Bailey McCann, Opalesque New York:
RPM Risk & Portfolio Management AB – a CTA/Macro specialist based in Stockholm, Sweden, has launched a new Luxembourg‐domiciled fund (SICAV), that aims to invest with CTAs that are in their most competitive stage of development. According to the firm, they hope to buck the current trend of allocating assets to the largest CTAs by specifically focusing on younger managers, with smaller AUM.
The firm has also authored a research note on the methodology behind this new fund, noting that, “Both internal and external studies indicate that very large managers (in terms of AuM) usually have their best absolute and relative returns behind them. Instead, it is often smaller managers that have left the start‐up phase and entered the growth‐phase, that offer the most competitive returns. These “Evolving CTAs” are typically energetic, creative and innovative and have historically outperformed their larger peers.”
“Our intention is to find them before they have grown too big – or too old – to maintain the performance that typically occurs during the first five to seven years of their existence,” says RPM CEO Mikael Stenborn. The Fund will only invest with CTAs that are in the Evolving phase – defined by age and AuM – and that are deemed to belong to the very best in this sub‐universe of managers.
These findings echo our recent Opalesque feature on new research from Quest Partners, a New York-based CTA that shows the correlation and potential performance lags of BTOP50. The BTOP50 is a group of the largest CTAs as tracked by BarclayHedge. In that research, findings show that in an effort to continue drawing assets and responding to the volatility concerns of investors, the largest CTAs have a diminished ability to serve as an equity risk hedge and are also more correlated to each other.
RPM notes that as CTAs enter into the “evolving” stage, risk factors typical associated with new funds decrease and the staff grows more confident as track records and assets under management grow. CTAs in this sweet spot are moving into the role of an alternative asset management company and provide the greatest opportunity for new investors in the fund. According to Stenborn, investing in the largest CTAs means investing in companies that are on the downward slope of their life cycle.
“The industry leaders today were unknown to most investors when their performance was the most competitive. The “evolving CTAs” that will trade for the new fund are thus unknown to most investors today, but have demonstrated a unique ability to deliver performance – in most cases with new, innovative, ideas and methods,” Stenborn says.