Founded in 2016, Ceteris Paribus is A student-led economics and finance publication at Davidson College.

A Look Inside Armfield Capital

by Sean Wright


When a Davidson student thinks of Armfield, in many cases they’re probably thinking of the senior apartments that serve as home for many weekend activities. However, there’s a new Armfield making a name for itself on campus: Armfield Capital. The hedge fund, which is based out of the aforementioned senior apartments, has 11 partners, 10 of which are Davidson students.


Armfield Capital was founded by Leon da Silva ’17, an economics and math double major (and former CP contributor) with a keen interest in investing. Even before he began this venture, Leon had been following markets and earnings reports with a fervor well beyond his years. However, he inevitably faced one of the downsides of being a young investor: minimal cash to invest. As a result, he felt that he was missing out on some potentially lucrative transactions. “There’s a point where you need to reach critical mass to make smart investments,” Leon says. “If you only have $5,000, and you have trading costs, then it’s difficult to make effective investments.”


Feeling constrained by limited capital, Leon reached out to his friend Gabe Dorit-Kendall ’17 about potentially starting their own investment fund. “We had read about kids who started hedge funds out of their dorm rooms,” Leon recounts. And I thought, ‘Can we do that as well?’” As it turns out, they could.


The eleven partners—Leon, Gabe, Ben Daniels ’17, Ned Ukrop ’17, Jack Albrittain ’17, Noah Constantine ’19, Samuel Dibble ’19, Ben Kase ’17, Andy Baay ’17, Jeremy Faust ’17, and Eric Oringer ’17 (Northwestern University)—all have an equal equity stake in the fund. The partners attend weekly meetings where they discuss their current positions, and update each other about any new ideas. Within the eleven partners is a three-person Investment Committee composed of Leon, Gabe Dorit-Kendall, and Ben Daniels. The Investment Committee talks almost daily about markets and new investment opportunities.


Armfield uses the TD Ameritrade’s trading platform, Thinkorswim, to execute their transactions. According to Leon, there are many advantages to using this downloadable platform. One is that the software permits business accounts, which enables the fund to put all of their holdings into one shared account, simplifying investments as well as tax documents. Additionally, Thinkorswim has advanced financial analytics that presents Armfield with a vast amount of data to work with when considering their positions.


The fund’s investment strategy has been varied, but they’ve focused on long/short equity and event-driven trading. Event-driven trading is the act of trying to make a profit off of events that affect businesses, such as an FDA ruling on a new pharmaceutical drug. A subset of event-driven trading is merger arbitrage, which, according to Leon, has been the fund’s bread and butter. “On a relative basis, the skills attained with a liberal arts education are conducive to analyzing a merger arbitrage opportunity,” he remarks.  “For example, we can see what the market concentration is, and we can think holistically about the hurdles that might need to be overcome for the merger to be approved. It allows us to do a more robust analysis.” Merger arbitrage traditionally falls under the event-driven strategy category for investments, but Armfield distinguishes between the two since merger arbitrage is such a prominent part of their strategy. And they’ve been successful with it—through the end of January, the fund was up a little more than 6%.


One of the challenges that Armfield has had to face is an ever-decreasing timeline for their investments. They plan to liquidate all of their positions before graduation in May, so they must keep this end date in mind when considering new investments. “Every decision we make is with the assumption that we want it to pay off between now and then, which makes things a bit difficult.” Leon explains. “There are interesting opportunities that we’ve seen, but haven’t been able to get into because of our timeline.” However, this is where another benefit of the Thinkorswim platform emerges: the analytics used in the software are so thorough that they can be utilized for short-term trades.


Armfield has been rather conservative with its original $55,000 capital base. “We’ve probably used under 50% of our capital at any given time,” Leon says. “We hold a lot of cash.” The relatively small amount of available capital in use is a result of a few different factors. One is their limited timeline. Another is the recent fluctuations in the stock market, and their relative inexperience with such volatility.


However, this volatility also serves as an advantage for Armfield. Recent events, such as Brexit and the election of Donald Trump, have spurned the expectations of traditional, experienced investors, and markets have reacted accordingly. “With the current administration, there are a lot of things changing that are going to have a real impact on valuations,” Leon explains. “We’re trying to figure out exactly what that will mean for markets. I think a lot of people don’t know what that means yet.” This type of uncertainty levels the playing field in a sense, removing the advantages of market experience and presenting profitable investment opportunities for investors of all ages. The advantages of this environment have not been lost on Leon. In a recent letter to the other partners, he writes, “The next five months will provide an interesting opportunity to navigate markets which have never looked this way before. This uncertainty provides us with the unique opportunity of operating in an environment where experience is not much of an edge.”


When asked if he would want to start a hedge fund in the future, Leon considered for a second, then responded, “yes and no.” Why the hesitation? “I think this has been a really good experience, and I’ve learned a lot,” he begins. “It’s always been a dream of mine to start a hedge fund. I just really like the idea of starting your own business. Doing research is something I really love. I’ll log onto Thinkorswim to do some quick research for ten minutes, and then four hours will pass by and I’m still on there. At the same time, I need to gain a lot more experience before I would feel comfortable managing a larger hedge fund. It’s a medium to long-term goal of mine.”


His passion has clearly already begun to pay off, with both Armfield Capital and elsewhere. After graduation, Leon will be moving to nearby Charlotte to work in Wells Fargo’s Markets sector. As for Armfield Capital, the fund will continue to use their inexperience as a virtue, hopefully to the tune of continued success and high returns.


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