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Bryan Kievit, Head Trader, Accipiter Capital Management(Wall Street & Technology Via Thomson Dialog NewsEdge) Bryan Kievit Head Trader, Accipiter Capital Management (New York) Description of Firm: Accipiter Capital Management is a long/short hedge fund that invests in dedicated healthcare. The nine-person firm was founded by General Partner Gabe Hoffman in February 2003. The firm's $600 million in assets under management include investments from high-net-worth individuals as well as Hoffman's and some of the employees' own money. But the majority of it is a fund of funds. There are two funds: Fund I is comprised of $150 million - that is a short-term fund; Fund II, with $450 million, is more long-term. But there is some overlap in positions. Both are essentially run the same way, but the risk parameters are slightly different. We might put an option position on Fund I, and Fund II might avoid options because of the risk parameters. Assets Under Management $600 million. Daily Trading Volume: Our daily volume varies. It can be anywhere from 100,000 to 2 million shares a day. Our positions are based around binary events. If there is an event, we may take a 2-million-share position. It's not odd to go two to three weeks [and trade] 250,000 to 500,000 shares a day just doing regular portfolio maintenance. Then we can have another week in which volatility or an event will present itself, and we could trade 3 to 5 million trades in a day for a full week. Products MIX: Healthcare equity stocks and options. The funds are comprised of all equity-based healthcare investments. That's not to say we wouldn't consider some fixed income, especially if it was in a company with which we have a large equity piece, which perhaps hasn't worked. If the fixed income got to a certain level, we would certainly consider grabbing it. Our charter does not restrict us from investing in multiple asset classes - we have just chosen at this point to invest only in stocks and equity-based options. The product mix is currently approximately 90 percent equities and 10 percent options. Trading Style: We are a fundamental bottom-up type of organization. We do in-depth analytical work, and our strong point is that we take advantage of volatility when we see it. When the opportunity presents itself, we trade. With small- and mid-cap names, you have to react to what people are doing. You might have a view, but haven't finished doing the research. We might not plan to buy a particular stock at that moment, and we might not be crazy about the price, but because a seller presents itself, we might have to take advantage of the liquidity. We have to weigh the cost/benefit of waiting. If we wait for the price we were looking for, we might get the price but not the liquidity. Structure of Trading Operations: Gabe Hoffman essentially runs the fund and is the portfolio manager. He has three senior analysts that give him input into the portfolio. I am the head trader, and we have one other trader on the desk. Professional Background: I started out on the sell side at Gerard Klauer Mattison, a listed block trading firm that since has been acquired by Harris Nesbitt, where I was a listed trader. From there I went to Circle T, a New York hedge fund, where I worked as a trader and assistant to the general partner, Seth Tobias. I was there for about three and a half years; in my last year I ran my own, small portfolio of $10 million. I left there to join SAC Capital, where I traded U.S. telecom and media and European equities in real time for two years. Education: Bachelor's degree, University of Maryland; M.B.A., Fordham University (Dec. 2007). TECHNOLOGY Technology Environment Approximately 30 percent of our daily trading volume is electronic; 10 percent of that is through dark books. Our market data comes from Bloomberg and our OMS is Macgregor. I got here during the five-month implementation process. Macgregor wasn't reporting our positions in the way we were used to seeing them. As a result, we had to hire a consultant and work with Macgregor to aggregate the information and run it in a user-friendly format that we were used to. We wanted to see our portfolio and exposures on a daily basis. It's been a major challenge for us, but it seems to be fine now. Build vs. Buy Strategy We buy. We talked about building when we were having some problems with our reporting. We thought maybe we would make the investment, bite the bullet, [because] this is how we want it to look. But that was more of a pipe dream. Without having a full-time technology person, it's easier to buy. We're looking for ease of use, and if you're buying something, it's generally been proven successful. And it's easier to have someone in here to teach us to use the system for a week, rather than have a system being built for six months. The end product might look better if we built it, but the pain to get there is not worth it. It's not necessarily about the economics. It's more of a convenience factor: How can we do what we need to do every day and make money without disrupting that process. Who ultimately is responsible for the firm's technology? We don't have a full-time technology person; in a lot of ways that falls on the CFO. Use of Crossing Networks: Approximately 10 percent of my order flow is done through crossing networks. We use Liquidnet, Pipeline and Block Alert, and are getting ourselves situated with BIDS. The most success we've had is with Liquidnet. Overall, we think the systems and the rates are good. I'm sure Liquidnet would like it if we were doing more in their system, but I have bills to pay. The only issue I have with them is, if you use them, you can't pay the Street. The trading desk at Merrill Lynch doesn't want to see me paying them with a CSA [commission-sharing arrangement]. ALGORITHMS & BROKERAGE SERVICES Use of Algorithms Algorithms are not a huge focus here. Morgan Stanley is our prime broker, so we use Morgan Stanley's Passport to access the algorithms and ITG. We've also installed Lava, Citigroup's system. There are certain brokers with which we don't have a relationship or we just aren't hitting on their flow, but there are places our general partner wants to pay or analysts he finds useful. Lava will give us access to those firms' algorithms. It's not a huge focus, but we've installed it to use if we get behind in our research budgets. How do you determine which brokers receive your order flow? It's based on best execution. And we pay who we need to pay because of research. We may need to pay UBS because they set us up with management meetings; we may need to pay Merrill because we want to go to their conference. It's not about saving on commission dollars. The cost is lower on our priority list than getting something done tight to where a stock is trading and brokers are paid for what they are providing. Our blended commission rate is about 4 cents. INTERNATIONAL TRADING Does the firm trade internationally? If we have 100 stocks, maybe two of them are international. We look globally - if there is an opportunity, we'll do it. But it's not a major focus for us. If we were to take a global position, I would do the trading. We have people with whom we deal at Williams Trading and CF Global who know what we're involved in and keep a lookout on whether names move up or down. THE BIG PICTURE Biggest opportunity for the firm? To use information as currency. I might not be able to pay Merrill 500,000 shares a day, but I can talk to their traders and tell them what I think of a stock. I can give them market color. It's not a Streetwide thing, but being very focused on the healthcare space, I might be able to tell the sell side why someone is buying or selling something. Biggest challenges? A challenge for us is making sure that we're staying relevant on the bigger trading desks and that the right people are getting paid. In addition, a challenge is finding the right people. It's sometimes difficult to find a bright, intelligent person that is willing to work for you. The enthusiasm on sell-side equity desks is at an all-time low. As a result of electronic trading, there's not a lot of job security. Five years ago, Morgan Stanley, Goldman, etc., were your only options. Now you can do a trade electronically and save money. So the challenge for us is to keep the sell side enthusiastic, as we think they are still adding value to us. Major Industry Trend Liquidity in the market right now is so fragmented. The regulators have tried to create an environment where the individual is protected. And what's happened is that stocks are certainly trading more volume, but they're trading in smaller blocks. Getting things done becomes a nightmare. The multitude of crossing networks makes it more difficult. The crossing networks essentially become just other brokers where I need representation. They all need to know I am a buyer of a certain stock or I may miss an opportunity. It used to be that as long as you had representation with the NYSE, you were protected. It's more difficult now as an institutional investor; you need much more protection. I liken it to a shopping mall - you used to be able to go to Wal-Mart to find what you needed at the best price. Now there are 15 little stores and you have to touch each one. The market can't support all these trading venues. Critical mass is probably three or, on a global scale, five to seven. Fun Fact I do triathalons. The last one I did was a Half Iron Man in Florida. It was a 1.3-mile swim, 55-mile bike and 13-mile run. Hedge Fund Gold Book Online: For the unabridged interviews with these innovative executives and exclusive podcasts of their discussions with Advanced Trading, view the Gold Book online at advancedtrading.com/gold-book-2007. Copyright 2007 CMP Media LLC. All rights reserved. Copyright 2007 CMP Media LLC |