Fri, Apr 25, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Opalesque Futures Intelligence

Manager profile:Auctos Capital manager Kevin Jamali on putting together a skill set, including a research team to develop diverse models.

Wednesday, August 18, 2010

Acquiring the Skill Set

What kinds of experience and skills are necessary to run a commodity trading advisor with diversified models? Kevin Jamali, manager of Auctos Capital, talks about what's involved in moving from floor trading to managing money. Auctos opened to investors in November 2007. Last year it returned 3.9%, beating CTA indexes by a significant margin.

OFI: What was your background when you launched Auctos?
Kevin Jamali: I had a lot of trading experience. I had started as a floor clerk at the Chicago Board of Trade in 1995 and eventually moved to trading the yield curve on an electronic platform. Electronic trading was in its infancy then. In 2005 I started to develop the system that became the basis of Auctos, but I knew very well that my success on the floor and as an independent trader was not enough when it came to managing money.

OFI: Why is independent trading experience insufficient?
KJ: You see many good traders who tried to launch a fund and failed. Trading on your own is a long way from managing money. Other skill sets are essential. To begin with, when you manage money you need a strategy that is scalable. When I traded independently, that did not matter. At the time I focused on only four or five markets. To make it scalable, it helps to diversify to different, liquid markets, which means you need people familiar with other markets.

OFI: Did you change your trading style?
KJ: I used to be a discretionary trader-I'd go by the feel of the pits or the screen. By contrast, the fund's strategy is all systematic. You need higher level computer knowledge to develop and run a system.

OFI: How did you deal with this issue?
KJ: Early on I brought in other people and formed a team to do research. We developed the models as a collaborative effort. The team comes from diverse backgrounds, including systematic trading and computer science. One of those who joined me, Abdol Esfahanian, has a Ph.D. and is the associate chair at the computer science department at Michigan State University. He is our consultant for computing infrastructure and software development.

OFI: Why did you need people with other trading experience?
KJ: This is not just a programming project to mine data, though programming is a key component. We develop trading ideas and back test them. The testing platform was developed in-house as well.

OFI: What is the strategy?

KJ: We have a multi-strategy program. One-third of the trading is trend following, another third is pattern recognition and the rest is trading on calendar spreads. This gives us numerous entry and exit points to the market.

OFI: Is the team still together?
KJ: Yes, we have a dedicated research team. This is rare among smaller firms. We're always looking for ways to improve our strategies. To keep competitive in this industry you have to come up with new ideas and test them. We started with two systems but in June 2009 added another six. Since then we've seen reduced volatility, with much smoother returns.

OFI: What's the advantage of having multiple strategies?
KJ: The beauty of it is that the three sub-strategies have very low correlation to each other. Diversification helps us avoid extreme volatility, which is one of our main goals. When we design a strategy, we take the risk factor and design around it. We target a 10% annual standard deviation.

OFI: Has the diversification worked?
KJ: Last year is a classic example. Our program was up 4%. Our trend-following strategy lost money but the pattern recognition and spread models saved us. This year again we are up and outperforming CTA indexes, which are down. It is a tough environment for trend followers and it helps a lot to have strategies that work in different ways.

OFI: How did the other strategies make money in 2009?
KJ: Pattern recognition scans for volatility and price patterns within a trend. It has a shorter term hold period than the trend following model, so it was able to catch price movements in 2009 markets. Also, some of the calendar spreads behaved completely differently, were uncorrelated to markets at large. We captured some price movements in patterns in spreads.

OFI: Are there other skills needed to make a CTA work?
KJ: One of the main things people overlook is the business side of the operation, tasks like managing people. Managing a fund means running a business. You can be a phenomenal trader with a great system, but not understand how to run a business. In addition to technical and trading experience, you need business skills. I brought in people with business backgrounds to help with that.

OFI: What does Auctos mean?
KJ: We searched for a unique name for the firm. Auctus with a "u"is Latin for persistent growth, which is appropriate for us. But there was a company in Germany with that name. So we changed the "u"to an "o". Nobody else has this name!



 
This article was published in Opalesque Futures Intelligence.
Opalesque Futures Intelligence
Opalesque Futures Intelligence
Opalesque Futures Intelligence
Banner
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing
  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Opalesque Exclusive: Rainwater and Blue Sky - an Australian water fund emerges[more]

    Bailey McCann, Opalesque New York: Financial reporters often tout new funds and investments as uncorrelated investments, but few can say they are uncorrelated to everything but weather. Enter Blue Sky Alternative's water fund which invests in the permanent rights to Australia's water. Sev

  2. Regulatory – Expect greater SEC scrutiny of hedge funds that share information or collaborate in advance of their trades, Alternative funds to get SEC test for leverage, liquidity[more]

    Expect greater SEC scrutiny of hedge funds that share information or collaborate in advance of their trades From Thelawyer.com: A recent Wall Street Journal article — ‘Activist investors often leak their plans to a favoured few’ — focused attention on ‘activist’ investors and stock analy

  3. …And Finally – This week's least competent criminal is Austrian[more]

    From ABCnews.go.com: A German sought by authorities for alleged fraud has been arrested in Austria — after dropping into a police station to ask officers whether he was under investigation. Police in Salzburg said the 59-year-old man walked into a police station in the city on Friday night. Sp

  4. Investing – Hedge funds find pitfalls along with profits in real estate ventures, Marcato Capital Management makes new bet on Dillard’s[more]

    Hedge funds find pitfalls along with profits in real estate ventures From Law360.com: Hedge funds have joined the rush to real estate deals and development in recent months to close the financing gap left by tightening bank standards, but attorneys say many aren't prepared for the disclo

  5. Agecroft Partners estimates 90% of hedge funds using social media[more]

    The use of social media has increased significantly within the hedge fund industry over the past couple of years. Social media is broadly used by investors as part of their due diligence process on hedge funds, by service providers in their sales efforts to hedge funds, and by hedge funds to enhance