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Interview with James S. Moore, Managing Member of TIF Fund Management LLC, the Managing Member of Triumph Investment Master Fund Ltd., a “Master-Feeder” fund, fed by TIF Onshore Fund LLC, and TIF Offshore Fund Ltd. (Currently ranked among the top performing International Balanced Multi-Strategy Asset class by Nelson’s World’s Best Money Managers for 20 and 40 quarter time frames.)
How did you get started in Hedge Funds?
After obtaining my stockbrokerage license in 1968, my primary focus and interest was on futures and options. I was particularly interested in how options can facilitate risk control while increasing the potential for profit. As my interest expanded in those areas, I was fortunate to attract the attention of some of the top experts in the futures and options industry. I worked for a number of them over the next several years and garnered considerable experience.
In 1973, a group of retired businessmen that had formed an investment club approached me to manage those assets in the securities, debt, futures and options market. At the time, I was using a single-strategy that I applied to various markets. The account was subject to significant market volatility and consequently experienced large fluctuations in return.
It became clear that I had it backwards. A single strategy increased risk whereas multiple strategies reduced risk and when multiple strategies are applied to multiple markets, they expand diversity. I soon learned that diversity is the key to both expanding opportunity and reducing risk. In turn, diversity is the key to reducing volatility and ultimately generating more consistent returns.
From that point forward, all of the products that I developed focused on multiple strategies in diverse markets. The process is dynamic and it required several years to develop. It continues to require intense focus, constant reassessment and monthly upgrades. It also requires adequate capital to properly achieve the required diversity.
In 1978, I created The Futures Group of Funds that traded diverse markets, had a unique fee structure and provided an extraordinary tax benefit to US taxpayers. The average rate of return was approximately 90% per year for the four years that I ran the funds. More importantly, the risk was low with a standard deviation under 8%. They were four great years!
A unique benefit of this investment was that investors who were subject to US taxes received an ordinary income deduction of approximately 90% of any gains generated. This was an extraordinary benefit for US taxpayers and one that was not available from any other fund offered in the US at that time, or since. The Futures Group was sold to a Japanese bank in early 1982. This proved to be a fortunate and timely decision because the US tax-law changed later that year and the ordinary deduction provision was eliminated.
I feel it took me 10 years to truly find my niche. Over the next several years I worked for Paine Webber, Thomson McKinnon and Merrill Lynch developing new products and expanding their funds and trading departments. The following are some highlights of the subsequent period.
In 1988, Thomson McKinnon was experiencing severe financial difficulties and I offered to develop a fund product for them using my own capital and management company. The concept was based on the creation of a “joint venture” with floor trading members on several “bona fide” exchanges around the globe. The fund’s investors would share in any net profit earned.
The first floor trader to whom we allocated capital was John Hirsch, an exchange member and the Chairman of the New York Cotton Exchange. I had known John for 24 years. Together we set up an individual fund for John to trade called Cotton Trading Partners LLC (“CTP”). By almost any measure, CTP was a huge success. It was non-correlated to any other investment and generated significant profits for our investors – especially in times when other funds were losing money.
For example, in 1994, one of the most difficult years for some of the best-known investment managers, CTP attained an 84% net return to our investors. The big names in Hedge Funds lost between 8 and 20% that year. As a result, other floor traders began to approach me to trade TIF Fund Management’s assets.
Thus, the concept of Triumph Fund was born and officially formed in January 1994 as a British Virgin Islands Master-Feeder fund. Triumph was a diverse, non-correlated portfolio of floor-traders’ strategies interspersed with other “niche” or “boutique” trading programs.
How does Triumph Fund differ from other hedge funds?
Triumph Investment Master Fund Ltd. (“Triumph”) is a multi-strategy, manager of mangers fund. Many people consider it a Fund of Funds, but since there is no duplication of fees, we differentiate Triumph from a Fund of Funds by calling it a Manager of Managers fund. To be precisely accurate, my management company, TIF Fund Management LLC is the MOM and Triumph is the vehicle used.
Triumph’s concept was base on the creation of joint ventures with floor traders on the various exchanges. The idea was that floor-traders that were successful after 20-30 years on the floors of an exchange, they must have refined their risk control to a science and therefore, they should qualify as excellent money managers. I found that risk control was built into their trading methodology and was an essential part of their daily activity.
My personal floor experience taught me what motivated these traders and this concept only works when the motivation of the trader, management and the investor are aligned. Floor-traders are typically complex and requires a thorough understanding of the orientation and fierce entrepreneurial spirit of successful floor traders.
Triumph presently has 19 traders whose average age is 52 years. They are mature, successful and experienced traders with an average of more than 26 years experience in the markets. Obviously, they are not the new kids on the block who have just graduated from business school or from some university math program. More typically, they exhibit the characteristics of trench-fighters who know innately that risk control takes precedent above all things because capital must be preserved to fight another day.
Each trading manager must invest his own capital in the individual account that they manage for Triumph. Their membership is on the line as protection for our investors. In addition, the benefits of their membership are contributed to the fund whenever possible.
Most of Triumph’s strategies involve short-term or intermediate-term time-frame trading. Our transaction costs are very low because of our memberships. Since these costs can be a large part of any fund’s overhead, reducing them clearly improves the Fund’s performance because a significant cost of operation is reduced. In addition, there are no additional cost or hidden fees in Triumph so the expenses, which are clearly outlined in the offering memorandum, are low. In fact, NFA/NASD audits indicate that our fees are actually lower than those stated in our offering memorandum.
What do you think are the current challenges to hedge funds?
The first challenge is to provide absolutely correct numbers in a standardized format and timely manner. This alone will facilitate comparison among investments. It will also promote trust among potential and existing investors. The next challenge is to clearly define to potential investors if and how a product actually meets the investor’s expectations. Obviously, this should be accomplished prior to their making the investment. If a product does not appear to meet their expectation, don’t sell it. The next challenge for the industry is to do a better job of policing itself. We must administer our products and our industry with pride and honor and we must exhibit discipline and professionalism. Finally, we must be innovative.
Where are hedge funds heading?
That depends upon several factors. It depends upon the industry’s ability to innovate and communicate the benefits of those innovations to investors. It also depends upon governments improving, maintaining and preserving the free market system. Over-regulation is often the sad result of over reaction to inappropriate activity by a few inept managers, but such over-regulation will continue to increase unless the industry can act responsibly and police itself.
Greed is an element of the human character. Sadly, it may be the single defining characteristic that causes legislation that could ultimately strangle our industry. Those of us that have been around for thirty years or more know that this is a difficult business. It requires intense focus, fairness, morality and thorough knowledge. We must promote education as it will be the foundation upon which the industry grows.
Specifically regarding Triumph, I see tremendous opportunity. Triumph presently combines many non-correlated strategies using a variety of proprietary analyses based on measures of randomness, risk, reliability and return, in that order. These have been TIF’s most valuable analytical tools, but in the final analysis, our personnel are the true foundation of our success.
To explain this further, investors too often consider return as their first priority, but analysis of return alone is dangerous because it does not consider the protection of assets. In fact, it actually exposes a portfolio to inadvertent and often unwarranted risk. Our analysis focuses on risk before we ever consider return. I believe that this is the fundamental reason why Triumph has experienced only 5 loosing quarters in 15 years and consistently rates so highly in industry rankings.
If risk control is important then the issue of trading maturity and experience is vital. Investors are often pleasantly surprised to find out how mature and experienced TIF’s managers are. I think they find it a refreshing contrast to many other funds where “twenty-somethings” are in control.
Contact information: Jim Moore: jim@tiffund.com or +1-845-477-0200. Qualified investors may visit the following link for fund information: www.visibilityconcepts.com/managedaccounts/partners/tif/index.html
