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Bailey McCann, Opalesque New York:

Ernest Jaffarian, founder and CEO of Efficient Capital is a veteran of the commodities space. 1986 he joined Chicago Research & Trading Group (CRT) as a member of the proprietary trading group on the floor of the Chicago Board Options Exchange (CBOE) and rose to position of Senior Vice President for OTC Treasury Options. Immediately prior to founding Efficient, Mr. Jaffarian was responsible for the managed futures department of Hull Equity Management, LLC and for the allocation of Hull Trading Company, LLC's proprietary capital among trading advisors.

Jaffarian set up Efficient Capital based on the idea that he could create a model portfolio of CTAs that was continually rebalanced and effectively managed volatility. "If you know anything about trading you know two things are really critical - the first is real time risk management and the second is using realistic mathematical models," he explained in a recent Opalesque TV interview.

He argues that a disciplined mathematical approach is critical to creating a portfolio that manages risks effectively. In order to build such a portfolio, Jaffarian treats each CTA in the portfolio as a potential return stream and analyzes the potential of each return stream against the broader volatility and return goals of the portfolio. "We start by gathering a verifiable daily return history for each manager," he says adding that once a manager qualifies for inclusion, the due diligence proc......................

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