, and there have been strong outflows and closures among factor quants following the strategy. But monetary policy tightening around the globe is now fueling expectations that yield-sensitive tech companies will suffer at the expense of firms trading with lower multiples.
“Equity investors globally are overweight growth by a tremendous amount,” said Gurnani, who previously served as chief investment officer at Investcorp.
Versor changed its name from ARP Investments last year as its merger arbitrage fund became its biggest product, exceeding its alternative risk premia, macro and trend strategies.
By Justina Lee
