Frankly after almost 30 years in the CTA business, it takes quite a bit to shock me, when it comes to how this industry operates.
Nevertheless, on my recent trip to Miami where I was attending the two big industry conferences…I have to admit, I learned something that I had not expected.
and no…I'm not referring to the upset in the Super Bowl 2018!!
You see, throughout all of my career, investors have always told me how important it is for them to work with experienced managers, who have built their businesses and track-records through many different market cycles and who have survived the head-wind that any business and investor will encounter.
Come to think about it…I wrote about this topic in a previous blog post, inspired by my own son's scar following a big heart operation that he had to go through when he was just 9 years old.
And why he should not be embarrassed by the scar it left him with.
Why are scars so important you may ask?
Well, because they show that you survived!
Survived what ever challenge you had to face.
I think of draw downs in a manager's track-records in a similar way.
Many managers are embarrassed to show a 30, 40 or 50% draw down as part of a long track-record.
But I disagree.
I think they show character (as long as the strategy continues to make new all-time-highs of course)
OK, back to my surprise in Miami!
Now, as we kicked off the largest of the conferences in Miami, with more than 2,000 participants and $5TN (yes Trillion with a “T”) represented…I picked up a survey that the organizers had done.
In this survey, they asked allocators a number of questions about what they were looking for in terms of managers…
And one of the questions in particular caught my attention.
The questions was along the lines of how long a track-record the managers the were looking for should have as a minimum?
Do you care to take a guess what the result was?
OK…no worries…let me put you out of your suspense.
86% or so of the allocators were looking for managers with LESS THAN 5 YEARS track-record!!!
Are you kidding me!
So investors would rather buy the newest managers with hardly any real experience! Just like consumers chasing the latest iPhone (only to realize that it is much slower and the battery runs out much quicker than advertised).
As I said…this shocked me.
I actually thought that it was more important to identify managers who had proven that they could successfully navigate the markets (as well as their business) through many different market cycles and surprising events.
Managers who had proven that they could continue to innovate and produce attractive returns to their clients.
BUT, from what I could seen in this survey…it is clearly not as important than finding then “next new thing”.
To keep this post short…all I really want to say is…that to me it seems like different strategies will go in and out of fashion, and investors like to chase these “trends”.
One year its risk Premia, the next, Credit Funds, Distressed Debt, anything Quant, Relative Value Arbitrage…you named it… they all go in and out of fashion.
BUT in my experience, what NEVER goes out of fashion are managers/strategies that continues to MAKE money to their clients (decade after decade)…and ALWAYS put their clients first.
I'm posting this blog right as we go through the carnage from the recent equity market sell-off and record spike in the VIX index, and it will be interesting to see who are left standing once the dust settles.
Who would you rather have manage your money during a time like this?
I'm curious to know what you think?