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Magnelibra’s Blue Dragon Program

Magnelibra – a name derived from a combination of the founder and CIO, Mike Agne’s first initial, last name and Astrological sign - is a new CTA which began trading at the beginning of the month. Agne feels that the name represents his approach to running his firm.

“Libra is balance, structure, and weighing everything before making a decision. It emboldens what I believe and how I look at things. Don’t make a quick decision, don’t let the markets dictate how you react; have a balanced and tactical approach.

I think people have gotten too caught up in this high-speed world and thinking like that’s the only way to make money. The ‘I’ve got to be first’ mentality is one I view as a race to nowhere. People ask me ‘how do you do things’ and I say ‘well you only have three decisions – buy, sell or do nothing – I don’t complicate it any more than that. That approach is one I’ve integrated into Blue Dragon.”

Blue Dragon is the name of Magnelibra’s trading program – “blue represents an expansive opportunity and never-ending horizon a dragon is a powerful mythical entity, and we felt that it just sounded cool”, says Agne - and is a long/short trading program that Agne has developed over the last few years during his time as a prop trader.

“The Blue Dragon program is a derivative of what I’ve done in the prop space, but I’ve refined it over the last 3 or 4 years to encompass more of the global macro relative value trades in addition to the fixed income and equity index markets” says Agne.

A different CTA

The CTA industry has struggled since 2008; the Barclay CTA Index has only had three years of positive performance since the global financial crisis, in 2010, 2014 and 2017. Despite this, Agne feels that Blue Dragon is different.

“Yes, the CTA space has had a tough time, and I think that’s primarily because a lot of the CTAs are trend followers and we haven’t really had – other than a linear equity market move higher – a real trend in the overall commodity market.

“My program is a long short model – I’m always long something and short something – but that doesn’t mean that I’m eliminating the entire alpha. I’ve built my career in the prop world trading in an arbitrage style, so I felt that I can bring this same style to the CTA space and market it to investors.”

Structuring the firm

In the early days of Blue Dragon’s live trading, Agne is staying focused on managing the money, choosing to hire external providers for the operational side of running the fund. However, he is also already on the hiring trail.

“Everything is outsourced whilst I build the business, but my first hire will be an overnight person to watch the market and I’m in the process of recruiting that person at the moment.”

That focus on watching the market and therefore his client’s money is in Agne’s DNA.

“I want to focus on the portfolio, investment and trading. My immediate focus is watching the markets 24/6 so that we have eyes ready on the deck in case something does happen. My job is to make the client money. You always need to watch what’s going on because the markets are global.”

Like many new funds, Magnelibra’s early investors comprise family offices and high net worth investors. The minimum allocation is $100,000 and Agne will continue to target these investors in Blue Dragon’s early months, partly due to Agne’s insistence that Blue Dragon be less than 30% of a client’s overall portfolio, thus  the strategy is ideal for larger allocators such as pensions, endowments and foundations, looking to generate uncorrelated alternative asset returns.

“I don’t think I’d be helping myself on compliance if we were more than 30% of a client’s overall portfolio – and therefore risk - but I don’t want to run into a situation where, if anything goes wrong, we have to have that conversation. I openly put this into my d-doc. Whilst it’s not a regulatory hard rule, it’s a rule I’m going to abide by because I know it protects us and the client.”

Early goals

The first milestone for Magnelibra will be getting a client with up to $45 million of investable assets on their balance sheet so that they can get cross marginal access to the US Treasuries market, although there isn’t a defined upper limit for the program.

“In the states Rule 4210 rule makes it very difficult to access the US Treasuries market, and trading US Treasury securities is something I’ve done most of my career. That’s really the main market I want to tap into, so my first goal is to  obtain an account that wants to arbitrage the U.S. Treasury market. Accounts that don’t meet the exemption are charged margin on their U.S. cash treasuries as well as on the hedged futures side, which forces the investor to utilize a larger capital base on a per arbitrage basis. After that, I don’t really see a cap because I’m utilising most of the commodity markets – outside of the grains – and whilst I can’t give away too much about how the system works, the size of these markets won’t be impacted by the size of what Blue Dragon is doing.”

There are also no plans to incorporate crypto futures into Blue Dragon.

“I don’t think I would ever trade those futures. I don’t like swapping crypto currency for fiat currency. I just don’t see the point to that unless you’re holding the physical bitcoin and hedging. I don’t see the upside to that risk.”

Risk management

Like many systematic trading strategies, risk management is built into Blue Dragon’s program, but the specifics of this for Agne again relate back to his approach to managing outside client’s money.

“I don’t want to take an outright stance. If I’m long something, I’m short something. Also, there are, of course, inherent systems which auto-liquidate based upon certain triggers. There’s a general level that I won’t allow an individual trade to go beyond.” One of Agne’s mantras throughout his trading career and something he learned early on while he spent 12 years at Transmarket Group under legendary trader Ray Cahnman is “If you take care of the short term, the long term takes care of itself.” He intends on reaffirming this attribute in his latest venture.

Agne’s experience with Blue Dragon so far fills him with confidence that he can deliver returns for his investors.

“I think there’s a lot of opportunity out there for programs that actually generate alpha on a risk adjusted basis and this is a good time to try and demonstrate that. Blue Dragon is not really correlated to the equity market and is designed to generate alpha whether the markets go up or down,” That should resonate with a lot of investors looking to hedge long term market risks.

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