Quaffing at Queens
Combined own money with Queen’s U cash to do battle on Bay St.
Executive MBA students invest their own money to help start a hedge fund and gather data,
KINGSTON— Each week, the members of the executive team of a brand new company called Quaff must make a tough call: Do they meet in the student’s pub or at the campus coffee shop?
The company’s full title is Queen’s University Alternative Asset Funds and the four members of the executive team are all MBA students.
Although the company’s name might suggest the four senior executives are all about imbibing, in reality, these guys are much more interested in hedging their bets about the future.
Their mandate is to play with the big boys on Bay Street in the sometimes-murky world of hedge funds, helped along with financing to the tune of “six figures” provided by Queen’s.
The four students — CEO David Yao, chief risk and compliance officer Peter Szaflarski, chief investment officer Brendt Lambert, and business development officer Joe Sauret — were part of an original eight-person group that pitched the idea to the Business School administration at Queen’s.
To persuade the Queen’s administration they were serious about their proposal, the group of eight each sank $6,000 of their own savings into an investment fund and invested in commodities and options producing a quarter’s worth of solid returns.
“The main purpose was to show the staff that we were serious about this and we were willing to put our own skin in the game,” said CEO David Yao, 25, of Regina. “We were students and any amount of money is hard to come up with. It showed our dedication.”
The gambit worked. The University has since helped the students to create a notional firm with proper corporate structure and backed them with start-up funds in “six figures” to invest in hedge funds.
“One of the challenges is that the MBA program is a one-year program, and, if this is to be a sustainable fund, how do we ensure it can be turned over from one class to the next and still have a consistent investment theme,” said Peter Copestake, executive in residence at the School of Business and the man with his hands on the steering wheel of the new venture.
“Because you need some kind of continuity, the four individuals in the initial executive group cast around among their peers in MBA students and said we’d like to hire on a whole group including portfolio managers and analysts to look at this universe of investment op- portunities,” he said.
In return for a chance to get in on the action, the MBA students recruited all had to sign contracts promising to stay in touch with Quaff even after they graduate and become alumni supporters of the fund to ensure that the next round of MBA students will be able to “fill in their shoes when they leave.”
The first order of business for the MBA students was to do their homework on hedge funds.
The former global treasurer of Manulife Insurance, Copestake be- lieved the safe strategy going forward was to create a “fund of hedge funds,” a short-list of hedge fund managers with the best track record for investing. “We’re going to be able to develop a database of hedge funds, which doesn’t exist today, and do a true apples-to apples comparison, which is a big exercise, but will be very valuable in its own right,” he explains “Part of what we are doing here is trying to identify those hedge funds which we believe will outperform but do not entail excessive risk.” Creating a short-list of surefire winners has been a challenge, because there is no public database available and private databases cost big money. So the Queen’s MBA team did its own research to whittle down 100 hedge funds in Canada to a shortlist of eight, attempting to limit Quaff’s exposure to risk. “We hope to do the first investment within the next month,” said chief risk officer Peter Szaflarski, 30, of St. Catherines.
“With any start-up, there is some uncertainty about the future and there’s a learning curve attached to that, but the whole team is really looking forward to going forward.”
The only member of executive team of Quaff with real hands-on experience of hedge funds is also the only American student in this MBA group, chief investment officer Brendt Lambert, 30, of Dillon, South Carolina. Lambert was working on the trading floor of the Chicago Board of Trade in 2008 when the Bernie Madoff scandal broke.
“On a commercial desk, we got to see the execution of a lot of these hedge funds and got to see the nitty gritty details of the actual funds,” Lambert said. “You saw that there was no clarity in the field of hedge funds. It seems to be a very dark, lack-of-information universe.”
The fourth member of the executive, 26-year-old Joe Sauret, of Toronto, can at least claim that his business experience equips him to see the big picture.
While taking a philosophy degree he supported himself by running a successful painting business.
“I think it’s important in terms of the executive committee to come from a well-rounded background,” he said with a laugh.
“The support we received was tremendous, this school definitely has a culture of innovation and excellence and they saw our idea as a way to continue with that tradition.”