How To Beat The Market: Inside Hedge Fund Outperformance

An exclusive look into how this Hedge Fund outperforms The S&P 500 by a near 4% with a third of the risk.

 The S&P 500 is arguably the greatest investment product ever created. Its mandate to represent the 500 top-performing companies in the heart of global capitalism makes it a simple, yet powerful asset designed for long-term growth. In 2008, Warren Buffett famously placed a $1 million bet, asserting that the average hedge fund could not outperform the S&P 500 over a decade, primarily due to high fees outstripping gains. Protege Partners LLC, a fund of funds, took the other side of the bet. By 2017, Protege's co-founder admitted defeat, saying,

Buffett’s wager was a defining moment, underscoring the rarity of long-term outperformance against the S&P 500. While many funds attempt this feat, few succeed with consistency—especially on a risk-adjusted basis. Athena, Apex Capital Management’s flagship hedge fund, stands as one of the few exceptions, currently outperforming the S&P 500 by approximately 4% at the time of writing. The long-run outperformance achievement is shrouded is secrecy, reserved for only the elite few who have the buying power and knowhow to participate in these outliers who dare to play a different game.

Today, I’m going to tell you exactly how we did it.

Playing a Different Game: Redefining Success

Take Renaissance Technologies as an example. Averaging 39.2% annualised net returns since 1988, the fund was built by Jim Simons—a mathematician who, alongside a team of academics, revolutionised investing through quantitative trading. Instead of following the crowd of stock pickers and highly-leveraged funds, Simons utilised mathematics, statistical arbitrage, and short-term trading with cost-efficient instruments like futures and options. By changing the rules of the game, Renaissance created a model of outperformance that still baffles the industry.

Athena draws from this philosophy by adopting a similarly unconventional approach. Rather than relying on high-beta stocks or exotic derivatives that benefit investment banks more than clients, we focus on intraday futures trading using a proprietary order flow methodology. This involves identifying market-moving buy and sell orders to capitalize on price momentum, allowing us to generate asymmetric returns with high precision. Our success lies in mastering a game that few play—and even fewer master.

On a more macro-level, private equity funds are making up the bulk of alternative investments within the high-net-worth-individual and family office sectors. Although a fantastic and intuitive outlet for alpha, saturation in a sector means fewer high quality opportunities alongside a general overweight sentiment to private equity. Playing a different game to the herd yields new results.

Letting the Strategies Do the Heavy Lifting

Our strategies revolve around asymmetry: risking small amounts for disproportionately large gains. Lets look at the following example to demonstrate the basic principle: on your walk to work every morning, you pass a fruit store owned by a trusted friend that only sells apples. Whilst on your way to purchase your daily doctor repellent, you see other hungry professionals on their way to purchase apples for $1 each and over time, you get a sense for how busy the shop will be depending on the amount of people walking in its direction. One morning, upon leaving your home, you see a crowd of people frantically walking to buy the now relatively limited apples. Knowing this, you call the store owner and ask him to have 3 apples ready and waiting once you arrive, and that you pay the bill at the end of the day. He knows that you’re good for it and he obliges, with the request that you purchase 1 apple plus a small fee as soon as you arrive for collateral. You arrive ahead of the crowd with 3 apples waiting at $1,10 of cost to you. You then watch as the hundreds of professionals gradually raise the purchase price of apples until there are close to none left - the price of apples is the highest of the day, now at $5 an apple. You sell your three apples for $15, repay the store owner his due $2, and your lunch is paid for for the next 11 or so days.

This is the world of asymmetric, orderflow trading - by recognising promptly ahead of time that there are large group of buyers or sellers about to flood the market, you are able to take advantage of price momentum before it happens. Of course, you can occasionally assume wrong (as much as 89% of the time whilst still remaining profitable) and watch as all the professionals walk past the apple store as they’ve had banana’s for breakfast, but you’re able to give the apples back to the store owner with a small loss of $3 or so and make a profit in the long run. Notice the risk of $3 to make $15, or 5 times the cost / risk of the apples, known as risk reward.

With the basic idea demonstrated, this level of Risk Asymmetry is unheard of with most stock pickers and hedge funds. This places us in a unique position when managing risk during times of difficulty: because our risk and reward profile is so heavily weighted in our favour, should we ever encounter a string of losses, we are able to reduce our exposure and let the outsized gains do the hard work to recover drawdown whilst risking fractions of our already low exposure. We don’t rely on leverage to generate larger returns artificially - we create extremely efficient and effective strategies that allow as to make a lot from very little, which is only possible from our intraday orderflow trading.

Granular Approach to Risk Management

Although orderflow in futures markets is extremely effective, they are F1-styled instruments: in the wrong hands they are subject to catastrophic failure. With high-levels of imbedded leverage, recklessness can lead to substantial losses. Likewise, high-performing strategies come with their own challenges, namely creation, optimisation (ensuring that the strategy works across all markets), robustness (ensuring that strategies are not overly catered to a particular market), and execution.

Exogenous Risks

Defined as risks that stem from outside the firm, our primary goal as intraday traders is to ensure that the strategies and instruments we use are safe to use without resulting in a slam into the race track wall. We do this by creating risk models that are tailored to each strategy that we implements with a guiding set of principles:

1. position size is not a crutch, it is earned through outperformance

2. drawdown means putting in the time and grunt work to recover losses

3. trades must be refined and filtered such that they are implemented when they are statistically and theoretically most potent.

Tangibly, we significantly size down during performance dilution and allow the strategy to recover losses over time with asymmetry, exposure is only increased in very specific circumstances, and strategies must only be executed when the most extreme odds are in our favour i.e. A+ opportunities only. Although deceptively simple, our risk model allows us to reduce our downside risk by over 307% relative to standard benchmarks. Personally, I believe this is perhaps the greatest contributor to out success.

Endogenous Risks

We define these risks as systemic risks that occur within our firm. An extra zero that is accidentally aded to the position size column is an example of this. As discussed, given the level of size one can assume with derivative instruments like futures, it is imperative that we strictly govern the firm in multiple facets: size, number of positions, notional exposure, leverage limits and many more metrics are tracked and strictly upheld via the firm’s risk software at portfolio and fund level. We do not need extreme size to generate extreme outperformance - we let the quality of our strategies do the talking. Limiting exposures relative to their average performance likewise makes up a large part of our risk modelling, in that we tend to reduce the variance in outcomes that strategies generate - in plain english, if a strategy generates $5 in profit on a good day, once we generate $5m we stop trading.

In closing, each of the strategies we generate go through rigorous backtesting, robustness and execution testing prior to being allocated capital. Our traders regularly practise execution skills, keep a healthy, balanced lifestyle alongside weekly one-on-on and group performance meetings. Our fund takes a wholistic approach to trading success, in that success is a lifestyle stemmed from healthy habits.

Talent

We prioritise talent. Strategies, whether algorithmic or manual, ultimately stem from individuals with experience in dealing with the market from a multitude of levels - it all starts from the individual and their makeup. Our culture reflects and thrives in environments where team members are pushed to grow into the trader, manager, team member etc. that they earn to become. I like to think of it as creating a culture where everyone is empowered to become their own hero in very aspect. We find smart and driven individuals who are comfortable forging their own path through markets without the fear of failure has driven much of the success of the firm, each bringing their own ideas, research and approaches to our collective IP. This was a similar sentiment followed by the Medallion fund,

Conclusion: The Future of Outperformance

Athena’s ability to consistently outperform the S&P 500 stems from its commitment to quality, discipline, and innovation. By playing a different game, we’ve built a hedge fund that thrives on asymmetric returns and precise risk management, rather than excessive leverage or market drift. This approach, however, comes with trade-offs. Our strategies are highly specialised and cannot be scaled infinitely, which means we must be selective with allocations. Yet, this exclusivity ensures that every trade is executed with the utmost precision and care. Athena’s success is a reflection of its people and processes. From our traders’ commitment to excellence, to our proprietary strategies inspired by pioneers like Renaissance Technologies, we’ve created a fund that delivers not just returns, but equally resilience. As we continue to innovate, we aim to redefine what long-term outperformance looks like—one trade at a time.

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