After taking the top spot in the annual global finance and investing competition, Deepwater Partners’ Valeria Fedyk (PhD in Finance), Darcy Pu (PhD in Finance) and Hogan Tong (MBA2022) share their perspectives on the process and how they came up with the winning strategy.
Valeria Fedyk, PhD in Finance
Before we’d ever even heard about the Southeastern Hedge Fund Competition, I remember Darcy asking me one day: “What’s your best trading strategy idea?” As two Finance PhD students, it’s a question we’d both contemplated many times during our time at LBS.
The competition gave us the chance to find our very own answer to the question. Hosted annually by Georgia State University and the Southeastern Alternative Funds Association (SEAFA), it brings together students from around the world who have a passion for finance and investing. Darcy learnt about it from Hogan Tong – an MBA2022 student and member of the LBS Investment Management Club – and he invited me to form a team with them. I knew the challenge – to find a viable trading strategy in today’s competitive world – wouldn’t be easy, but would certainly be exciting and rewarding, so I was in.
Over the next few weeks, we brainstormed ideas for the competition submission, which featured an initial round to select the representative school team, a written strategy report to select the top five finalists, and a final presentation to determine the winner, who would take home both the first prize accolade and a $10,000 prize.
We had lots of ideas, but it wasn’t an easy task settling on one that held up in practice – and we poured over theories relating to our research on the asset management industry, information economics, ESG, and behavioural biases.
We landed on a strategy that identified co-integrated commodity futures and entered trade positions whenever the deviation from our computed fair value for the combination exceeded a predetermined level. It was also fully automated, from the thresholds that determined open and close positions to the robust, cross-validated process that determined the co-integrated commodities.
As we developed it, interesting questions – such as how to best handle a structural shift in the market, how to allocate portfolio capital among commodity combinations, or at what level to impose stop loss provisions and position limits – came up. Dealing with these challenges allowed us to continuously innovate, which kept the project fun. Every question led to a new way to improve.
Once we submitted our trading strategy for the school round, it was time to wait. I still remember celebrating the Lunar New Year at Darcy’s place when Hogan’s voice triumphantly rang through the room – “Guys, we’ve been selected”. Over the following weeks, we worked under the guidance of our faculty advisor, Professor Narayan Naik. A distinguished professor and a leading expert on hedge fund investing, Narayan both coached us on how to improve our strategy and provided invaluable encouragement, faith and support for our team throughout the process.
After working on coding, addressing key portfolio construction and rebalancing questions, and summarising our results, we submitted a 10-page report – complete with economic rationale description and back-tests based on our code. We were met with great news in March; we’d been selected as one of the top five team finalists!
Over the next month, we turned to the next step of the competition: preparing an eight-minute presentation. We practised it with our faculty advisor, family, friends and fellow students; this allowed us to see it from an outsider’s perspective and helped us to hone in on what we could improve.
On 22 April, it was the final round of the competition. The timer went off, Darcy launched into explaining the economic rationale behind our strategy, I discussed the implementation and technical details, and Hogan followed up with the back-test performance. As we answered the judges’ questions, the ‘what-ifs’ and ‘what-abouts’ we’d discussed in the preceding weeks suddenly materialised into real-time benefits: for every question that came up, we had an appendix slide with supporting analysis.
Once we’d finished I knew that win or lose, we’d given the competition our best effort. When they began announcing the winners, we exchanged hopeful glances as the other team names were called out, indicating we had progressed further. When they announced that Deepwater Partners from LBS were the winners, we were overjoyed, incredibly proud to have represented LBS and to have had the chance to make everyone who had supported us along the way proud too.
As we continue with our educations at LBS and our careers beyond the School, I can’t wait to take this project forward, learn from the experience, and cherish the valuable connections I made along the way. And to anyone reading this, the competition will be coming up again next year, so I’d like to leave you with a simple question: what’s your best trading strategy idea?
Darcy Pu, PhD in Finance
Much like Valeria, since accepting LBS’s Finance PhD offer in 2018, I always asked myself how I could write a research paper that was both academically interesting and profitable. I raised the same question with my family, professors, and friends, and found that everyone had a different answer. In the end, I was left with so many ideas – so many that I knew I could never fully devote myself to implementing any of them, which led to this being a question that remained in my head, unanswered, for almost three years.
When Hogan invited me to join him in the Southeastern Hedge Fund Competition, it presented a rare chance to work on answering that very question that I’d never had the time to focus on previously. I knew it was an opportunity I couldn’t turn down.
We read and replicated all of the recently published academic papers that contained profitable trading strategies. But despite being an interesting and eye-opening process, it didn’t really give us the pragmatic starting point we needed. We soon realised that we had to create something brand new, which is when we started brainstorming and formulating our very own trading strategy. Myself, Hogan and Valeria would get together every day, staying at my home until midnight, sharing ideas and pushing each other to be as innovative as possible. After endless failures and dead ends, we finally arrived at a strategy that worked! “Ah, stay a while, this is so beautiful”, I exclaimed.
Being involved in the creation of an award-winning strategy was amazing, but the personal experiences I gained from participating in the competition with my brilliant teammates were equally rewarding. I’m extremely happy to have worked closely with Hogan and Valeria – two people who I hope to keep as lifelong friends and work with on many different projects in the future.
I owe infinite thanks to Professor Narayan Naik for his constant encouragement and practical feedback throughout the process. I’m also incredibly grateful to LBS faculty including Professors Suleyman Basak, Svetlana Bryzgalova, James Dow, Alex Edmans, and Julian Franks. Their support and encouragement, both academically and personally, gave me the confidence I needed to take on the challenges throughout my PhD life.
Hogan Tong, MBA2022
I come from quantitative research background, so have always felt like an outlier in the MBA programme. I speak the language of statisticians, and see myself as more of a scholar than a businessman. During my time at LBS, this led to me getting asked why I was pursuing an MBA over a PhD. For the past six months, it was something I’d been asking myself over and over again – and now, after participating in Southeastern Hedge Fund Competition, I think I finally have the answer.
Although we won the competition with a quantitative trading strategy, my most valuable takeaway wasn’t the mathematical models, but the implementation of the business knowledge I’d learnt from my MBA classes. In my previous role, I’d worked in solidarity with others, but having the chance to work closely with two distinguished teammates during the competition was an absolute pleasure.
It allowed me to reflect on the knowledge I’d developed through the MBA. Over the past two months, I began to understand the leadership perspectives I’d learnt in the Global Leadership Assessment of Managers class, and tried out the team motivating and influencing techniques I’d learnt in Science of People in Organisations. When we envisioned setting up our own fund to run our strategy, I started to think about how to manage a fund as a business leader, questioning how we should position ourselves differently from the incumbents in the industry, what our competitive advantage was, who to target in fundraising, how to govern algorithms and how to establish the ideal team dynamics. Suddenly, everything I’d learnt through my MBA began to make sense.
Participating in the competition was amazing. I feel blessed to have worked with two brilliant teammates, and owe my sincere gratitude to Darcy, Valeria and our advisor Professor Naik. For the first time, I learnt to think with a business mindset, which confirmed to me that pursuing an MBA was definitely the right path for me after all.