Sunrise Capital was the first CTA (Commodity Trading Advisor) ever.

The company has evolved considerably since its inception in the 1970s.

Today on the show, Jason Gerlach, the Chief Executive Officer at Sunrise Capital joins us to discuss the history of the company and about the evolution of their trading strategy over nearly 4 decades. Sunrise has achieved astounding results over the lifetime of the company and Jason provides unique insights to the inner workings of Sunrise.

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EXCEPTIONAL RESOURCE: Find Out How to Build a Safer & Better Performing Portfolio using this FREE NEW Portfolio Builder Tool

In This Episode, You’ll Learn:

• The story of Sunrise Capitals founding in the early 1970s
• Rick Slaughter (Sunrise’s Chief Researcher) founded Commodity Monitors – the First Hedge Fund/CTA firm ever launched
• Jack Forest (Sunrise Commodities) and Gary Davis (Cresta Commodities) – The doctors trading outside the hospital
• How the three pioneers of the CTA/Commodity Trading Industry came together to form Sunrise Capital Partners in the mid 90’s
• How Jason was brought on into the firm and developed a succession plan for the business
• The unexpected story of how Jason “the Attorney” turned into Jason “the Systematic Trading Guy”
• What Sunrise Capital Partners offer today?
• How does one structure a CTA firm like Sunrise, what functions and how do you manage them?
• The role of outsourcing in the day-to-day operations of Sunrise Capital Partners
• What Sunrise discovered in the early 00’s which indicated to them a decay in long-term trend following and how they responded

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Resources & Links Mentioned in this Episode:

• Download the article Niels mentioned: Fallacies to Avoid When Selecting a CTA

Follow Niels on Twitter, LinkedIn, YouTube or via the TTU website.

IT’s TRUE ? – most CIO’s read 50+ books each year – get your FREE copy of the Ultimate Guide to the Best Investment Books ever written here.

And you can get a free copy of my latest book “The Many Flavors of Trend Following” here.

Learn more about the Trend Barometer here.

Send your questions to info@toptradersunplugged.com

And please share this episode with a like-minded friend and leave an honest Rating & Review on iTunes or Spotify so more people can discover the podcast.

Follow Jason on LinkedIn.

Copyright © 2023 – CMC AG – All Rights Reserved

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Niels

Welcome to another episode of Top Traders Unplugged. Thanks to much for tuning in today, I really do appreciate it. On today's show I'm talking to Jason Gerlach, Managing Partner and CEO of Sunrise Capital Partners. Sunrise is one of the pioneers within the alternative investment area and one of the very few firms worldwide who has a successful track record spanning over more than 30 years.

So it's a real treat to welcome Jason to the show today where he shares the experiences, the ups and the downs, that Sunrise has collected over such a long period of time. For those of you who are new to the show, I just want to let you know that you can find all of the show notes, including a full transcript of today's episode, on the TOPTRADERSUNPLUGGED.COM website. Now let's get started with part one of my conversation, I hope you will enjoy it.

So, Jason, before we jump into some of the more specific topics and questions that we want to cover today, I just wanted to start by saying that it's actually a great honor for me to have you on the podcast because I think in many ways Sunrise Capital Partners is really one of the pioneers of the CTA industry and it sets such a great example for many, if not the most, of the managers out there to aspire to. So I'm really grateful for you taking the time today.

Jason

So we go way back, pretty much to the big bang of this industry. And we're still going strong, we really think that what we do works, that it adds tremendous value for investors, that it compliments all portfolios, and we've been very successful doing this for a very long time and we don't see any reason to stop. We're very passionate about it and look forward to managing assets for many years to come.

Niels

Absolutely. And I think on that note maybe it's probably a good idea to start to give a little bit of a background maybe to yourself as well as to the firm. And I know of course that some of the partners, as you just mentioned, have been around for a really long time and it's also maybe a good idea just to give a little bit of background to them before we jump into some of the more program-oriented questions.

Jason

Niels

Wow.

Jason

So he was really on the absolute ground floor of this industry. Now, completely coincidentally a little bit north in San Diego County there were two very smart doctors at the University of California San Diego Medical School. They were radiologists, they were also teachers in radiology and their names were Jack Forrest and Gary Davis. And the two of them were quite friendly and working together in the medical field but also when they were not working at the hospital were talking about markets because they were making a little money and they were looking to try and invest it in a smarter way. And as you may have read or recall, depending on who's hearing this podcast, the late '70s were a challenging investment time. Stock markets were kind of stuck in neutral and going nowhere, we had stagflation, there were not a lot of options for investors.

Niels

Wirehouses.

Jason

It involved moving to a new headquarters, it involved upgrading our technology, it involved upgrading pretty much every aspect of the business. It involved bringing in some young talent to help us kind of carry forward. And that's really what I've kind of spent the last five years of my life doing is taking this firm and pivoting it, I guess, towards the 21st century and beyond. And it's been a lot of hard work and a lot of effort and obviously we've had a massive financial crises in the midst of it which has posed some interesting challenges that I'm sure we'll discuss. But the upshot is Sunrise 2.0 is here, a succession plan has been implemented.

Myself and Rick Slaughter, who I mentioned, and Chris Stanton, who's now our Chief Investment Officer who joined us about three years ago, are the new owners of the firm. We're carrying the firm forward under the Sunrise name with some new ideas but mostly taking a lot of the great ideas and concepts that the founders implemented back in the '80s and we're carrying that forward with us. So that's where we stand today and it's a privilege to be the CEO. and Managing Partner of Sunrise Capital Partners and I hope 30 years from now I have to come up with a new succession plan for the firm.

Niels

This is the great thing, Jason, really that imagine you were based on discretionary and fundamental analysis, you wouldn't be able to do what you've just done. This is also the strength of our industry and what we do, rule based strategies can be carried forward for many decades unlike most other strategies.

Jason

Absolutely, absolutely, that is a very important point. And even to more of the credit of the founders of Sunrise is it was never one person, it was never one person's models or one person's intellectual property. It was a collective effort, it was always the partners and the staff working collectively as a unit to create this kind of pool of intellectual property that has just continued to improve and expand and grow over time and that's something that indeed can be passed on. There's no single point of failure risk in our team, there never has been, and that's one of the reasons we can carry this forward. All the great ideas they had are baked into what we do and we've created a structure in which new ideas can funnel in and mesh with those older ideas and carry forward. So yeah, that's absolutely right and I think that's one of the things that give quantitative firms a leg up as we kind of move into this second generation era now.

Niels

And as the CEO or Managing Partner of Sunrise, I'm curious just before we jump to the next point, just one or two minutes as to how you personally ended up in sort of this quirky world of systematic trading.

Jason

So I took a very kind of circuitous route, I was an attorney, like I mentioned, and my specialty as an attorney was learning the facts of whatever case or situation was presented to me. A client would sit down with us and say, "This is our situation." I'd have to embed myself in that client's business, whatever it was, insurance or technology, consumer products, whatever it was. And so this just became another case for me. I joined Sunrise, I just started absorbing as much as I could from the very smart people who were running the firm. I took some classes at Wharton and Harvard in finance to kind of bring myself up to speed, I did a lot of traveling to visit clients and I actually met with a lot of competitors to kind of pick their brains, I went to a lot of conferences.

But ultimately brought myself up to speed on the business and it's been a lot of hard work and it was a steep learning curve but I'm there. You certainly wouldn't want me building trading models for you, that's why I have some great partners. But I think I've become pretty adept at running the asset management business that we have and creating an environment for the very smart people on my team to be the best they can be, to create the best models they can, and implement those models with great precision.

Niels

And of course I've had the pleasure of listening to you on other podcasts and on television and I certainly know that you also adapted the passion for the industry and for Sunrise. So it's a great contribution to all of our industry from that point of view as well.

Jason

Well thank you. I do, I'm very passionate about it, I love it. And a personal note is before I came to the systematic investing space I didn't know a whole lot about investing and the little bit I knew I didn't like, I didn't understand. I could never figure out, for example, why my father would watch Wall Street Week with Louis Rukeyser or whatever that show was called back in the day, hear what those gentlemen would say, and then go and run out and maybe buy one of the stocks they recommended. It made no sense to me, I would sit there and say, "How on Earth does this gentleman on TV know what's going to happen in the future? It seems like a very circumstantial, happenstancial kind of way to invest, there has to be a better way." And only when I sat down and really got to understand quantitative systematic investing did it finally dawn on me, "This is the way to do it, this is a much more intelligent, precise, scientific way of investing." So I was sold from day one.

Niels

Yeah, absolutely. Jason, do you mind giving me just a brief overview of the programs you run today and sort of roughly where you stand on the AUM?

Jason

Niels

Sure.

Jason

So those are our two current offerings.

Niels

Sounds very interesting and a good topic for a follow-up in a few months.

Jason

Yes.

Niels

Do you offer sort of general access to your programs both via funds and managed accounts today?

Jason

We do, Sunrise Evolution is accessible via our master/feeder fund structure which has an onshore component and an offshore component. The master/feeder itself is a Cayman-based structure, the offshore fund is a Cayman-based structure, the onshore fund is a Delaware fund. And we run about a third of our capital through that fund vehicle. The other two-thirds are separately managed accounts.

Niels

Fantastic. Of course a lot of people listening to this will be wanting us to get to the more details but before we do that I was just, because I think it's so important for people to understand what we do and what our firms do. Also to understand a little bit about how do you structure a firm like that, what's important, which functions do you need to have, which functions do you need to have in house, which functions do you need to have outsourced. Do you mind just taking a couple of minutes and just explaining how you've resolved that based on all of your experience?

Jason

Yeah, that's a great question and the answer to that is evolving and it's changed a lot even in the last few years. Our view has been that we're very good at certain things and there are some things we're probably not as good at. We want to focus on the things we're best at, our core competencies, to use kind of a more corporatized terms. And the things that aren't in our core competencies we want to make sure we have experts doing that even if it means those experts are outside the walls of our office. So what we really focus on doing in house is the thing we've been doing for many years which is building very good investment models, implementing those investment models with precision, overseeing and improving those investment models continually.

Everything else is secondary to that because that's really ultimately what people are hiring us to do, take their money, put them in these models, and hopefully make them money on their money in a risk responsible way. So obviously research and implementation are by far the core of our business and the partnership is set up that way. So I'm the CEO, I oversee all aspects of our business. Chris Stanton is our CIO, he oversees all aspects of the implementation of our investment models, in other words the day to day execution, making sure what we've decided we want to do in the markets is actually happening on a day-in, day-out basis. He has a deep, extensive Wall Street trading background at J.P. Morgan and later at Deerhurst Capital. So he's a perfect fit for that and if there's a better execution team in our business I'd like to see them because Chris is outstanding and the people who work with him, Annette and Josh and others are fantastic.

And then Rick Slaughter oversees the research function of what we do, he's our Chief Research Officer, so he's the kind of engine behind all of the R&D we're doing. he maintains a queue of projects that he and his team are continually looking at, whether it's just a small, subtle market add to one of our models or it's the creations of a new system, all that's kind of umbrella'ed under him. And then of course there's a lot of communication at the top of that structure, Chris and Rick speak daily and work closely hand in hand because obviously a good research idea is only as good as the implementation ability you have.

Niels

Absolutely.

Jason

And of course I'm in constant touch with both of the two of them because I'm trying to give them the tools they need. I'm want to find out what technology they need to do what we're doing, who do we need to hire to make sure they can do the job they need to do, what relationships do we need to build with brokers or banks in order to achieve what we need to do. So it's a very synergistic approach. But on the business side, outsourcing has become an increasingly valuable tool for us. Things like human resources we've decided to outsource and it's been incredibly helpful.

We get some very good outsourcing help in the compliance realm now. Certainly we have a great Chief Compliance Officer on staff, Gary Hirschfeld, who's been with us a long time but he's complemented now by a team of compliance specialists out of San Francisco at Gordian, for example, who work with us and obviously our great legal team. So it's, to me, the best asset management businesses are focusing on the asset management piece of what they're doing and perhaps using some outsourcing help in some of the other areas. Because it's very hard to be good at all the things you need to be good at to run a successful asset management firm.

Niels

Sure. Yeah, I agree completely and I think that's just part of evolution and it's part of adapting to new technology, et cetera. That's the way to do it and you've clearly done that.

Jason

Well yeah, and technology is a catalyst for all this. The things we're able to do now with technology just didn't even exist five years ago, let alone 30 years ago when this firm launched. So it's really changed the game. For example, to be able to implement complex strategies on an automated computer commuter basis is a game-changer. We would need a room of 20 traders to do what we're doing now 20 years ago.

Niels

Yeah, that's true. And what about, this is a question which is very difficult to answer I think generally when it gets asked, but do you have any sort of target or optimal size for the strategies that you run today? Obviously the equity strategy I can imagine is pretty limitless but for the sort of traditional CTA structure, do you feel that there is an optimal level that you want to get to?

Jason

Absolutely, this is something we study constantly. We think Sunrise Evolution has a cap and a very hard cap somewhere in the neighborhood of 3 to 4 dollars and we will not grow that product beyond that. We've always capped our growth, when the predecessor owners of Sunrise were at their peak assets they reached that peak and hard closed the firm because they had concerns about their ability to implement our models in some of the markets we were trading at a size much larger than we were at. And we share that view, we don't want to decay our alpha generating ability simply to raise as much money as we can. So our evolution is a cap proposition, no doubt. Now obviously at 200 million we have plenty of room to grow in it but I would think around 3 billion we will take a long, hard look at our execution and see, "Are we starting to see more slippage? Are we finding it harder, and harder to get in and out of trades in certain markets?"

And if that's the case we will cap it. Now, as you mentioned, our equity product we think the ceiling is much higher on that. I don't know where that is, honestly, but it is certainly in the billions. That program simply trades deep ETF markets right now and those markets only seem to be growing. So it would be a nice problem to have to get to the ceiling on that product. But it's not how much money you manage in this business, it really isn't, although some of our competitors seem to think that it is. It's really about the quality, "Can you deliver returns for you investors?" Because if the quality is not there, the quantity will never come.

Niels

Jason

Yes.

Niels

So just talk to me a little bit about that and how you really see the program and the changes, whether they have actually done exactly as you were hoping.

Jason

Niels

Sure, and many are.

Jason

Niels

Sure.

Jason

Niels

Interesting.

Jason

Not just our approach to it but everyone's approach to it. Just so you understand, we run our models the way we think they should be run but we also run a lot of models in the background in kind of a simulated environment that we think are emblematic of what the industry might be doing. In other words we want to study different approaches to trend following at all times.

Niels

Yeah.

Jason

Niels

Sure.

Jason

Niels

Yeah, I think that's one of the best track records in the business.

Jason

Niels

And I don't know whether it's possible to put a percentage on it but how much of the original program, if we call it that, would you say is still kept in Evolution? And also what's the profile of Evolution in terms of what kind of targeted return and what expected volatility do you go for?

Jason

Sure. So the way I like to explain Sunrise Evolution is as just that, an Evolution. In other words nothing we've done historically has been—

Ending

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