Upstart investor raids three from big banks

Paul Germain
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Paul Germain

A fast-growing asset management firm has landed three big hires from large banks in recent weeks.

Paul Germain, the global head of prime brokerage at Credit Suisse, Tomer Seifan, the head of institutional solutions in the New York office of BNP Paribas, and Guillaume Auvray, an executive specialized in systematic trading and derivatives at Morgan Stanley, are set to join New York-based Stone Ridge Asset Management, according to a person familiar with the situation.

The men's new roles were unclear, but the hires appear to be a coup for Stone Ridge, a New York-based manager of unusual mutual fund strategies for more than 100 institutional investors.

The firm was launched in late 2012 by Ross Stevens, a member of the investment committee at large hedge fund firm Magnetar Capital, with Deutsche Bank alum Erick Goralski and RBC Capital Markets veteran Robert Gutmann as co-founders. The firm starting investing in 2013 and has grown quickly to run $3.6 billion as of Dec. 31.

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Stone Ridge manages a series of mutual funds that focus on relatively passive investing based on broad market risk, or "beta."

"Investing should involve a long-term view and a systematic focus on sources of expected returns, not on stock picking or market timing," marketing materials explain.

The firm has two main strategies. One is investing in reinsurance-related bonds, or securities that pay out steady returns unless there's an unexpected event, such as a plane crash or an earthquake.

The Stone Ridge Reinsurance Risk Premium Fund gained 7.42 percent before taxes in 2014, according to investor materials. CEO Stevens noted in a year-end letter that the returns were impressive given "material losses" from disasters such as the Malaysian Airlines crashes, a refinery explosion in Russia and blizzards in Japan, for example.

The other tactic is around the "risk variance premium," a term for how the expected volatility priced into options contracts is often higher than the actual price fluctuations of the underlying security, such as a stock, according to marketing materials. The Stone Ridge U.S. Large Cap Variance Risk Premium Fund, one of several funds in the strategy, gained 6.41 percent before taxes last year,.

"Our performance to date is real, we did it on billions of dollars of assets, and our clients—who took a chance on a firm and a set of strategies no one had ever heard of—have been well rewarded for their vision and courage," Ross wrote in the letter.

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Jane Korach, Stone Ridge's general counsel, and a spokesman for BNP Paribas declined to comment. Morgan Stanley, Germain, Seifan and Auvray did not respond to requests.

"After a distinguished career at Credit Suisse, we want to thank Paul Germain for his impressive contribution. We wish him well in his future endeavors and look forward to working with him as a client of the bank," a spokesman for Credit Suisse said in an email. "We remain committed to maintaining a leading global Prime Services franchise under the strong leadership of Mike Paliotta."