These aren’t your father’s financial markets.
That might be the most important message trader Ali Bodaghi has for those who want to make a living in the markets today.
Bodaghi heads Vincennes, France-based EG Systems (www.eg-systems.com), through which he has traded personal capital in its proprietary Global Arbitrage program since 2006, focusing mostly on arbitrage and spread-trade opportunities, with a concentration on equity indices.
“It strikes me that very few people talk about the new world we’ve entered in the past few years,” he says. “I have a feeling that people keep trading the way they did years ago, even though things have changed — perhaps since the dot-com bubble, but certainly since 2008 and the credit problems. Nobody discusses that asset management and trading need to adapt to these new circumstances.”
Not that this silence is necessarily bad news for Bodaghi. “I’m glad not many people are doing it — because it gives us many opportunities — but I’m still surprised it’s not more widely discussed,” he says.
The trading strategies Bodaghi and his partner (who handles the IT side of the business) have developed have translated into some robust returns over the past several years. After 78- and 262-percent returns in 2006 and 2007, respectively, the firm lost 16.41 percent in 2008 before rebounding with a 78-percent return in 2009. The firm then posted a 61.16-percent return in 2010, placing it in the top 10 commodity trading advisories (CTAs) managing between $1 million and $10 million tracked by BarclayHedge.com. Through November, 2011 was an even better year, with a 103-percent return and only one losing month (a marginally negative January). Figure 1 shows the program’s net monthly returns since June 2006 along with its Value Added Monthly Index, which represents the performance of a hypothetical initial $1,000 investment.
At the end of November, EG Systems was managing around $15 million in proprietary funds, having started in 2006 with $300,000 and racking up $15 million in net profits (after taxes and expenses) since then. The growth in assets under management (AUM), Bodgahi stresses, has come solely from trade profits.
Born in Iran, Bodaghi, now 38, started a new life in France when his family relocated when he was 12 years old. He studied math and physics, eventually entering a telecommunications engineering school — which was where, in the mid-1990s, he discovered his interest in the stock market. While still in college, he worked part time as a math teacher in Paris to pay for his studies and pocket some extra cash.
“I had some free time and I started looking at stock charts and the economy in general,” Bodaghi recalls. “And I started to invest my salary in the stock market. I opened a trading account with around $2,000. Given the small amount of money I had to invest, I quickly moved into derivatives and options to get some leverage.”
Eventually Bodaghi decided he was more interested in finance than engineering, and he ended up getting his degree in the former discipline. He had a couple of internships in the industry — at Euronext in Paris and Société Générale, where he worked on the equity derivatives floor for six months. After getting a master’s degree in international financial markets at HEC, a well-known business school near Paris, he went to work for Lehman Brothers in London.
“I was trading equity derivatives,” Bodaghi says. “I had a prop trading book covering a few European markets.” He worked at Lehman for around two-and-a-half years (until 2000), at which point he decided trade for himself. “I felt more like an independent guy rather than someone who wanted to work at a bank,” he says. “I had a few ideas I wanted to implement.”
Bodaghi says one of the reasons the techniques he applies are different from those practiced by most asset managers is that EG Systems currently trades proprietary capital, although it is open to managing client funds.
“I have a very different approach to trading and asset management, because what we do is try to make money on all our trades,” he says. “We’re not here to take a view on the direction of the markets. I’m not sure it’s possible to make consistent profits over the long term by guessing market trends — at least, it’s not our strength.”
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