By Matthew P. Jones, Ph.D.
CEO and Chief Investment Officer, Quants Compete LLC
Executive Summary
Private funds frequently encounter a familiar problem. Capital has been raised but cannot yet be deployed due to the timing of legal review or bank underwriting. During this 60 to 90 day delay, most fund managers park idle cash in a bank money market account earning the risk-free rate. On a $5 million reserve, that typically results in roughly $50,000 of interest income over 90 days.
What if instead of settling for the guaranteed rate, the fund was willing to risk only that interest? What if the downside was strictly capped and the upside meaningfully higher?
At Quants Compete, we offer a 90-day capital preservation strategy designed to meet that exact need. The approach combines the purchase of short-term Treasury bills with a tactical allocation to options. The strategy is built for 506(b) and 506(c) funds that must preserve capital but seek to generate incremental alpha on sidelined assets.
Strategy Overview
- Allocate the full $5 million to purchase 90-day U.S. Treasury bills at a discount to face value
- Upon maturity, the T-bills return the full $5 million
- Use the discount, typically $60,000 to $65,000 depending on current yields, to fund the strategy’s advisory fee and a limited-risk options overlay
- Any gains from the options layer accrue to the fund
- The worst-case outcome is a loss equal to the advisory fee, approximately $12,000 over 90 days
Risk Disclosure
This strategy is designed to preserve principal while seeking incremental return through limited-risk option exposure. It is not without risk.
- Capital Preservation: The strategy uses the majority of capital to purchase U.S. Treasury bills that mature at par. This portion is considered low risk and provides a known maturity value.
- Options Risk: The overlay portion of the strategy involves options contracts, which can expire worthless. Any capital allocated to options is at risk of loss but is limited in advance and will not exceed the T-bill discount.
- Advisory Fee Risk: Quants Compete charges a 0.95% annualized fee, billed monthly in arrears. This equates to approximately $12,000 over 90 days on a $5 million investment. If the option overlay returns zero, the advisory fee represents the worst-case outcome.
- Liquidity Risk: If the underlying investment timeline accelerates and the fund needs to deploy capital early, it may not be advantageous to close out options positions prematurely. The options component is subject to market pricing and may be illiquid or mispriced near expiration. Early liquidation could lock in a loss or eliminate upside.
Funds should carefully evaluate their likely deployment timeline before committing capital to this approach.
Sample Outcomes
Here are three examples based on a $5 million commitment over 90 days:
| Scenario | T-Bill Value at Maturity | Options Gain or Loss | Advisory Fee | Total Ending Value |
|---|---|---|---|---|
| Worst Case | $5,000,000 | $0 | -$12,000 | $4,988,000 |
| Matching the Bank | $5,000,000 | $62,000 | -$12,000 | $5,050,000 |
| Upside Capture | $5,000,000 | $112,000 | -$12,000 | $5,100,000 |
Figure: 90-Day Strategy Outcomes on $5M Investment.
Comparison with Traditional Approach
| Metric | Bank MMF (4.25%) | Quants Compete Strategy |
| Duration | 90 days | 90 days |
| Risk-Free Floor | $5,053,125 | $4,988,000 |
| Upside Potential | None | Asymmetric, uncapped |
| Downside Risk | None | Defined, ~0.25% max loss |
| Use of Funds | Idle | Fully allocated to working capital |
How to Engage
Quants Compete works with 506(b) and 506(c) fund managers, including real estate, venture, and credit sponsors, to deploy short-term capital while preserving principal. Our approach is ideal for managers who:
- Have closed capital from LPs but are waiting on final deployment
- Want to improve IRR by earning on idle funds
- Seek to protect LP capital with transparent, rules-based oversight
The onboarding process is fast. Funds remain in custody under the client’s name. Our firm acts as a fiduciary RIA and does not custody assets directly.
To explore this strategy further, schedule a 15-minute consultation at quantscompete.com/contact or email us directly at matthew.jones@quantscompete.com.
Compliance and Performance Disclaimer
This material is provided for informational purposes only and does not constitute an offer to buy or sell any securities. Quants Compete LLC is a registered investment advisor. Investments involve risk including possible loss of principal. Past performance is not indicative of future results. Nothing contained in this document should be construed as legal, tax, or investment advice.
This strategy is intended for accredited investors and qualified purchasers operating under Rule 506(b) or Rule 506(c). All prospective investors should conduct their own due diligence and consult appropriate legal or financial advisors prior to engaging.