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Anything but Rank-and-File: Joe Omansky, CEO, SkyFund LLC

By BRIAN O'CONNOR, Managing Editor Emerging Manager Focus

August, 2008

Joe Omansky, CEO of SkyFund LLC, is looking to help people make better investments. After his tenure on the floor of the Chicago Board Options Exchange, and after trading a successful equity options volatility model with Tradelink LLC, Omansky began work on SkyRank System of Hedge Fund Ratings. Today, SkyRank rates over 9,000 hedge funds, funds of funds and commodity trading advisors—using its own proprietary algorithms alongside Morningstar’s extensive database of hedge fund information.

SkyRank is making bold steps toward evaluating the success of hedge funds, seeking transparency in an industry more accustomed to secrecy. Aiming to “find and reward hedge funds that perform the way they are supposed to,” defined by SkyRank as those that “understand a market inefficiency while hedging away specific market risks associated with that segment,” Omansky aims to help investors make clearer choices when looking for hedge funds.

In the wake of hedge fund fraud and increased competition for assets under management, Omansky sees regulation as a boon for emerging managers, an invaluable asset for major hedge funds, and a breath of fresh air for investors looking for the right fund.

How did your experience as a trader help you begin SkyFund LLC?
I come from a trader quantitative background, and prior to starting SkyFund about four years ago, I traded Corning and Bristol Myers options over the course of two-and-a-half years at the CBOE. I was recruited from the floor by Tradelink, which is a multi-strategy, multi-family office managing close to $1 billion in assets. My idea for SkyRank came from my time in Chicago: I knew a lot of people that looked at the same metrics when evaluating whether or not to invest in a hedge fund and saw that there are a number of inputs that are very important when choosing a hedge fund that will outperform.

How does the system work?
The system evaluates AUM inside the fund as a representation of investor confidence—the more assets in the fund, the better. If there’s a fund with $10 million in assets, it could be a great fund but investors have not shown a level of confidence found in funds with $200 million or $1 billion in assets. SkyRank takes AUM, years of fund’s existence, returns of the fund, and volatility quasi-rated with the Sharpe ratio.

The system is completely quantitative, and ratings range from zero to five with zero being the best rating. Ratings in the system stretch to 16 decimal places, and the given ratings are translated into a letter grade—ranging from A+ to E. This rating has nothing to do with the type of fund, whether it’s a Fund of Fund or an equity hedge fund. SkyRank also produces a relative rating in percentage form, taking the absolute SkyRank and comparing it to all the other included hedge funds in the same category.

How could relative numbers, like those produced by SkyRank, help would-be investors?
With this number, you can assess a hedge fund with a very high SkyRank rating, but could also have a very poor relative rating versus other hedge funds within the category. This number is used a lot more for investors who are interested in only one strategy—they may want to optimize their portfolio and allocate more money to the best funds within that specific strategy as measured by SkyRank.

What do you think makes your program unique?
SkyRank is unique because it allows people to integrate other inputs into our system—it is very flexible in nature. SkyRank ratings are driven off of a very specific algorithm that we have derived. If a user came to SkyRank and thought that their pivot-point should be $500 million instead of $200 million, they would be able to change that within our program.

With current market volatility, and shaky investor confidence in hedge funds, what does your program offer investors?
Users can judge their hedge fund investments based upon our free publications on over 9,000 hedge funds, fund of funds, and CTAs. Our system does well during periods of volatility, and is buttressed against investor insecurity because we do not get paid by hedge funds, we are paid by investors. This is not the case with bigger ratings agencies.

In over four years of operation, we have never had a fund that fell apart or encountered significant problems that enjoyed a high rating with us. I think that’s a strong statement, especially considering the market volatility we’re experiencing at the moment.

How can Emerging Managers benefit from your work with SkyRank?
Emerging Managers would be able to get a great amount of exposure to the broad hedge fund and fund of funds industries. In terms of getting access to investors, emerging managers could be able to garner more assets through the exposure they would receive by listing on SkyRank. We receive around 25- to 35,000 visitors monthly—many of whom are institutional investors looking for hedge funds and interesting ideas for their investments.


...In over four years of operation, we have never had a fund that fell apart or encountered significant problems that enjoyed a high rating with us. I think that’s a strong statement, especially considering the market volatility we’re experiencing at the moment, says Joseph Omansky, Sky Fund LLC.

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