Fundamental & Quantitative Investing

December 15, 2022

In this episode of Engaging Alternatives Spotlight, Elana Margulies-Snyderman, Director, Publications, EisnerAmper, speaks with Frank Fu, Founder & CEO of CaaS Capital. He shares his outlook for fundamental and quantitative investing, including the greatest opportunities and challenges, how the firm is embracing ESG, DEI and more.


Transcript

Elana Margulies-Snyderman:Hello, and welcome to the EisnerAmper Podcast series. I'm your host, Elana Margulies-Snyderman. And with me today is Frank Fu from New York-based fundamental and quantitative investment firm, CaaS Capital Management. Today, Frank will share with us his outlook for fundamental and quantitative investing, including greatest opportunities and challenges, how the firm is embracing ESG, DEI and more.


Hi Frank, thanks so much for being with me today.
Frank Fu:Thanks for having me, Elana.

EMS:Absolutely. So to kick off this conversation, tell us a little about your firm and how you got to where you are today.
FF:Yeah. Sure. CaaS Capital stand for Capital-as-a-Service. And as our name suggests, we provide our capital into the equity market and earn a return for the liquidity that we provide. And during my early days investing in the equity capital market, investment banks were at the center of all the order flow and they warehoused the risk associated with those trade in the balance sheet. And since 2008, banks has much less desire in putting risks on their own balance sheet for the right reason. And we thought if we can become the balance sheet to warehouse those risks, we should be able to make a good return. And that is the basic investment philosophy of CaaS.
EMS:Very interesting, Frank. So given your focus on fundamental and quantitative investing, I thought you could share your outlook for the space to start off the conversation.
FF:Lured over time. And my take is that it will continue to do so because nowadays, fundamental managers are tracking metrics that they didn't pay much attention before, like factor exposure. And for quantitative managers now they're increasingly performing analysis that were once exclusive to human analysts. And because of the data are now a lot more abundant and the computational powers are a lot more events. And so I believe in the future, investor will not use fundamental and quantitative to distinguish manager anymore and that the philosophy of the tool will completely overlap. And so to me the successful manager means that somebody will have a team of both the fundamental analysts and quantitative researcher to kind of get the benefit of both.
EMS:So Frank, more specifically, what are some of the greatest opportunities you see and why?
FF:So nowadays I think the risk appetite is very, very low. And that's obviously for the right reason, that investors are sitting on losses with the equity and bond market are significantly down for the year. And as a result, I think the risk premium for short to medium term opportunities are very, very high. So we like to take advantage of those shorter term opportunities that while keeping a nimble position in case the downturn is going to be more persistent. For example, we're seeing tremendous opportunity right now in the Chinese equity market because global investor are shying away from China. So we see that the inefficiency in the Chinese onshore equity market is very, very high.
EMS:Frank, on the other hand, what are some of the greatest challenges you face and why?
FF:Well, that comes from the pandemic. I think the pandemic has changed people's perception of physical work environment. I think remote working makes sense for some position, but it's particularly challenging for apprentice model. Like we are firm believer that training through hand-on experience. And hand-on experience requires physical proximity to a senior member of the team. So to be honest, we have had to pass on several talented candidates simply because they prefer to work remotely full-time for positions that we believe doesn't make sense to be from home. And I think it's a shame that there's a lot of talented people out there that are undermining their potential for desiring to work only from home.
EMS:Frank, to shift gears a little bit, I wanted to discuss ESG and DEI, which are top of mind for the industry and would highly welcome your thoughts on those topics.
FF:Yes. Well, as a minority-owned global investment manager, the topics very important to us and our investment philosophy, however, no mean that we will have to take position in all stock regardless of their ESG standard, because we provide liquidity.

However, we embrace ESG and DEI in our day-to-day management of our firm. The bottom line is that we want our employee to feel good coming to work every day, cast foster culture of respect, safety, and inclusion among coworkers. We are always striving to adhere to the highest standard of fairness and equality. For example, we take pride in our gender diversity across all function, including within the investment team and the leadership position. We also always try to manage our environmental impact of our organization, including reducing our carbon footprint during our day-to-day operation.
EMS:Frank, we've covered a lot of great ground today and I wanted to see if you have any final thoughts you would like to share with us.
FF:Yes. In order to maintain a top performing fund, we always have to keep innovating and refining our investment process. But at the end of the day, we want our presence to benefit all the stakeholders. So we have been publishing research to help companies to structure IPOs more efficiently so that they can maximize their posting over long term.
EMS:Frank, I wanted to thank you so much for sharing your perspective with our listeners today. And thank you for listening to the EisnerAmper podcast series. Visit EisnerAmper.com for more information on this in a host of other topics. And join us for our next EisnerAmper podcast when we get down to business.

Transcribed by Rev.com

About Elana Margulies-Snyderman

Elana Margulies-Snyderman is an investment industry reporter and writer who develops articles, opinion pieces and original research designed to help illuminate the most challenging issues confronting fund managers and executives.


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