Long Island Business News, Dec 17, 2010 by Jessica DiNapoli
Chess is a game of strategy, critical thinking and analytical skill. So is investing money, making a chess website the perfect birthplace for Long Island’s newest hedge fund.
Bohemia-based Genius Hedge Fund, formed in January by serial entrepreneur A.J. Caro and his two Toronto-based associates, is slowly gaining momentum in a post-Madoff world of skittish investors who are content to sock their money safely away in banks. The three game enthusiasts think their fund will be a success based on their chess-cultivated analytical skills, computer technology experience and network of contacts.
Caro first met Alex Rabinovich, who won a junior world championship for chess as a teen, on an online chess forum in 2002; Rabinovich was teaching Caro, a social chess player, some tricks. Even though they were in two different countries, the relationship flourished and grew over the years into a close friendship and business partnership. Rabinovich met Victor Plotkin, a professional financial investor, on another chess website in 2004 and a few years later, after many trips back and forth between Toronto and Bohemia, the three decided to start up the Genius Hedge Fund.
The trio officially launched the fund in January, and Caro has the utmost confidence in his partners, explaining that their chess abilities are what have helped the Genius Hedge Fund, so named because all three have IQs above the genius level, generate more than 18 percent returns on the money under management so far.
“He has an amazing gift for analytics,” Caro said of Rabinovich. “It’s very clear – his ability to see what most don’t see, sequences and patterns and how they correlate into investing.”
Analytical skills honed by chess are a desirable trait in the finance world. Richelle Konian, a Manhattan-based recruiter for financial firms across the tri-state area, said analytical skills are highly desired by employers. “Games like chess and poker, if you are really good at it, would translate into quantitative skills,” Konian said. Of the 60,000 resumes in her applicant database, 400 have listed chess as an activity, she noted.
Robert Frey, a former managing director at East Setauket-based hedge fund Renaissance Technologies, who started his own Port Jefferson-based fund of hedge funds, said it is not at all unusual that a group of chess buddies decided to start up a hedge fund. Working at a hedge fund is an exceptionally demanding job intellectually, and many people who enjoy those challenges gravitate toward mentally stimulating hobbies, like chess, he said.
Even with a chess champion on staff, Caro has had to work extra hard to avoid the Bernie Madoff-Nick Cosmo fraudster taint. He uses his experience and track record with his seven other businesses, including a licensed insurance agency, the ever-growing Arrow Security and a marketing firm, to give the Genius Hedge Fund credibility.
“I’m an established business person,” Caro said.
If something were to go wrong in his hedge fund, there would be serious ramifications for his other ventures, he said. Caro is taking the plunge with the hedge fund because of his trust in Rabinovich and Plotkin.
So far, the partnership has worked. Since the fund’s founding nearly a year ago, the associates have brought in a total of $1 million to manage, Caro said. Frey said while $1 million is not much to start with, it’s enough to figure out whether or not the business will sink or swim. He started FQS Capital with $120 million, but he has many connections to investors from his Renaissance Technologies experience.
“It’s not something that could sustain the fund,” Frey said, explaining that hedge funds are expensive to run because of the cost of the talented, highly educated staff, subscription to databases and new computers.
Hedge funds need to get to the $100 million under assets mark to be viable, Frey said.
Caro’s sights are not set quite that high just yet. He aims to have $10 million under management by the end of 2011. To start up the Genius Hedge Fund, the three partners went to their friends and family for money, a tactic reminiscent of Madoff and Cosmo, but a common one in any startup business, Frey emphasized.
“Like any business, you go to friends and family, people who have faith in you,” Frey said.
Caro plans on branching out his network of investors beyond his kin as soon as possible. Just last week he hired a business development manager who will begin a marketing and sales campaign. Caro added that Rabinovich and Plotkin have discussed deals with investors in Zurich, Manhattan and Israel lately, a sign that the Genius Hedge Fund has wide appeal.
While January seemed like the worst time to start a hedge fund, Caro’s said that now is the best time to make money, when interest rates on other investment options are low.
“Our success will be based on public awareness that the fund exists at this point and that it’s a good solid investment alternative,” Caro said.
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