James “Jim” McGovern, founder and CEO of the Toronto-based Arrow Capital Management talks with the Opportunist’s Managing Editor Leslie Stone about his company’s new overseas partnership and his latest venture into proprietary securities trading systems.
Opportunist: How did you get started in the fund management business Jim?
Jim: I got into investment management in 1986, right out of college. A colleague and I started a mutual fund company called BPI Financial Corporation (BPI), which we grew to about $6 billion from 1986 to1999. After we were sold to a competitor firm, I wanted to focus on alternative funds such as hedge funds and different private investment vehicles. Arrow Hedge Partners Inc. was founded in 1999.
Opportunist: We understand Arrow Hedge recently changed its name.
Jim: Yes, after 10 years, we have rebranded ourselves as Arrow Capital Management Inc. to better reflect the more diverse nature of our business.
Opportunist: Tell us about the company.
Jim: We’ve grown into one of the largest alternative investment managers in Canada, managing over C$1.2 billion. We specialize in providing access to high-quality hedge fund managers and multi-manager funds. Through our extensive network of global resources, we strive to provide our clients with access to an outstanding selection of alternative investment funds.
Opportunist: How many people work for Arrow?
Jim: We have a staff of 31, with five principals.
Opportunist: To what do you attribute the company’s success?
Jim: We believe that true, active management leads to superior investment results, through downside protection and solid, long-term growth. Our approach relies more on manager skill, than on market direction, to produce investment returns. Also, we have a global perspective—our seasoned portfolio managers and industry experts have the experience and know-how to deploy a wide variety of alternative, global investment strategies.
Opportunist: Tells us how you’re expanding the company’s presence in the United Kingdom through a joint venture.
Jim: We have aligned ourselves with Generation Asset Management (GAM), a London based investment group, actively involved in both the distribution of UCIT’s funds and managing bespoke portfolios for high net worth families and institutions across Europe.
Jim: We are optimistic and excited to be entering this joint venture, which will bring Arrow’s assets under management to $1.2 billion—about $900 million in Canada and $300 million at GAM—and give us a great opportunity to extend the institutional quality platform we have built in Canada to European investors. We’ve been marketing several offshore funds for some time, but not in an aggressive fashion. The strength of our combined teams will elevate and target our efforts. With GAM’s help, we anticipate that our assets under management could double in a couple of years.
Opportunist: Do you believe foreign investors are bullish on the Canadian stock markets?
Jim: Yes. Canada is the Switzerland of the investment world in that our banks, regulators and government have done a good job through the credit crisis—largely because of our conservative positioning. Investors are attracted by our resources story and expertise, but need to realize that they can go beyond that and achieve additional diversification with Canadian hedge funds.
Opportunist: You are also CEO and Director of Quantitative Alpha Trading Systems, known as QAT. Please tell us about it.
Jim: QAT was formerly known as RTN Stealth Technologies Inc. It’s a technology-software company focused on researching, developing and maintaining proprietary securities trading systems.
Opportunist: How so?
Jim: QAT offers a one-of-a-kind robotic tool called the Stealth Trading System and various “black box” software trading systems that use sentiment indicators to signal opportunities quantitatively throughout the trading day. The technology is extremely robust and we are actively deploying it now in New York and Toronto.
Opportunist: That sounds exciting. Where does QAT market its software products?
Jim: To institutional money managers, professional traders and hedge funds.
Opportunist: How does QAT differentiate itself from the competition?
Jim: QAT doesn’t rely on following trends or technical analysis to facilitate real-time automated trading but, rather, it measures market “sentiment” by analyzing the electronic order book of various securities (stocks, commodities, currencies etc.).
Opportunist: How so?
Jim: It uses a linked series of computer programs that analyze trader behavior in financial markets. The Stealth Trading System software then determines the best entry and exit points for the securities it is following.
Opportunist: Is QAT publicly trading yet?
Jim: Yes, its shares are listed on the CSNX and OTCBB exchanges under the symbol QAT. It will be moving to the TSX-V later this year.