Tuesday, January 31, 2023

Ewan Kirk on venture cap, crypto and market collapse: 5 takeaways

The founder of quant firm Cantab Capital Partners, bought by Swiss manager GAM in 2016, has spoken to AFI in his first industry interview since leaving the company in March 2021.

Here are five takeaways from the interview.

  1. “There will be a bigger reckoning”

This year’s huge gains in managed futures have not escaped the attention of quantitative investing veteran Kirk, whose firm ran $5bn at peak. The Core Macro fund, now part of GAM Systematic, has performed well, up 9.4% in the first five months and on course for its best year since 2017, benefiting from its value, carry and trend-following trades.

Market turbulence has sparked big and sustained price moves in commodities and other asset classes, boosting the strategy. Societe Generale’s trend index made 29.3% in the first half, while the CTA tracker made 21.9%.

There could be more market turbulence to come, says Kirk.

“I think confidence has been shaken but at some point there will be a bigger reckoning. Once that fear takes hold, that’s when we will get the 30% to 40% pullback. It is bound to happen at some point.”

2. Crypto scepticism

Kirk’s new working life has given him space to pursue a range of new interests, but he was never tempted by a big move into crypto, a space he has treated with mounting scepticism — at times disbelief — for over a decade.

“I have never invested in crypto — I mined it,” he says. “I thought it was interesting from a conceptual perspective. But I remain maximally skeptical about the value or utility of crypto. Once you get beyond buying cocaine on the internet and money laundering and ransomware, I can’t think of a single use for it.

“Excepting those three uses, there’s really nothing useful that crypto can do that you can’t do more easily and more efficiently with good-old-fashioned FinTech and good-old-fashioned money.”

3. Moving from hedge to venture has been eye-opening

Kirk chairs Deeptech Labs, a venture capital fund at the heart of Cambridge’s “Silicon Fen” attempt to rival tech progress on the West Coast.

It has given him a close-up view of venture, a segment of alternatives which exploded in the post-2008 years, in contrast to muted progress by the hedge fund industry.

“There is a lot of money flowing around venture. This is what I have found interesting transitioning from the hedge fund world into venture,” says Kirk. “The numbers are still much smaller in venture. $250m is a big fund in venture but it’s a small hedge fund.”

4. Valuations were sky-high

Valuations, particularly in technology, had risen to mind-bending levels before this year’s sell-off. “I was getting pitched 10-page investor decks with a pre-money valuation of $10m or $20m. I was saying ‘this business is just a PowerPoint presentation.’ By the end of last year it was out of control.”

That is changing now. “There is a lot of froth coming out of the public and private markets. And that is a good thing. Valuations are starting to return to more realistic levels.”

In a recent example of the valuation drops, Klarna, the Swedish payment fintech, was valued at $6.5bn in its latest funding round, down from $46bn.

5. Not everything is a technology company

Kirk describes himself as a tech lover and “total gadget and programming geek.” But even he thought it went too far. “Not everything is a technology company. Look at WeWork. It was a shared office with beer taps. I think we are at the end of a period where we thought technology can be the solution to absolutely everything.

“Don’t get me wrong, technology can solve a lot of interesting business problems and maybe solve some of the existential problems we have as a species but it’s just not always appropriate.  It might be apocryphal but NASA spent millions of dollars designing a space pen, the Russian space agency used a pencil.  Sometimes I think we need more pencil-style solutions.”