“The characteristics of the economic environment in which they reside actually determines the fate [of the company] more than management does.”

Unlike value managers, BCS Capital does not aim to determine the true worth of a company.

“We don’t care about the true value of a company or its current share price. The information that is really important [to us] is what drives share prices, and most of this is the information that affects profit drivers.

“Value managers have to wait, whereas we’re modelling the one-day change, not the fair value.”

He said the market usually responds to new information within five to eight days, but that BCS’ process is designed to react as this information comes to light.

“In days one, two, three, you get the most out of it.”

The profit drivers are reviewed at least every six months so that meaningful changes in the corporate management or strategy of businesses, or in economic conditions, are factored in.

This provides the opportunity to refine models so that other managers catching on to this type of strategy do not crowd upon the opportunity set.

“How do you stay ahead? It’s the perennial question for every active manager. You need to keep reinvesting in your process,” Bowers said.

The strategy, which incurs a high turnover rate, invests actively in about 100 stocks in long-only and market neutral strategies which undergo a daily optimisation process to maximise expected returns for a given level of risk, and mitigate sector concentrations.

BCS Capital generated favourable results in the back-tests, and in its five months of live operation the market neutral strategy delivered an excess return in line with the target of 7.5 per cent net of fees.

In the back-tests, it was run against the 109 core Australian equity managers in the Mercer database, and its highest correlation with these competitors was 0.3 and the lowest -0.3.

It was found to not have large exposures to the four dominant risk premiums in investment: size, momentum, book-to-market and the market itself.

Brookvine, a marketing and fundraising partner to funds managers, has taken an equity interest in the firm and will oversee its distribution through institutional and wholesale channels. Steven Hall, the firm’s CEO, said this arrangement improves the alignment of interests between the firms – beyond investing revenues into clients’ funds, which Brookvine already does.

Bowers remarked that the origins of BCS Capital began a little more than 30 years ago, when he and Stuckey were schooled in industrial economics at Harvard before taking their respective career paths.

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