In 1997, while working as a fixed income fund manager at Schroders, Richard Conyers used his knowledge of mathematics and computing to design a quantitative interest rate model for investing in fixed income. It took him long of bonds throughout the 1998 bull market and short during the 1999 bear market.
During this period, Conyers used the investment discretion he was allowed as a director to follow the trading signals from the model on his largest account. Even though the discretion restricted him to taking only positions that were in line with house policy, he managed to outperform Schroders’ global model by almost 3% in 1998, with a tracking error of less than 2%.
After adding further systems to exploit such variables, such as changing yield curve shapes, currency pairs trading and country spreads, Conyers felt able to “diversify both the sources of return and the approach to managing investment risk”. He decided he was ready to set up a fund. But when he took his idea to Schroders, he was turned down. “Their reaction was ‘It might confuse our image in the marketplace’,” he remembers. It was then suggested that if he was so confident in his model, he should set up his own hedge fund.
For a while, Conyers thought seriously about doing just that, but then through a mutual friend he was introduced to Anthony Todd and Marty Lueck of Aspect Capital (formerly of Adam Harding&Lueck, the hedge fund manager).
He found that they had “a common enthusiasm for research and trading through quantitative models” and he was persuaded to join them.
The move from big bank to small hedge fund seems a logical step for Conyers, especially given that invention and risk-taking seem to be in his genes.
He was born in 1965 at Birstall, near Leeds.
His grandfather had been one of the early enthusiasts of skiing in the Alps, and his father, an inventor, conceived the first dry ski slope. A few years of his childhood were spent living on a patch of hillside just outside Scarborough where his father attempted to make a viable business of his idea. Sadly, recalls Conyers, “it was a bit before its time”.
His father’s experience taught him that although “it’s great to have good ideas, from a business point of view you have to be with the right people to put those ideas into practice”. Among other things, his father failed to patent his idea, so even when dry ski slopes did catch on, he was none the richer. Subsequent inventions included a fold-up car and – more successfully – floating concrete pontoons.
As a child, Conyers was always trying to come up with his own money-making schemes. One of these was to decorate an attic bedroom at the tumbledown mansion where he grew up and rent it out – in return for sweets – for parties.
When his brothers and sisters went on holiday, he stayed behind to earn money recycling scrap metal.
He went to the local grammar school, then spent a year on a scholarship for Shell, writing educational software. In 1987 he graduated from Durham University with a First in mathematics and oVers from 12 investment banks.
Conyers joined Kleinwort Benson just in time for the 1987 crash, and soon specialised as a fixed income analyst. While he was there, he helped develop the Japanese business, which had $2 billion worth of assets under management by the time he left in 1992. He moved to Schroders as a fixed income fund manager and business developer, helping Robert Hutchinson to build a network for equities and fixed income throughout Europe.
Conyers felt the business was being held up, however, because fixed income managers “weren’t really delivering the performance.
“It seemed to me,” he says, “that we were being overly elaborate in our analysis, and then compounding the problem by using subjective judgments.”
So around 1995, he began applying his mathematical and computer knowledge to a quantitative analysis of fixed income markets. “I believed that there were some fairly sensible techniques that you could use to predict currency and bond markets.”
He looked at factor models for risk and then optimization algorithms. He began to read up on time-series analysis. In 1997, he came up with his first interest rate model.
By 1999 he was more confident in his ability and the model, so when it was reversed and started trading a short position, he argued strongly for short duration positions.
Although Schroders’ bond policy came out ahead of benchmark, Conyers was convinced that his colleagues’ subjective overrides against the model had cost investors performance.
Of the fund that he is now establishing at Aspect, he is adamant that “now is the time to do this. There are very few fixed income hedge funds and even fewer quantitative ones,” he says. “The nearest thing are the arbitrage funds which, I hasten to add, we’re not.”
