In this second part of our conversation, Natasha dives into the details of the trading model and portfolio of Altis Partners, her firm. We discuss how they approach risk management, and how they’ve dealt with drawdowns over the years. She also gives her take on the future of the managed futures industry, what advice she would give to emerging firm managers, and other lessons she has learned along the way.

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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:

• About how Natasha and her team constructs their portfolio.
• How their models are adaptive.
• What their integrated risk approach does and how it works.
• What she thinks the capacity is of the strategy that her firm has.
• How she defines risk.
• How correlations play a part in their portfolio.
• Which sectors of the market do well with their model.
• How she sets the expectations for what kinds of drawdowns they might have.
• How to help investors with the emotional rollercoaster of drawdowns.
• How the firm goes about doing research.
• How to detect if a certain model stops working.
• What lessons they have learned from all their years in business.
• How success changes your mindset.
• Why it’s good to have people to look up to.
• Her biggest challenge facing her firm today.
• What investors are not asking when at due diligence meetings with her firm.
• Why a long term relationship with a client is important.
• What advice she would give to emerging managers today.
• Where she thinks the managed futures industry is going as a whole.

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Resources & Links Mentioned in this Episode:

• Natasha recommends reading The Hard Thing About Hard Things, a book about building a business and entrepreneurship.
• She also recommends Fortune’s Formula, by William Poundstone.

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

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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 Natasha Reeve-Gray on Linkedin.

Copyright © 2023 – CMC AG – All Rights Reserved

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Natasha

… trend following – at least 50% or 60%.

Niels

Ok, ok. Now you have another thing, and we’ve already talked a little bit about it. I wrote it down as a point I wanted to dive into a little bit more and that’s the whole thing about portfolio construction, which really is a very important point, but often gets maybe overlooked when people talk about simple and treat simple exits and basic position sizing in-between.

You mentioned the systems are adaptive. So one of the things that I was wondering and that is, within trend following, that’s what I know best, so I’m going to stick with that, often you can either develop models that have a certain fixed parameter sets. It could be a 30-day breakup or down, or whatever it might be. Am I right in understanding that your adaptiveness is part of that is that it will also pick the underlying models that have the best parameter sets for the current environment for the what you expect to be the environment? Is it that adaptive?

Natasha

No, well yes and no. Yes, that’s kind of the goal, but I think I mentioned before it’s very difficult to, it’s the timing. It’s very difficult. You need a lot of data to be able to decide that, so it’s a very slow learning process. It’s not rapid because otherwise you do fit to the noise essentially. But you’re right in saying that yes, I suppose theoretically if you had different length of trend indicators or whatever it is that we’re looking at is the weighting, if there was a particular set that did better than others, then yes, over time they would be predominant and they would have the most influence on the forecast. Yes, absolutely.

Niels

OK. In terms of, you mentioned the risk budget overall. You said there’s a hard stop at 35% of margin to equity, but in terms of other constraints, meaning not to get all risk in one market, or all risk in one small group of markets or anything like that, is there anything there inside the portfolio construction that can keep you away from over concentration in one way or the other?

Natasha

Yep, there is, but it’s not an arbitrary constraint. Perhaps it would be easier if I sort of described what can happen and what sort of the optimizer goes through. Essentially when it’s considering the combination of all this information, all these different markets, and obviously we know where we were yesterday. We have our existing positions, and we got our forecasts and we got uncertainty around the forecast, we could have volatility measures, correlation, transaction costs, there’s whole host of things that we measure, essentially, and this describes the ever-changing landscape, if you like of the portfolio.

So what we do is the optimizer says, “Well, what’s my expected portfolio benefit per lot if you like, for each of the different combinations? So let’s take a scenario where it wants to buy ten lots of corn, for example. It explores, and it looks at it. I’m going to try to break it down very simplistically. My forecast is positive and I’m going to explore buying ten, therefore my return expectation is positive, which is good, my risk (I have a risk associated with taking that position on) so obviously that’s a negative, that goes against that. Transaction costs are always negative. That adds up too.

It also has a diversification measure, which is the importance of the correlation if you like between things. What that says is how diversified does it give? Does it give a benefit to the portfolio by actually taking these lots on? That lets in the example because it is a commodity and it does move differently, that it would be positive.

That trade would be definitely taken essentially. Now it goes through this iteration all the way up from 10 to 99, and now it’s looking at 100. All the way through it’s had a positive net benefit to the portfolio. The important thing here is it’s not the return on that individual position, it’s the benefits the portfolio of taking that order.

Now we’re at 100 lots of corn. Of course, it’s all looking very rosy because you’ve actually got more diversification because actually 10 lots of corn won’t buy you very much, and it will take that position, and it explores this. I’m not going to make this really boring. But let’s take a crazy one, let’s say it wants to buy 1,000 lots of corn, and it has explored to a point where it goes, “Oh, Oh. Now it still has positive return expectation because I believe in my forecast, obviously. The risk has increased, but not unproportionately, given the measure here for example transaction was and of course diversification is gone because you no longer… it’s too concentrated on one thing. Forget the name for a second because we’re just looking at price. So it won’t take that position.

That is a sort of integrated risk approach that is done effectively by using the investment objective of maximizing the client portfolio over the long term. In other words, geometric mean maximization. That’s really the objective function inputs, which is all those things I talked about the forecasting of the price, the existing positions from yesterday, the forecast over multiple time horizons, the transaction costs, all these thing go into build that sort of logic, if you like, in the optimizer.

So yes, it does, but it doesn’t have someone saying, right, you can only have 50 lots of corn, or you can only have 30% in equities. The reason we don’t believe in that is that, well the truth is what is gold? Is it a commodity, or is it a financial? So if you label it, it becomes a different thing. I think many people are perhaps not doing it this way, but they certainly look across the portfolio and look at correlations.

Niels

Yeah, that’s very true. Now just a last question on the portfolio and the markets and the diversification. Given the fact that you have experience with managing a large amount of money, given the fact that what we see and have seen in terms of some markets becoming perhaps less liquid in certain areas at least, if investors were to ask you, so what’s your capacity based on your current methodology, what do you say to them? What do you think is the capacity of a strategy like this, which is a bit different?

Natasha

Yeah, it’s a good question because we’re so diversified, and we’re really not sort of … We can take positions on in a way, but it’s so diversified that we have very small rebalancing daily really. We used to have a joke that actually milk was the most liquid contract that we traded, but that’s just very poor bad taste. Actually it’s oats that is the most liquid market that we trade.

The truth is there is a certain point where you take money in, the impact or the benefits compounding is just not going to be there. We were peaked managing 1.6 billion and we certainly felt comfortable with quite a bit more than that. The capacity of the program, and it’s a function really as well of… there are certainly things you can do if we were that stage to improve that.

The most important thing, though, is that really the client has what they want and what they bought. The truth is if markets contract in liquidity then we would have to revise the estimate of capacity. We always thought 4 billion was sort of there, but again, we’d have to see how markets become so much more liquid when we first started. When we first started we were saying, in fact, I think Winton when we first started was saying 400 million in capacity. We were estimating at about the same, so that was the case then essentially. I haven’t really answered the question.

Niels

No that’s fine. Let’s shift gear and talk about another important topic which is the risk management which we’ve already touched upon, but I just had a couple of things I wanted to hear your opinion about. First of all, do you have a particular way of defining risk in the way you look at it? Some people look at VaR, standard deviation, margin to equity, is there anything where you say, yeah, we found this to be the most accurate way of defining risk?

Natasha

Each one has its flaws. We look at on a margin to equity basis. Again you can have a situation, particularly in the currencies where you’re not seeing the true picture, but as long as you’re mindful of that, that’s how we’ve always disclosed it. We certainly obviously standard deviation to our clients. We look at that. In terms of risk, that’s how we saw all the exposures, that’s how we look at it.

Niels

Yeah, yeah, I wanted to do something different that I may have done it before, but not very often, I want to ask you a question that one of my listeners actually emailed me because I thought it was relevant. I know you don’t do this, so it’s going to be even more interesting to ask you this, but I’m sure you can answer it just fine. It is from a gentleman called Ajesh who had a question which is, I think, a relevant question and he writes, “Most of the guests say that they target a particular volatility or particular return. I do not understand how this is done in practice as the future is unknown and uncertain. Do you know, from your experience, how firms, when they say we target 15% volatility, do you have a nice way of explaining how you think they do this?

Natasha

We don’t so that’s a good question. I think everybody will probably do it differently. We’ve built a very simple trend beater system actually; that is targeted. What we do is we adjust the risk. It’s very difficult to get it on the line all the time.

We do it by looking at the volatility over a period and then adjusting according to position essentially. So I would expect that most people who target volatility are doing some form of assessment of the market volatility and then deciding their positions by the volatility. To achieve a portfolio level.

Niels

And I would add to that, obviously the backtesting plays an important role here because a lot of that comes from really your expected volatility of your portfolio will come from all the tests you’ve done based on the way the systems operate and the risk you take. Then I thought it was a good question, and I appreciate your answer.

In terms of another thing I wanted to ask you about and that’s correlations. How does correlation play a part in your portfolio? My guess is, and you should never state what you are guessing, my guess is that it could, because you look at everything not by sector, but as the whole portfolio, I would imagine that some of your portfolio is probably skewed towards the less correlated markets in that sense, which we know are not the financials. I wanted you to expand on that.

Natasha

Yeah, I think that’s certainly true and as I said to you, we’re very agnostic about what we trade in a sense that we like, as human beings to label things, commodities, metal, whatever it is for ease. We also describe them as such within the firm and obviously externally. What you end up seeing is a tilt, a natural tilt or weighting toward commodity markets. I think it’s been about 60% since its inception actually, but it’s ranged. It’s ranged between 30 and 80.

That’s what you get from really, what it’s trying to do is diversify, and build a robust portfolio, as much as a well-positioned one for the opportunity set. So that’s what you end up with it’s one of the results. It’s a nice feature or at least we feel it is. The last three years have probably been trickier because of it in a sense there would obviously be more weighted in the quantity markets. They have been more tricky for us to trade.

I think that’s a nice feature of using those two choices I mentioned at the very beginning. You’re absolutely right; that’s how it sees correlation is it says, OK, what is correlated to each other and by how much? Correlation is very stable over time. You can build a good picture and while you can get different information from the return forecast, the trick is to make sure that… What you don’t want with an optimizational approach is that you have a very high correlated couple of markets, and then you forecast completely different, and then you overload up on them.

That’s exactly what would happen, so we have to refine that process in some way, shape, or form. We do that by bringing those markets that aren’t more highly correlated together historically it’s a stable correlation by refining those or moderating those forecasts down to prevent this. Essentially what happens is that you end up with a… Yes, you are allocating to a more diverse set.

Niels

Sure, sure. Now one of the things I was curious about, when you do forecasting have you found that there are certain areas of the portfolio, certain market sectors where the forecast has a higher success rate? Forget about performance, where it’s easier to forecast so to speak?

Natasha

Yes and no. I think that we, first of all, I should say that the forecasting currently is applied in a generic way across all of the opportunity set. So we don’t refine… That’s actually an interesting question that you’ve raised because it’s something that is on the backburner for us to actually look at. I think you can certainly see stronger forecasts when there’s been a nice strong trend for example.

Of course when things are more volatile, and they’re sort of sideways you can see the forecast is just nondirectional, and there’s more uncertainty surrounding them essentially. We haven’t looked, per se at a set here because we don’t think about it in that way trying to tune forecast to a market or indeed a sector. Therein lies fitting to some degree, although I’m not saying that’s the wrong thing to do. Indeed, it’s what we want to look at, but the approach that we apply is generic across the board at the minute.

Niels

Before I get to the next subject here I wanted to ask you about I wanted to ask whether you get this question in your day-to-day and that is, I think a lot of investors are becoming a little bit worried, for good or bad reasons, I’m not sure. That CTAs and trend followers, maybe, in particular, will have a tough time when the interest rate cycle changes and we start seeing interest rates going up.

I think some managers probably more in the shorter term space have made that case, because of the cost of carry that we may have to be for being short these instruments. Also, I guess because classical trend followers have made a lot of money, and the interest rates are going down. Do you get this question? Is there any concern being raised towards you and when you talk to investors?

Natasha

No we don’t, we haven’t actually. The truth is the low-interest rate environment has… let’s start even before then in a high-interest rate environment before the low-interest rate environment has flat as all returns. It is easier and certainly, as I said to you, it flattens people’s returns across the board regardless of what you do. We haven’t been asked that question particularly.

We try to, going back to the point of making a lot of money from interest rates, yes, we all have. That’s one of the goals when your refining or enhancing your program is one of the things that we want to do is make sure there’s no particular alliance upon the history. So what we do is make sure that we’re not just… Essentially if you build the system within built assumptions about how history has played out, when the future comes along, and it’s slightly different, it’s going to underperform, so that’s kind of the point of what we try and do, is not have a particular alliance on a feature. Which comes across with a generic forecasting, etc., etc.

So, we are less concerned about that. I think certainly with the portfolio approach we like to think we’re not going to be subject to one sort of event. It will certainly impact us, I’m sure. In which way I can’t answer. It’s very difficult.

Niels

Sure, sure. I want to talk about drawdowns because as you mentioned as well, for our style of trading we are, most of the time, in some kind of drawdown because we happen to define drawdown as anything below the last peak, which I think equity investors did well in not defining that way so they never really bring it up. I was going to ask what kind of drawdowns do you expect, and I don’t mean in terms of absolute numbers, but in order to give investors a level of expected return and volatility than drawdowns creeps into that and I wonder whether you have found a good way of setting those expectations I guess is the question? Some people say X times monthly standard deviation is what you should expect. How do you deal with that in terms of setting expectations for investors?

Natasha

I think it has helped over a fifteen-year track record with quite a few drawdowns in it. You can certainly point to that, and you’ve lived and breathed them. The truth is, the longer you’re in business, the larger your drawdown is going to be statistically speaking. We’re very comfortable talking about it because we have them.

It goes hand in hand with a more volatile program. I mentioned we don’t target volatility, which is why I say rubbish to answer your questions previously. Essentially we don’t, and it ranges. Over the long term, it comes out about 20%, so with that comes greater return and greater drawdown, essentially.

The other thing we don’t do is we’re not targeting sharp. The portfolio we’re maximizing the growth of a portfolio, not to be confused with maximizing risk. The beauty of using geometric mean maximization is what you’re trying to do is correctly use the right amount of risk to make the most return essentially. With that approach therein you can have… If we were targeting sharp, we could probably cut the drawdown, but we’d also cut the return.

Niels

Now you’ve mentioned that you’ve been in a lot of drawdowns. I work for a firm that’s been into many, many drawdowns as well.

Natasha

I don’t know someone that doesn’t work for a firm that’s been in a few drawdowns.

Niels

Exactly, exactly, except maybe long term capital. Burnie Madoff, it just brings to mind. But anyways. The emotional roller coaster of these drawdowns, and you already mentioned that on a personal level, but I want to tap into your experience dealing with investors on this particular point. How do we, an industry, how do we as individual firms, how do we help investors deal with that emotional roller coaster as well so that they don’t end up redeeming at the wrong time?

Natasha

Hmmm, yeah, a lot of our investors are specialty CTA investors and they are very good at understanding what it is they are buying essentially, but as the people behind there that might be managing the firms or are part of the investment committee that don’t, you have that problem. Whatever you do, you’re going to have them go, “Well, I don’t understand this, this is just too steep a drawdown and we need to get out.”

What we try and do is again, I go back to transparency and try to make sure we’re getting regular contact. We do WebEx’s where we show the portfolio exposures and the forecasting down to the instrument level. We’re not afraid of giving that out. Again we’re a 95% managed account business. It’s very transparent in that respect as well.

I think it’s all about really connecting and educating. We’ve had some really pretty cross people, but generally they’re cross with us as opposed to just cross at us. Maybe that’s because of the length of time they’ve been with us. I’m sure you’re in the same position. Some of our investors have been with us over an average of ten years, so that helps.

The other thing I think that helps is in the very beginning, I would advise don’t sell the product, just tell them the facts, because they’re generally bright people and they can make their own minds up in a sense that we used to talk about the drawdowns. We would say, well this is what you can experience, and you still need to say that all the way through because actually, the one thing I have learned is that you don’t really know your investor, and in fact they don’t even know you until you go through your first drawdown together. It sounds again a bit like a marriage, but it’s true.

Niels

Yeah, I know, it is a difficult thing to deal with. In terms of research, I know you’re not on the research side and I’m not on the research side, so I’m not trying to try and get into the nitty gritty of things, but research is often driven by the questions we ask ourselves. So I was wondering when you look at your research team at the moment what are the conversations like? What areas do you find interesting to look into?

Natasha

So something that we’ve done post the adaptive forecasting which went in last May, is we started looking at factors that push portfolios around, and that was really interesting and actually culminated in a release a couple of weeks ago actually, called… It’s a very, very catchy name Adapative Factor Based Forecasting. Very catchy, they’re very good at coming up with these very good names that are just lovely.

That was really interesting because what we know, obviously through correlation is that there are definitely factors that push the portfolio, and nothing is independent for want of a better term. We started looking at that I think it was quarter three last year. You know what, as always with these things it evolved into what we thought we would achieve which was finding a way of forecasting in a more simple fashion rather than individual markets. But actually forecasting the factors and actually driving that to produce the sort of construction - portfolio construction.

What we found was… Actually it built some really nice features, it built and really sort of nice diversified portfolio: a better risk managed portfolio underlying which was really attractive, but we lost in the sharp ratio. So we lost in return. So they sort of scratched their heads and did a bit of thinking and looked at it again and discovered in some way they were losing the information.

The idiosyncratic behavior of the individual constituents gave us some information there that was just losing, which contributes to the loss of return. So what they did is they actually said look rather than just using these factors, let’s bring the portfolio, I’ve described it before where they sort of refined the forecast made in highly correlated pockets of markets, so that actually then, if they are highly correlated and you know because historically correlation is very stable, so it’s actually a better measure in some respects than the alpha forecast we make because it’s more certain.

If you know that then if your forecasts are different then what you want to do is actually bring them in line in those sets of markets that are highly correlated historically and obviously ongoing. That is a way of still bringing out the factor of all the things that are pushing the portfolio around without losing information. So that’s something that we’ve looked at.

There’ll be a part 2 to that actually because that resulted, while it was initially sort of the forecasting part, it ended up being more the correlation and the portfolio management element of it. And they’re certainly going to go back at a later stage and look at the forecasting and factors again. At the minute I think they’re looking at better ways of forecasting liquidity and costs in the market.

Actually the cost is very important to us. It’s very early on in the process. We have to make an assessment about how much it’s going to cost us, those 10 lots of corn I mentioned, 100 lots of corn, how much is it going to cost because it impacts what you do and your decision-making process.

As I said, we only every ever work on two things at any one time because we have to. We have to be focused. We love looking at stuff. We have to make an assessment essentially, and this is the commerciality around it, of what benefit will it bring?

It’s a really tough thing to estimate because of course you don’t know. If you knew at the beginning it would be very easy, research would be just a very easy thing, but you don’t often. Also, we have to make an assessment how long it’s going to take us and the resources that we need not only just in new data, or it could be team members, whatever it might be that all contributes together to form one weighting. Essentially what happens is that those are the top weighted all just get worked on. That’s the top two. It’s been some interesting work this year actually or last year I should say.

Niels

Sure. You mentioned the word focus a few times which is really important. Do you know what it stands for?

Natasha

Do I know what focus stands for?

Niels

I’m going to spare you for that, but I was told that Follow One Course Until Success.

Natasha

That’s very good. I like that.

Niels

Focus. A question that I get from the listeners from time to time, and maybe it’s not something that you use specifically but I think maybe generically you have some opinion about it, and that is, when people hear about systematic traders and they have all these models, and they work in a big box so to speak. It can be quite overwhelming to think about it, so a question I often get is really how do you know, or how do you detect if a certain model stops working? Do you have any view on that?

Natasha

Yeah, it’s very difficult, isn’t it? This comes back to my generic fitting into the past question. Every time we enhance the program, it’s just like any other systematic CTA with a research team will do the same thing. We’re very sterile with what we do, blah, blah, blah, out of sample data, we don’t reveal the truth until the very end of the process because then you have to make a decision. That’s the point where you’re fitting essentially to some degree.

Every time you either do or indeed you don’t do something, you are making a decision based on what you know from history, essentially. So I think it’s very difficult to make that call. I think you can certainly see… We try to make sure that the indicators that we have are completely independent and not overlapping. That helps because previously we would have had more overlapping and less independent indicators way back in the past.

I think that sort of cleans things up to some degree. In terms of whether we make a decision of taking something out or not. It really depends on the level of its contribution I suppose within the portfolio, and it’s a very difficult question to answer because it would depend on the data I think. It would depend on the length of time you’ve got. Clearly if you have an indicator that just has not produced, ie the error around it is just so large that it’s got a zero weighting and it stayed like that for let’s say three or five years then you’ve got a question.

Niels

Sure, sure.

Natasha

But if it has a zero weighting, it’s also not doing anything that’s damaging. All you’re doing is you’ve got a system that’s slightly more complex, which is not necessarily good or bad.

Niels

No, that’s very true, that’s very true.

Now I want to jump to another thing which is really sort of more the business side of things, not so much the trading and the research, but more the business side of things. In terms of the business side, something that we often see in our business is that firms, they start young and we’re hungry and as you mentioned earlier, which I concur with we’re all a bit naive about how difficult it’s going to be, but we get started.

Then comes the success for some at least, and certainly in your case, and the growth phase. Now, in a sense, where you are, where you're kind of doing a rejuvenation or new growth phase, again, how do you use all of that experience from the first time around? How do you use that to your advantage today?

Natasha

Yeah, I think it speaks to some of the stuff we spoke about. Things that I think we didn’t do as well as we could have done. Certainly I feel older and wiser. Actually do I feel older? I feel older. I always find the older I get, the less I know, does that make any sense?

Niels

I’ve heard that before.

Natasha

Yeah, definitely. I think that we’ve learned a lot of lessons about growing a business. Now I’m not saying that we… I don’t think there is a right or wrong way. I think a lot of it, as I said, depends on luck to some degree and obviously the environment that you’re in. But I think certainly the things I’ve spoken of before, where making sure that when we grow again, in terms of team… I think one of the other important things I didn’t mention with the team which is important is that you hire for what you need, not only for today but for the next twelve to eighteen months.

Don’t go and hire someone that manages a 100 people in a great big FTSE 100 company because if you are not the great big FTSE 100 company and they’re going to struggle because it’s not what they do. I think it’s about really being very clear strategically. I think we’ve always been that way, actually, but very clear strategically about the business and direction and I don’t think you can go super long term with that necessarily. I think you have to think in the next twelve months and position yourself accordingly.

I think the hiring process could always be improved, certainly from our perspective. It can be and has been, from experience. I remember when we hired our first employee was hired… In fact, my husband did recruitment historically, and he wasn’t even in that role and he sort of did recruitment for us and found one of our fantastic developer and he was our first employee. I think we interviewed him in a pub. He didn’t drink, actually, which we thought was very suspicious. But then we discovered that lots of people that develop don’t drink.

It’s very different now. I’m not saying that that was wrong. It was perfectly right for then. I just think you have to adjust your process depending on where you are. It is process. Everything with business is process driven and consistency. You just have to think very carefully about whether it’s relevant because these amazing text books and everything can tell you how to do it, but ultimately you have to adjust it to your style I think. Otherwise, you’d lose the culture as well, which is important.

Niels

Absolutely. A little bit related to that, but I’m going to try and phrase it a little bit more elegantly, so also when you start as a firm, and you’re hungry and you have very little to lose. You said you started out with $1.2 million, and you were down to $200,000 very quickly, so in the bigger scheme of things there is less to lose, so you have a certain mindset, a certain risk tolerance, a certain risk appetite, then you have this huge success and you became very large in the business and I’m just curious, thinking back, did that change your mindset at the time, meaning what we’ve seen with other firms at least is that they become less volatile? They seek less volatility in their returns maybe? When I look at your track record, I don’t see evidence of that necessarily, but more the mindset, actually do you feel that you changed as a consequence of your success?

Natasha

I think we must have done. Just speaking to the volatility, we don’t believe… first of all we don’t target as I mentioned before, but we deliver a program to some very loyal clients, and that’s it. There’s no compromise on that. Actually this is how we manage our money. Our money is in our own vehicle. I wouldn’t want it any other way.

If you want to do a low volatility program, then we’ll launch one. You put half the amount of money in and whatever it is I think that would be our mindset. I do think we probably changed for the good and the bad in some respects. I do remember, I hope you won’t mind my telling a story.

Niels

I love stories.

Natasha

Oh do you? I’ve got loads of those. I remember being in meetings and always wanting to sort of being very keen to try and relay how great we thought we were, not we were, but what we had.

Niels

Sure.

Natasha

Very much sort of subservient, that’s not quite the right term I’m looking for, but more that style I think, and I do remember we got to, I think we just made a billion, which was just mind boggling. (Not made a billion, got to a billion) We went into this meeting and it was in Europe, so I’m going to keep it very generic the guy was very, very rude and just suppose, probably when I say rude, actually not rude just didn’t understand what it was that we were doing. He went on about how much leverage we were buying in the markets, which, of course, the futures it’s kind of a difficult question to answer because, of course, there is naturally leverage.

So we were sort of tying ourselves up in knots and I remember Steve and I were in the room together and I just remember there was a moment where we just looked at each other and thought, actually what are we doing? We were trying to placate and to help and we just sort of went… I actually remember it vividly I slammed, not slammed, I smacked my book over where I’d been writing feverishly and I said I really don’t think this is for you because I don’t feel that we’re able to explain ourselves very well.

It was a very interesting thing because the meeting changed completely, and he was lovely, and we had the most amazing meeting, which is the only time I can remember that happening. But I think that maybe, for a minute, we just went, why actually, why are we… this is crazy. Where are we not doing a good job of explaining it to him, and actually maybe we shouldn’t be here. In the sense, he doesn’t understand it. Therefore, it’s not for him. Yeah, that was a moment where we would never have done that before. We would have probably muddled on through and then made a very poor impression.

Niels

It’s interesting you say that. I love the story, thanks for sharing, because I think that it’s about being authentic, isn’t it? Being who you really are and not trying to change and try and be someone that you’re not just because you’re bigger, it doesn’t mean necessarily that you should act like people or firms that are much bigger. You should just be yourself. That’s what people buy. It’s hard, it is very hard, and it’s so difficult sometimes just to be yourself.

Natasha

Our industry idolizes people, and I don’t think that’s a bad thing because you need them. I certainly look up to many. I think we’ve been really lucky. One of my partners, in fact, all of them are lovely, but especially particular is… He’s the original brains behind all of this, the team around him now, he is a very calm and considerate person. He’s not the obvious ego. I’m not saying he doesn’t have one, but he’s not the obvious ego and he doesn’t have tantrums, and it’s very valuable actually that.

The negative aspect of it is that I respond and feel very, as I said at the very beginning, every time there’s a negative return, I’m like Ow! He’s so long term; he sees things just in a very different way, so for him it’s not like that. That can be frustrating because you want him to sometimes respond in that way. I think that’s very, very good for us actually for the research team to see that, rather than having someone that’s sort of bouncing off the walls when everything is great and then also cutting their wrists when it’s not.

Niels

Sure, absolutely. Just one more comment on stories and why I think they’re lovely and why they’re so important and that is the reality is our brains are not wired to remember PowerPoint presentations, but they’re actually wired to remember stories. That’s how history was passed down through thousands of years. So I think the more stories we can tell the better.

There’s a bigger chance that people will remember them. Anyways, back to the last few questions here. What do you see as your biggest challenge today? Where you are, where the industry is, where the markets have been? What do you see as the biggest challenge right now?

Natasha

I think our industry as whole could do a much better job of helping people understand what we do. I think that’s a big challenge for us all to contribute to that. I think we shouldn’t burry our heads in the sand. We are in a maturing industry and the fee pressure that we have seen, and it’s not just managed futures, it’s hedge funds, in general, I think that’s part of that.

I think that’s challenging because there’s a point at which when you are a sophisticated CTA, and you believe you’re delivering alpha for your clients, you need fees to pay for that research team. I think it’s crazy to say well, you can get that because we’re not going to have any fees, or we’re going to have a flat management fee. I don’t think that’s possible with these types of products. It will be Darwinian in that sense I feel.

I also think there is room for these new… A simple trend following approach, three different timed moving averages, for example, can capture trends, so where’s the rocket science in that? I think that could be part of the solution for certain people. I suppose it’s a challenge because we’re in a sort of status where it’s been horrible, and tough, which I think actually will turn out to be a really good thing for all of us actually. I certainly think that we’re better for it: better people and better business for it.

Yeah, it’s a difficult one. I definitely think we have to approach the new way people are thinking and embrace it as opposed to burying out heads in the sand and saying it’s not happening. I also think that our industry has changed dramatically in terms of the investor type and I think that’s a challenge for some businesses because the institutional client is different from the high net worth, from the family office and whilst that individuality in all of us it’s definitely a different approach. You need different people that you can engage with and deliver the right information, really.

Niels

No, very much so. Now before we go to the last section, I wanted to ask you a question. You’ve been in hundreds if not thousands of meetings and due diligence situations, and I’m just wondering what do you think investors are not asking you today when you sit down with them? Is there anything that you think that they should be focusing more on when they try and understand your strategy?

Natasha

That’s a good question. I think it’s really important… well let’s separate the two things, about the product, I think they should ask for examples of where… We try to describe our performance drivers, and I think asking for examples of that and getting someone to actually display it and show them at regular points I think is important. I suppose we do that to some degree anyway, but I think it’s getting behind the methodology and really understanding the performance drivers.

I think there're different ways you can do that. I actually have to say I think they do it quite well. I think it’s the business, I think what the last few years have shown is not the strategy risk that is the issue, it’s the manager risk and understanding the makeup of the business, understanding the dynamics of the team. To be fair, the clients that we have do focus on those things, but I’m not sure everyone does consistently, I think.

Also, it’s not just a one touch point, is it? If you’re going to invest with someone, you’re going to be with them a long while, hopefully, so this should be a regular thing. Most of our investors do that. They come on site and do all those… I’m sure you have the same thing, but some don’t. I know historically that hasn’t always been the case.

Yeah, tapping into that dynamic and the team particularly, and making sure, because look we’re pretty mediocre in terms of some things that we do as people, and they need to see that you’re hiring people that can support the business and us better in that business. So it’s a difficult one at how you get to that but that’s what…

Niels

Sure, sure, just sort of a spur of the moment question I wanted to hear your opinion or advise about. I don’t want to be biased here because I think that both types of managers plays a role. If I look at a lot of the news, a lot of the investor appetite there’s often this talk about we need to find emerging managers. They’re great. They perform better than older managers.

Yet there is a large group of managers including some firms that you and I know very well, that have been around for a long time, but have seen both the growth phase and the contraction phase, but they have all this wealth of experience, and they’re still innovative, they’re still hungry and want to grow, but it seems that there’s this natural bias from investors to a certain degree to want the latest new exciting manager. I do take the point that obviously there is AUM, and certain investors can’t invest in small managers. I accept that.

There is this natural curiosity. It’s like watching Tim Cook at Apple releasing the latest gadget, and we all want it. I see a little bit of the same. How do you think we as mature managers, but not mature in terms of size, how can we become more interesting for investors again and make them want us?

Natasha

It’s a double-edged sword isn’t it a long time. I see it as a tremendous, as I’m sure you do too, a tremendous benefit. One of our clients uses it as a reason for their investors. Essentially they say, “Look, we’ve been with not just us, guys for many, many years, and we have a relationship. You cannot buy that relationship, and the relationship equals a partnership.” I think that’s really important.

I think that’s really important, the alignment of interest and the partnership with the client. I think people don’t see it necessarily that way. We do. I’m not saying other managers, I’m saying investors don’t necessarily see it that way, and I think it’s made when you have a client that sees it that way, which is brilliant. I think it’s also down to perception.

Somebody said to me recently, probably about six months ago, not too recently, the say, “You know, Altis might be stagnating.” I think that is a perception because the new latest shiny thing. I think it’s great by the way. I love to see new people. In fact, we’re very collegiate. We know a few that are brilliant actually, or I think they’re brilliant. I haven’t seen them perform, I don’t know performance, but I think they’re good people.

I think it is just human nature and what I think our job is to make sure that the investor or the prospect understands what you are. You’re not just standing still but actually the gravitas and the weight of your experience can actually add value. Look what I certainly have learned. When I started out doing this, I didn’t understand the research process. I didn’t understand what it meant to fit, to backfit.

I think the more time you spend at this, the more you know. There is obviously as you get older people might perceive you as less hungry. I suppose there’s an element of maturity and less excitable. I don’t know, I certainly calmed down to some degree, not too much. I think it’s up to us to really do a good job of explaining we might have been here awhile, but the asset level doesn’t necessarily mean that we’re not very good at what we do.

It’s about showing what value you can deliver within a client portfolio. What can we do for you that someone else can’t? The truth is all of the CTAs I know in our industry are great at what they do. If you’re looking for just a CTA then really, blind man’s pick. If it a trend, let’s keep it simple, medium, and long term trend follower. I’m sure we’re all very good at that.

It comes down also to the people. You have to trust the person that you’re speaking to. It’s the only industry that, I think it’s hilarious, the only industry where you go to an investor, “Here you give me your money, and I’m not going to tell you what’s going to happen in the future, because we don’t know. You think, my God they take a massive risk every single time they do that in that sense. Of course, they do it with all programs, but everybody else is an economist aren’t they? They say, well we predict …. And the interest rate here. I just think it’s funny.

I haven’t really answered your question. I think it’s important to show that you are still around, which I think we all do very well, actually. That we aren’t, just because we’re slightly longer in the tooth, we’re not innovative. Maybe that means that there has to be some consolidation. I don’t know.

Niels

Probably true, yeah, probably true.

Let’s jump to the last section of our conversation today. I call it general and fun, so it’s really all over the place, but it’s a chance for the listeners to get to know you even better. The first thing isn’t so much about you as a person, but also just based on everything that you’ve learned, everything that you’ve gone through and I know a lot of the people listening to us today are also aspiring managers might look at Altis and say, “Wow, if we can one day be a firm like that, that would be great.” What advice would you give a new manager today from everything that you’ve learned?

Natasha

I would say to them, make sure you have a process with everything that you do and follow it and be consistent, and be transparent and if you feel you haven’t explained something well enough then go back and make sure you do. I think there're all sorts of things, but I think having a process.

You think about it, in the research, in the hiring, in the business development, you name it, if you have a process and it’s a numbers game at the end of the day certainly in that regard you follow a process, you adhere to it, you build your culture and brand and reinforce it every single time that you meet someone, because that carries weight in terms of what they feel about you as a firm. I think that would be a very important - process.

Niels

Absolutely. In terms of, if you were going to recommend a book for example that you felt had an impact on you could be professionally, could be personally, something that you would look to and say, “I learned from that, and I think other people can as well,” does anything spring to mind?

Natasha

Yeah there are two, actually. One is nothing to do with finance, and it’s actually a book written by a gentleman called Ben Horowitz and it’s called The Hard Thing About Hard Things.

Niels

Great title.

Natasha

It is, it is a good title. It doesn’t tell you anything about what it is about, which is tough. Essentially it’s his life experience of founding, running, and managing a tech business actually. I found that it was enjoyable to read, and I found myself chuckling and acknowledging stuff. It’s an entrepreneurial book. It’s a good read. It’s a good plain read.

The other one actually really helped me understand better. I love history, and I love all the history of what we do really as well. One of them that helped me better understand our approach when I was looking at learning about how we basically manage risk and return. It’s something called, again it’s not a financial book actually, it’s called Fortune’s Formula, and it’s by a gentleman called William Poundstone. It’s really entertaining, nontechnical biography of the Kelly criterion, which is basically a way to deal with uncertainty that gives the best return for your money without running into bankruptcy. That kind of speaks to what we do, actually in the geometric mean maximization. They’re both good books, and I recommend them.

Niels

That’s great, good stuff. What’s a perfect day for you? What’s it look like?

Natasha

Do I have to say something to do with our industry?

Niels

It could be waking up and looking at your four lovely children?

Natasha

Yeah, I would say I’m probably… I’m not very exciting. I have my four lovely boys, and I am very much in love with them and yeah, that’s my perfect day. You know what, they’re growing up super quick. I have a 10, 8, 6, and 3 year old, and I’m dreading when they don’t want to spend time with me. The minute they do, so I’m making the most of it.

Niels

Sure, absolutely, speaking of the children I wanted to ask you one thing about that, and that is, if you could take one of your skills and only one and pass it on to your children what would that be?

Natasha

Oh goodness. Can I not take skills from other people that are much better?

Niels

Let me ask you maybe in another way and that is what do you think would be really important for your children to be able to, I wouldn’t necessarily say master, but what would be a really important skill for them to have in the world that they’re going to grow up in?

Natasha

So I can answer that easily because it’s something I think I had. Don’t believe that there’s a word called “can’t.” I don’t believe there is and I never have, so if there’s one thing that I can pass on to them then I think hopefully they’re getting it is that “can’t” doesn’t exist, because it’s negative. I truly believe if you set your mind towards something, and you focus and you learn from your mistakes that you will get there.

Niels

That is sound advice. Now speaking about yourself for a little bit here, is there a fun fact that you could share, something that even the people who know you could be your partners in Altis may not know about you?

Natasha

Oh goodness, a fun fact.

Niels

It could be a secret talent that you’ve never shared.

Natasha

Secret talent. I think I probably mentioned in the beginning I did art and drama. I love painting and drawing and unfortunately if I did do that I’d get very absorbed by it, so I would be able to do nothing else that is something that I don’t usually talk about or share with people because it’s alien to our world, unless people have bought some amazing beautiful paintings. So yes that is something I would love at some stage in my life to go back to and do. I thoroughly enjoy that, particularly drawing people.

Niels

Sure, you could start by drawing your partner perhaps.

Natasha

I could, how about caricatures of them.

Niels

Yeah, sounds like a good idea. Now I said earlier that it’s about asking the right questions, and we were looking at what investors might not be asking, so I’m going to turn it on myself as well and ask you what did I miss today in our conversation. Is there anything you want to bring up to make sure that we do justice to you and to Altis here as we’re wrapping up our conversation?

Natasha

I think you did a really good job, actually. I feel very comfortable and that can sometimes with an interview… I’m not helping you here; I’m not being constructive. I think you did it very well. I think particularly, as you pointed out, I’m not in the research side, so you were able to angle it hopefully for the listener in some respects to bring out the other bits that are important about running a systematic business. It’s not just about the trading. No, I think you did a good job actually, thank you.

Niels

Good, my pleasure, absolutely. Before we end our conversation and looking maybe a little bit into the future, what do you see for Altis and maybe for the managed futures industry as a whole?

Natasha

I think the maturing of the industry comes with the maturing of how we explain ourselves and what we do. In terms of Altis, I think we’re very steady and consistent, and it’s business as usual, and really just building that relationship and with different investors and explaining what we do and continue to do that hopefully in at least a way. Our job is to try and get someone to say no because they actually understand what it is that we do and more of the same really of that. That’s what I imagine in a very short term future.

Niels

Sure, sure, as we wrap up I also have to remember to thank Eurex Exchange for sponsoring our conversation to day and as many of you know, Eurex Exchange is the venue of choice for many of the European buy-side. Before we wrap up completely Natasha, I wanted to ask where can the listeners best reach out and find out more about you and Altis, where‘s the best place to go?

Natasha

Sure, so there’s AltisPartners.com, which is our website. Of course they can always contact me, so all of us are at AltisPartners.com and it’s our first name so Natasha@AltisPartners.com or info@AltasPartners.com. It’ll pretty much get through to one of us.

Niels

That’s excellent. Now this has been a great conversation and I really appreciate you spending some time with me today on a Saturday away from your family and sharing your story, your insights and giving me and our listeners a look into to Altis that the industry as a whole and, of course, our listeners can find out all the details of the conversation in the show notes for this episode on TOPTRADERSUNPLUGGED.COM. I hope that we can connect at a later date and follow up on all the great work that you’re doing and in the meantime I wish you and all your partners the very best.

Natasha

Lovely, thank you, Niels. You and yours too.

Niels

Great thanks so much, Natasha, take care.

Ending

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