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Wednesday, July 15, 2020|
A Gotham Quantrepreneur Restarts
A Big Apple entrepreneur in the quantitative asset management business is launching his second startup. Last week Gregg Fisher, founder of New York City-based Gerstein Fisher, unveiled his second, also New York City-based, quantitative asset manager: Quent Capital. The new investment firm will focus on global small cap long/short strategies.
When Fisher started Gerstein Fisher, he says, everyone had two names, like Morgan Stanley). He tells MFWire that he found it not only natural but necessary for the company to have two names: Gerstein, his mother's maiden name, and Fisher, his own last name and the last name of an uncle whom he is very close with.
When I started Gerstein Fisher, I didn't have a partner. I just wanted a name that made me feel bigger than I was at the time. I was 21 when I started. I had no experience, no internet, no text, no email. It feels very different, being an entrepreneur now at age 50 with all this experience and the internet. It's fun and I'm excited to be an entrepreneur again.
"I care deeply about them and it is a wonderful business," Fisher says of the Gerstein Fisher team.
As for the "Quent Capital" name, it comes from blending "quant" and "entrepreneur."
In his newest venture, Fisher relies on his previous 30 years of experience and the fundamentals (such as empirical data and evidence of researchers, factor investing, market based investing) to do something he describes as entirely new.
The portfolio manager and factor investing pioneer's new firm will focus on small cap public equities at a time when there is growth in large cap and private equity investment.
"A lot of principles are the same [but] what I'm doing now is a much more aggressive strategy for qualified purchasing. A predominantly long/short strategy," Fisher says.
What I'm doing is new. I founded Gerstein Fisher in 1992. I trademarked the mark of factor investing in mutual funds. I didn't invent factor investing but I was very early in utilizing those principles in investing. Quent Capital is doing a lot of new things. I'm certainly starting with the foundation of what I had started
To Fisher, fundamental principles of investing, like factor investing, have endured.
"Not using factor investment as an investor today is like not using a calculator as an accountant," Fisher says. "Are you using price-to-book ratios? You can't ignore these things."
I have always tried to incorporate as much empirical data and evidence and the rigorous work of researchers into the ways I invest ... The idea that there are many people around the world doing research, putting papers in journals, putting the work and rigor, and answering big questions in finance and all that work that becomes available, the great work of others, I find various ways of incorporating that into the way I invest. More often than not those questions have been answered before by others. A lot of times in the investment business, we ourselves as portfolio managers have questions. More often than not those questions have been answered before by others. I try my best to do my own work [to answer them], but lean heavily on academic literature that answers those questions.
So, why focus on global small cap public equities now, at a time when there has been recent growth in large cap and private equity investment?
"It's a long story," Fisher starts. "The quickest answer I could give is: generally, when things become very popular the prices of these popular things get higher and when they get higher, their expected returns should be lower. Generally speaking, when everyone loves something, they buy and the price goes up causing it to go up more. Excitement and higher prices, from the perspective of an investor, it should mean lower returns."
"The most successful investments that I have made were often during controversial times,” says Fisher, who launched strategies during the Great Financial Crisis, in the middle of the European Crisis, and during a time when no one believed in real estate anymore.
But his goal is not to be the world's most successful contrarian, even though he believes that these contrarian moves have been, and continue to be, a recipe for success.
It's not only because of that. There are other variables. [Such as] trying to identify securities in parts of the market when expected returns might be higher than the alternative choices. When something is not sexy or exciting, the price is generally lower. That should lead to higher expected returns.
"There's a place in an investor's portfolio for small company stocks," says Fisher.
Small company stocks ... they have not performed well in the last ten yrs relative to large. There could be all sorts of reasons for that, but the fact is over the last 10 years they have underperformed by almost two percent a year, and in the last three years small companies have underperformed by seven percent. So what we see is a very significant gap in difference Between small and big companies. The economic framework doesn't add up. The idea of smaller companies earning lower returns over long periods of time is hard to explain with any reasonable logic
An interesting aspect of the current trend of small companies is the excellent performance of private equity.
"There's a bit of disconnect," Fisher says, pointing out reasons for the good performance of private equity, such as their liquidity and leverage. He quotes a friend's book, which includes the line, "If you put the word private in front of equity, it is still equity."
"I have a theory it's a good time to consider investing in global small companies," Fisher says, and he explores this theory in an academic paper, which he co-authored with Michael B. McDonald, in The Journal of Index Investing,
"There's evidence that managers that are doing research as opposed to indexing might have an opportunity to outperform," explains Fisher, despite being "a guy who has been investing in index-like strategies. It's always 50/50. I understand the arithmetic."
But it's not just the question of global small companies. Accustomed to using data and research to change the way he and others invest, Fisher puts his investment strategies in the space between academia and portfolio management. For Fisher, an amalgam of an academic and an ever-enthusiastic entrepreneur, every innovation in thinking and investing comes accompanied by questions, which of course lead to solutions, and innovations, and more questions.
So, there are also the matters of intangible assets and a portfolio manager's intuition. At Quent Capital, Fisher is exploring both.
"One of the great things about my new business," is being able to use intuition, says Fisher. Fisher says he has always been a bit envious of Warren Buffet, whom Fisher sees as having the freedom to use his intuition. He also mentions Buffet's "way of investing. To not only look at data but look at intangible assets like people, leadership, brands, things that don't show up in the data." What he is doing is "measuring things that are hard to measure."
"I'm looking at things like leadership and culture and strategy in the business I'm investing in. And trying new and old ways of measuring it [intangible assets]. It is an important topic: the concept of intangible assets. How we are incorporating them into our investing?" says Fisher.
Always trying to be "a great entrepreneur and a great leader" who practices what he preaches, Fisher says he is always trying to develop better leadership and other skills for himself and his team, i.e. to develop better intangible assets even in his own company.
Entrepreneurship "is a journey that never ends. You just hope you keep learning, growing, and developing. I am constantly surrounding myself with people who are doing the same. Learning from others and surrounding myself with experts in the field," he says, pointing to Francis Frei, a good friend and one of the most recent guests on Fisher's podcast, The Q Factor.
A significant portion of Fisher's liquid assets are invested in the fund, he says. The strategy was run out of the Fisher family office.
"I am 1,000-percent passionately invested. In money, in time, in energy in this business," Fisher says. "I'm spending my heart, my soul, my time, my energy. I have really gotten behind this financially and personally. Like any good entrepreneur, next to my family, I love my business."
Even though the fund is private and Fisher cannot market or advertise it to the public, he believes "that investors should have a portion of their portfolio in global small companies. I have a portion of my portfolio in global small companies."
Fisher also founded the Gerstein Fisher Research Center in 2009. The center collaborates with academics in the areas of finance, risk management and economics and applies theoretical research concepts to real-world challenges facing individual investors.
Fisher graduated from the University of Buffalo with a bachelors in Finance and from New York University with a certificate in Financial Planning and Services. He was also part of Harvard's YPO Presidents Program, in Business.
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