Princeton Newport Partners
| Company type | Private |
|---|---|
| Industry | Hedge fund, Alternative investment management |
| Founded | 1974 |
| Founder | Edward O. Thorp |
| Headquarters | Long Beach, California , United States |
| Products | Market neutral strategy, Quantitative trading, Statistical arbitrage |
Convertible Hedge Associates (CHA) was an innovative alternative investment management company launched in November 1969 by Edward O. Thorp and Jay Regan. Operating out of Long Beach, California, CHA is acknowledged by Thorp as the pioneering market-neutral hedge fund. In 1974, the company underwent a rebranding to become Princeton/Newport Partners.
Princeton Newport Partners (PNP), founded in 1974 by mathematics professor Edward O. Thorp, holds the distinction of being the first hedge fund to implement a market neutral strategy globally. The firm was a trailblazer in quantitative trading, capitalizing on pricing inefficiencies in derivatives and later expanding into statistical arbitrage, which entailed executing large volumes of stock transactions aimed at short-term profits. Over more than twenty years, PNP achieved an annualized return of 20% net of fees without experiencing a single quarter with losses, until its entanglement with the junk bond activities associated with Michael Milken at Drexel Burnham Lambert. Although Thorp and PNP’s leadership were eventually exonerated, the financial burden stemming from the ensuing Racketeer Influenced and Corrupt Organizations Act investigation compelled PNP to wind down operations. Following this, Thorp’s team reassembled under the name TGS Management, concentrating on statistical arbitrage strategies.
References
- Insights into CHA's history can be found in Thorp's articles Option Theory: What I Knew and When I Knew It, Parts 1 and 2, published in Wilmott Magazine.