Page 228

who are experienced and talented and who have significant input into and influence on portfolio construction. Stark refers to this as senior redundancy. Thus there are at least two sets of experienced eyes monitoring each of the strategies and geographic areas within a strategy. In addition, most of the traders are experienced at and trade both risk arbitrage and convertible arbitrage positions. They believe Stark Investments differs in this respect from many of the major arbitrage firms.

Stark says they prefer this overlap because risk arbitrage can quickly become convertible arbitrage and vice versa. For example, in risk arbitrage deals today, there are often caps and collars that create embedded optionality in the positions. Trading optionality is the essence of convertible arbitrage. Therefore the Stark traders are active in both, knowing how to trade and price each.

Stark Investments has just gone through a growth spurt. A year and a half ago, the firm was half its current size. At 85 people, the firm has outgrown its space and is looking perhaps to construct a building somewhere nearby.

Stark emphasizes the team approach. Senior people include chief operating office, chief financial officer, and a technology officer. There are nine research analysts, two quantitative analysts, and about 20 information technology people, plus two consulting groups that are helping with technology products. A weekly portfolio meeting is held where trading staff members discuss the best and worst trades and make comparisons.

Both Stark and Roth are responsible for the overall allocation of assets. They also are sounding boards for the portfolio managers. Stark and Roth sit on the trading desk—this is their office. For about 80 to 85 percent of Stark's time and somewhat less of Roth's, they are investment managers; they keep on top of market developments and talk about individual trades as well as take care of capital allocation.

After trading hours and whenever required during the day, they run the business side.

Stark and Roth are the principal equity owners, and three senior managers have an equity stake. Stark expects that number to grow over time because they want people for the long term and want them to have a stake. The predominant source of compensation is based on the overall performance of the firm. Some years, a certain part of the portfolio will do better than others, yet compensation is very much the same if all