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MOAR ON BORGERSON
https://www.institutionalinvestor.com/article/b14z9qvl205nh2/cargometrics-cracks-the-code-on-shipping-data

Borgerson’s ambition to succeed was in no small part fueled by the early turndowns by many venture capital firms and a fierce determination to best the Wall Street bunch at their own game. “There’s a lot that motivates me, including — if I’m honest — I have a big chip on my shoulder to beat the prep school, Ivy League, MBA crowd,” he says. “They’re bred to make money, but they’re not smarter than everyone else; they just have more patina and connections.” (Bred differently, he spent last Thanksgiving visiting his parents in rural Missouri. After breakfast he and his father were in the woods, shooting assault guns at posters of terrorists, with Gunny, his father’s Anatolian shepherd dog.)

Borgerson’s plan was not met with enthusiasm from the company’s then co-CEO, Weitz. CargoMetrics had been gaining clients and meeting its goals, and was on its way to becoming a successful data service provider. Weitz, who now is president of the Gloucester, Massachusetts–based Institute for Global Maritime Studies and an entrepreneur coach at Tufts’ Fletcher School, did not return e-mails or phone calls asking for comment. For his part, Borgerson says: “A ship cannot have two captains. The company simply matured and evolved into a streamlined management structure with one CEO instead of two.”

Eventually, Doan went along with Borgerson’s plan. “We believe in Scott and that shipping holds the no-shit, honest truth of what the economy is doing,” he says. But buying out the venture capital firms several years ahead of the usual exit time would require a hefty premium over what they had invested.

Once again Borgerson’s early supporters played a key role. Manzi, a fellow Fletcher School grad who had mentored Borgerson since the company’s early days, put up more money (making CargoMetrics one of his single largest investments) and introduced him to a powerful group of wealthy investors. Separately, the CFR’s Morse suggested that BORGERSON MEET WITH DANIEL FREIFELD, FOUNDER OF WASHINGTON-BASED CALLAWAY CAPITAL MANAGEMENT AND A FORMER SENIOR ADVISER ON EURASIAN ENERGY AT THE U.S. DEPARTMENT OF STATE. IMPRESSED BY BORGERSON’S “INTELLECTUAL HONESTY, VIGOR AND MORE THAN FOUR YEARS OF HISTORICAL DATA,” FREIFELD BROUGHT THE IDEA TO A BILLIONAIRE THIRD-PARTY INVESTOR, WHO TOOK HIS ADVICE AND BECAME ONE OF CARGOMETRICS’ LARGEST BACKERS. “I WOULD NOT HAVE SUGGESTED THE INVESTMENT IF CARGOMETRICS HAD NOT DONE THE HARD PART FIRST,” ADDS FREIFELD, DECLINING TO NAME THE INVESTOR.

A chance encounter in the fall of 2012 gave the CargoMetrics team its first taste of real Wall Street trading. Attending an Arctic Imperative conference in Alaska, Borgerson met the CIO of a large investment firm, whom he declines to name. When Borgerson confided his ambition and that CargoMetrics had developed algorithms to trade on its shipping data once it was legally structured to do so, the CIO suggested CargoMetrics provide the analytical models for a separate portfolio the money manager would trade. Live trading using CargoMetrics’ models began in December 2012.

MANZI BROUGHT IN LONGTIME BANKER GERALD ROSENFELD IN 2013 TO CRAFT AND NEGOTIATE THE MOVE TO MAKE CARGOMETRICS A LIMITED LIABILITY INVESTMENT FIRM. ROSENFELD acted in a personal role rather than in his position as vice chairman of Lazard and full-time professor and trustee of the New York University School of Law. The whole process took a year and a half. During that time Blackstone checked in as an investor.

Bradley, now an investment banker, has yet to invest in CargoMetrics, explaining that he is unfamiliar with quantitative investing. But he may eventually invest in Borgerson’s firm, he says, because “we are homeboys. I believe in him and that things are going to work out ” — pausing to add with a smile, “based on my vast quant experience, of course.”

Borgerson has been in stealth mode since CargoMetrics’ early days, when he moved the firm from an innovation lab near MIT because the shared space was too open. He is much more forthcoming when boasting of the firm’s “world-class talent.” The team includes astrophysicists, mathematicians, former hedge fund quants, electrical engineers, a trade lawyer and software developers. Hoogerwerf, who has a Ph.D. in astrophysics from the Netherlands’ Leiden University, built distributed technical environments for scientists and engineers at Microsoft Corp. Solomon Todesse, who works on quant investment strategies, was head of asset allocation at State Street Global Advisors. Aquil Abdullah, a team leader in the engineering group, was a software engineer in the high-performance-computing group at Microsoft. And senior investment strategist Charles Freifeld (Daniel’s father) has 40 years’ experience in futures and commodities markets, including nine with Boston-based commodity trading adviser firm AlphaMetrics Capital Management.

“All were self-made people; none were born with a silver spoon,”
Borgerson notes. One of his blue-collar-background hires was James (Jess) Scully, who joined as chief operating officer in 2011, after his employer Interactive Supercomputing was acquired by Microsoft.
“The team we built treasures team success, which is Scott’s motto,” Scully says. “We want shared resources, one P&L, not ‘How much money did my unit make?’” Both Scully and Borgerson say CargoMetrics is like the Golden State Warriors, a leading NBA basketball team known for putting aside personal glory and playing as a band of brothers having fun.

Borgerson says he fosters a no-ego policy with “lots of play because investment teams are built on trust, and playing together builds trust.” Team building at CargoMetrics includes pub crawls, picnics at Borgerson’s house, poker nights, volunteer work in a soup kitchen for the homeless, Red Sox games and visits to museums.

Trips to the Boston docks or Coast Guard base are intended to remind the CargoMetrics team of the real economy. There are also occasional “touch a tanker” days. On one visit to a tanker, everyone was amazed that the ship was the size of a city building, Borgerson says. “They could smell the salt on the deck,” he recalls. “Wall Street can lose sight of the real fundamentals in the world. I don’t want that to happen here.”

***UNLIKE THE ROTHSCHILDS 200 YEARS AGO,*** only a small percentage of the trades that CargoMetrics makes relate to beating official government data. Most simply are aimed at identifying mispricings in the market, using the firm’s real-time shipping data and proprietary algorithms.

At a whiteboard in his conference room, Borgerson sketches out CargoMetrics’ general formula. He draws a “maritime matrix” of three dynamic data sets: geography (Malacca, Brazil, Australia, China, Europe and the U.S.), metrics (ship counts, cargo mass and volume, ship speed and port congestion) and tradable factors (Brent crude versus WTI, as well as mining equities, commodity macro and Asian economic activity). Using satellite data with hundreds of millions of ship positions, CargoMetrics makes trillions of calculations to determine individual cargoes onboard the ships and then to aggregate the cargo flows and compare them with historical shipping data. All that leads to the final comparisons with historical financial market data to find mispricings. If CargoMetrics observes an appreciable decline in export shipping activity in South Africa, for example, its trading models will determine whether that is a significant early-warning sign by considering that information alongside other factors, such as interest rates. If CargoMetrics believes a decline in the rand is forthcoming, it might short it against a basket of other currencies.

“This is like a heat map showing opportunity,” Borgerson says, noting that CargoMetrics is not trading physical commodities. “We are agnostic on whether to be long or short, and let the computers spot where there is a mispricing and liquidity in the markets.” He sums up his simple, but still less than revealing, process by writing on the whiteboard “Collect, Compute, Trade.”

BREAK