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Pinnacle Awards Focus on Risk Management

The Pinnacle Awards, scheduled to take place June 11 at Chicago's Museum of Broadcast Communications, highlights an interesting industry attribute: risk management.

Award categories include titles such as "Best Bear Market Manager," "Best Diversifier," "Best Defensive," and "Best Risk Adjusted Returns"

Spread arb trader Emil van Essen garnered nominations in 4 categories:  Best defensive CTA, best bear market manager, best returns in a high volatility category and best risk adjusted returns.  van Essen's programs tend to operate on a spread trading basis where a significant performance driver is considered to be the market environment of price divergence and then convergence back to a price mean.  While van Essen is nominated for the best returns in a high volatility category, investors might want to take a closer look at how this CTA has evolved its strategy, particularly as it relates to margin to equity usage.
 
Other interesting programs include Dominic©'s Cassiopeia Fund, a long / short volatility program. The firm is up for an award in the best returns / high volatility category, the CTA trades only listed derivatives and utilizes a quantitative method to determine the appropriate options strategy for the market environment. The Swiss based CTA reports their strategy keeps dradwons in check by remaining liquid, acting quickly when signals change and embracing a market neutral stance based on their proprietary risk metrics.

While the majority of nominees were mostly systematic traders Hathersage, a discretionary FX manager, was nominated for Best Risk Adjusted Return.  Hathersage has a 20+ year track record and trades in a variety of market environments.  Hathersage is on the Editorial Board of the Financial Analyst Journal and coined the term "Crowed Trades" in one of their research papers.

The best returns / low volatility diversified category includes Ray Dialo's Bridgewater, who is also nominated in the Best Risk Adjusted / Diversified category.  Bridgewater is said to apply their unique understanding of strategy diversification and how market environments operate to weight portfolio accordingly.  Hypothetical examples might include weighting a portfolio for a variety of market environments, including price persistence, price divergence and volatility.  One known method is to contrast these market environments with the market environment of economic strength and asset roll out of the leading asset class at its high, re-allocating as the market environment of economic strength and volatility ebbs and flows.

Competing with van Essen in the Best Defensive CTA is discretionary trader Mesirow Financial, who directionally trades on a short term basis with exposure primarily to commodities such as grains, energy and precious metals but also active in currencies, base metals, softs and equity indexes.  Some consider short term traders trading a wide variety of markets to be beneficial to managing longer-term beta exposure to markets, which could explain why the CTA is also nominated in the Best Diversifier category.

For a detailed analysis of the van Essen program mentioned in this article, click here.

For a list of all CTA nominees, or to attend the event, click here to visit the official Pinnacle Awards web site.