FundCreator Q&A

Question 1: What can FundCreator do for me?

Answer: FundCreator is a risk management system that allows investors to design futures trading strategies (which for simplicity we refer to as ‘synthetic funds’) that generate returns with predefined statistical properties. Using FundCreator, investors can create synthetic funds with tailor-made risk-return profiles. In other words, FundCreator allows investors to create the fund of their dreams; the diversifier they have always been looking for, but were never able to find.

Question 2: Is FundCreator a hedge fund replication system?

Answer: Definitely not. Since it allows investors to freely specify what return properties they want to see generated, FundCreator is first and foremost a fund creation system. Hedge fund replication is only one of many possible applications of FundCreator.

Question 3: Is FundCreator based on a specific theoretical model that I can look up in the finance literature?

Answer: No. FundCreator does not impose a particular structural form or follow a specific theoretical model. FundCreator’s foundations are primarily empirical, which makes it extremely flexible and robust. That doesn't mean FundCreator is simple though. At the time of writing, the system consists of no less than 14,306 lines of computer code.

Question 4: Can you make me a synthetic fund that pays 20% with no volatility?

Answer: No. The only return you can have with certainty is the riskless rate. For anything over that, you will have to take the risk of getting less. FundCreator allows the user to design the complete risk profile of a synthetic fund, after which the capital market sets the fund's expected return. On every synthetic fund, investors can expect to earn a fair return for the level of risk taken. Unfortunately, the capital market does not hand out free lunches.

Question 5: Will FundCreator tell me what assets to trade?

Answer: No. The user is free to choose the assets (s)he wants to trade from a list of 78 different futures contracts (additional contracts will be added in the future). Once this choice has been made, FundCreator will tell the user how many contracts to buy or sell every day to achieve the desired results.

Question 6: What about transaction costs? Isn’t daily trading expensive?

Answer: No. Transaction costs are not a problem for two reasons. First, the daily trading volume of the typical FundCreator strategy is low. Second, transaction costs in many futures markets are extremely low as well. Altogether this means that trading only imposes a small cost on most strategies.

Question 7: How sure can I be that the returns generated really have the targeted properties?

Answer: By construction, returns are drawn from the desired distribution and, forward-looking, will therefore have the targeted properties. There can be temporary discrepancies between the target parameters chosen and the sample parameters generated. This is nothing unusual though. When tossing a coin, the chances of heads and tails are 50/50. This does not mean that when tossing a coin 10 times one will always find 5 heads and 5 tails. When the number of observations increases, however, this is likely to be corrected as the sample becomes more representative for the distribution it is drawn from.

Question 8: Does FundCreator allow me to take a tactical view on markets?

Answer: Yes, of course. FundCreator allows for tactical input through the choice of futures contracts to trade. The user is never stuck with his initial choice, but can change the composition of his futures portfolio whenever and as often as (s)he likes, thereby incorporating any tactical views (s)he might have. From a tactical point of view, FundCreator is as active or passive as the user wants it to be.

Question 9: What is the home currency of FundCreator-based synthetic funds?

Answer: FundCreator caters to the global investment community and therefore allows users to set their home currency equal to either US dollars, Euros, British pounds, Japanese yen, Swiss francs, Canadian dollars or Australian dollars. Any other currencies will be accomodated on request.

Question 10: Has FundCreator been tested in practice?

Answer: Yes and no. Since FundCreator has only recently been developed, we do not have a real-life track record to show for. However, we have performed a large number of very realistic out-of-sample tests, going back more than 10 years. The results on some of these can be found in the papers that can be downloaded from the FundCreator home page.

Question 11: Does FundCreator generate “alpha“?

Answer: Yes and no. Since FundCreator strategies are purely mechanical and do not involve any proprietary trading secrets, FundCreator-based synthetic funds do not generate alpha in the traditional sense, i.e. beat the market. Because of synthetic funds’ mechanical nature, however, investors can do without expensive managers. This means that although FundCreator’s pre-fee returns may not be superior, its after-fee returns could very well be. In the end, efficient risk management and cost control are much more certain routes to superior performance than trying to beat the market while paying excessive management and incentive fees.

Question 12: : Will I have to collect and input my own market data when using FundCreator?

Answer: No. All required data is checked for errors, corrected for biases and handled by FundCreator. Futures settlement prices, interest rates, and exchange rates are all updated overnight, to ensure that fresh high quality market data is available at the start of each new day.

Question 13: Will I have to install special software on my PC? Will I receive regular updates?

Answer: No. FundCreator is accessed over the internet. This has many advantages. First, FundCreator allows users to log in from wherever they are, from whichever PC or laptop is at hand; at home, in the office, in the airport lounge, the hotel business centre, an internet café, etc. Second, investors will not be troubled with periodic updates or new CDs to install. All research and development of the FundCreator technology takes place in the background, out of investors’ sight.

Question 14: Is FundCreator difficult to use?

Answer: No. Although based on years of research and state-of-the-art econometrics, FundCreator is extremely straightforward to use. Once set up, only a few minutes each day are enough to find out the number of futures contracts to buy and/or sell that day. Assuming investors have access to an internet futures broker, the whole process from start to execution need not cost more than 5 minutes.

Question 15: Can you tell me more about the FundCreator licence?

Answer: A FundCreator licence is entered into for a minimum period of one year, afterwards tacitly extended with a 1-month notice period. It allows the user to access the system via the FundCreator.com website and create as many different funds as desired, but for personal use only. With the licence, users will receive the full FundCreator manual, one day of training in the use of FundCreator and access to the FundCreator help facility.

Question 16: How much does a FundCreator licence cost?

Answer: End-users taking out a licence to FundCreator pay a one-time set-up charge of €4000. In addition, we charge a flat monthly fee of 0.03% of the amount of money managed using FundCreator. We expect to receive monthly end-of-month NAV confirmations from users’ administrators.

Question 17: Is there a minimum size for efficient use of FundCreator?

Answer: Yes. Given the large size of most futures contracts and the fact that it is impossible to trade less than 1 futures contract, the minimum amount that can be invested in a FundCreator-based synthetic fund is around $20 million.

Question 18: Are there any FundCreator-based funds that I can invest in?

Answer: The FundCreator technology is available through an umbrella fund, which allows investors to create their own tailor-made FundCreator-based subfund. Each subfund has the possibility to appoint its own management/advisory company and, if required, its own custodian and prime broker as well. This way, investors can set up a tailor-made fund within an existing predefined structure. In addition, the FundCreator technology is available through two funds with a fixed risk profile, both with low correlation with stocks and bonds. More information can be obtained by sending an e-mail to Info@FundCreator.com.

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