Inside Asian Gaming

INSIDE ASIAN GAMING | March 2014 34 recovered, lost the match and the trade paid out in full without the need to hedge our position. We strongly hold a belief in ensuring there’s a human component to trading, because there’s a lot of emotional money—if you can be unemotional there’s money around that is there for the taking. Additionally, as per the recent Test match it’s difficult to model factors such as momentum, or specifically a player’s dominance over others psychologically. In the stock market, if you’re looking to trade momentum you can see momentum in buy or sell orders, but in a sports match you can feel it but not model that element, so it needs a human component. We use 85% statistics and 15% judgment— that’s the target for all sports. It used to be more like 50-50 when we had a less developed database. How has your performance compared to other quants or hedge funds? It has blitzed them. Over the last four years we’ve returned +180%. The global hedge fund index since 2010 is up less than 6%, about the same as the Australian stock market. During that time we’ve also had fewer negative months than hedge funds and the ASX. We’ve been steadily going up, despite most people’s preconceived ideas and expectations of the sports betting market. Importantly our volatility is lower than those of our comparative indices. This is a function of in-play trading: you no longer lose 100% of your stake because it’s not a binary outcome anymore—you can get out and lose“only”30%, not 100%. Do those high returns necessitate a very high capital churn rate? We try and turn over the fund once to twice a month—we’re still improving and optimizing that, but of course it’ll depend on opportunities that arise. Pari-mutuel & exchange betting, of course, is about winning money from other bettors. There are differences of opinion over how well educated casual bettors are. What’s your position? It depends. Bettors are more educated now because there’s more info available. If you look at big events like the Melbourne Cup, with once a year punters, it’s easy as there’s a lot of uneducated money contributing to the markets. However, most punters bet regularly and are better informed. So they’re more educated, but they’re not necessarily more disciplined or sophisticated. Money management and identifying value are two keys to long-term success. For example, as a casual punter, if you think something can win you’ll back it even at short odds, but a sophisticated or disciplined punter will wait till it gets to its “correct” price. Casuals might bet every race; smarter punters might only have two to three a week. Stick to your model, be disciplined or you’ll lose money is the idea. More money is predicted to flow into sports betting in the coming years. Are you noticing more formalized competition because of this? No, not really. There are lots of syndicates betting. In May 2013, there was a policy push for Vegas to open up to private equity funds as well as individuals. It was knocked back as it was put in too late, but it comes back up for review next year. There’s a growing momentum for sports betting in the US, and I think it’ll open up. Currently a lot of sports betting is under the table as it’s illegal—it’s only legal in Insights “We strongly hold a belief in ensuring there’s a human component to trading, because there’s a lot of emotional money—if you can be unemotional there’s money around that is there for the taking.” “Over the last four years we’ve returned +180%. The global hedge fund index since 2010 is up less than 6%.”