Q&A: Rishab Sharma, aiSource
Rishab Sharma, Co-Founder of aiSource, which helps investors allocate to managed futures strategies, shares his thoughts on what managed futures strategies allocators are looking at in 2019, and some tips for emerging managed futures managers.
AW: Rishab, what are you hearing from your clients with regards to which subsets of the managed futures landscape are most appealing to them as we begin 2019?
RS: I think it’s better if we start with what is not appealing to clients: being short volatility. The low volatility environment we saw for a number of years seems to be finally over, and investors who were once eager to make money selling volatility are disappearing fast. If the end of 2018 is any indication, volatility will carry over into 2019 and investors should be very careful with the strategies to which they allocate. That being said, investors are desiring more discretionary strategies that can adapt quickly and combat the ever-changing market environment. We are making more allocations to discretionary commodity managers in an effort to diversify portfolios that are heavy in financials.
AW: Is there a difference between the strategies which larger institutional investors look for and smaller private money, and if so, what are they, and why?
RS: Larger institutions generally like multi-strategy, and multi-market CTAs, while smaller private money generally looks for strategies that are simpler. By ‘simpler’, I mean the strategies may be either 1) market specialist, or 2) sector specific. This makes sense because institutional money can do a better job tracking the nuances of complicated, multi-market strategies while individuals prefer strategies they can more easily understand.
AW: What advice would you give a new or emerging CTA with regards to their investor pitch? What buttons would you like them to press?
RS: Every manager’s initial investor pitch should be short and concise, and should touch on their relevant education and work experience before touching on the key stats of the strategy. The major categories to touch on include trading mechanism (systematic or discretionary), strategy employed (global macro, agriculturals,etc), minimum investment, and margin usage. Next, focus on what is unique about the strategy; if its intra-day only, or if trades only during the Asian session, for example. Investors will want to continue the discussion if they like what they hear.
In addition, I would recommend that a CTA stay away from saying generic things such as, “we are non-correlated to equities”, or “we are a good diversifier to a traditional portfolio.” Investors are already expecting diversification and non-correlation from managed futures strategies, so there is no need to mention redundant things. Lastly, one thing an emerging CTA shouldn’t do is lead with performance numbers. Save that for the end, or don’t mention it at all if giving a verbal pitch.
AW: What are some of the things that you would urge newer CTAs to focus on as they launch their program? Are there any infrastructure or risk management considerations that are becoming more important to investors?
RS: The biggest thing for a CTA to focus on is longevity. Running a CTA is no different than running any other business. Therefore, you must get into it knowing that there will not be revenue generated from day 1. Moreover, CTAs must plan at least two years ahead, and have sufficient funds to cover their office expenses, trading platforms, market data fees, and marketing costs. Whilst two years sounds like a long time, that is how long we have seen some CTAs take in order to gain traction.
AW: Finally, what’s your personal view on the outlook for managed futures strategies in 2019? Do you think capital will flow into the industry or will it continue to suffer from outflows?
RS: From our perspective, we have seen more interest and inflows into managed futures already in 2018. While the major reporting agencies may be reporting outflows, it’s important to remember that those agencies generally track a subset of the largest CTAs in the industry. It’s true that these CTAs may be suffering from redemptions, but our target audience has shown interest in allocating to emerging CTAs and niche strategies.
With increased volatility in the U.S. financial markets, trade wars and Brexit talk, investors’ worries are growing as we enter 2019. Thus, they are looking for other areas to allocate to in order to diversify their portfolios.
Rishab Sharma is Co-Founder of aiSource
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