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ALTEGRIS MANAGED FUTURES STRATEGY FUND | MANAGER CONVERSATIONS ALTEGRIS MANAGED FUTURES STRATEGY FUND MANAGER Ewan Kirk Chief Executive Officer and Chief Investment Officer at Cantab Capital Partners Dr. Kirk is the Founding Partner, Leveraging resources neighbor Cambridge, CEO and Chief Investment Officer of Cantab Capital Partners. Prior CTA focuses on research and technology as to launching Cantab in 2006, he managed the 120-person part of ‘scientific’ approach to investing Goldman Sachs Strategies Group in Europe, and was responsible Cantab Capital Partners is one of the managers accessed by the Altegris Managed Futures for all of Goldman Sachs’ Strategy Fund. Following is a Q&A about Cantab’s philosophy and expertise managing a quantitative technology. strategy substantially similar to that which is accessed by the mutual fund. ABOUT THE ALTEGRIS: What is your background and the history of the firm? SUB-STRATEGY CANTAB: I ran Goldman Sachs’ quantitative strategies group in London + A systematic managed futures for many years. In that role, I worked with a team that did all the quant trading strategy. work at Goldman—including hundreds of mathematicians, physicists, computer scientists and statisticians. After leaving the firm in 2005, I + Leverages a multi-model partnered with two other people—Erich Schlaikjer, who was my Chief approach that includes medium- Technology Officer at Goldman, and Chris Pugh, who spent his entire term trend, value and short-term career in hedge funds, mostly at KBC. Erich is a fabulous programmer, trading approaches. and I have been in quantitative finance almost my entire career, so it was + Cantab Capital Partners is a obvious that we were going to be a systematic fund. And to be a good commodity trading advisor with systematic fund, you need two things: great people and great technology. more than $4 billion in assets We are based in Cambridge in the UK, which is, of course, the location of one of under management. the world’s best universities. I always say that if you’re going to build a factory, build it next to your raw materials. Our raw materials are extremely smart people, and the university produces hundreds of those people every year. We have very close ties to the university, and Professor Chris Rogers, who chairs the statistical finance department at Cambridge, consults for us one day a week. We also use the university for “blue sky” research and new ways of looking at the world. Most blue sky research in some ways is not useful—that’s why it’s blue sky research. But the small proportion that we use is absolutely invaluable. 888.524.9441 | altegris.com/mutualfunds ALTEGRIS MANAGED FUTURES STRATEGY FUND | MANAGER CONVERSATIONS We currently employ 38 people, of which 25 are ALTEGRIS: How would describe the process of in systems and research, with four people in our developing new trading ideas for your systems? enterprise technology support group. So, as you can see, this is a very research-heavy organization. CANTAB: Each trade is generated by the combined signals of 20 models—and keep in mind that we do ALTEGRIS: What is the investment philosophy about 20,000 trades each day. When we come up with a and trading style for the strategy? model or an idea, it can take months and in some cases nearly a year for that model or idea to pass through an CANTAB: Our philosophy rests upon two main extremely rigorous, peer-reviewed research process. pillars. The first pillar is: macro, not micro. So we That can involve stressing models, looking for stability trade macro variables, not stocks and shares and in models, looking for places where the models might credit default swaps and things like that. We trade not work. When I use the term “scientist” to describe across currencies, commodities, interest rates, bonds myself and my colleagues at Cantab, what I’m really and equity indices. The second pillar is: a systematic talking about is a mindset. It’s a mindset of evidence- approach, not a discretionary approach. So we based investing and using the scientific method to think describe our style as systematic global macro. about investing. The scientific method has worked pretty Systematic trading involves coming up with a statistical well for the human race for the last 2,000 years—it’s model of the markets. Assuming that model has worked worked out better than superstition, anyway. And we in the past, and that you have developed and researched believe in applying the same rigorous principles as in and tested your model correctly, then your hypothesis is medicine or air traffic control. Everyone is quite happy with that it’s likely to keep working in the future. So the actual evidence-based medicine and air traffic control—would execution of trades is just continuing to follow what the you fly in a plane controlled by someone who just had a model says. Now that sounds quite mechanical. In fact, gut feeling about where they wanted to go? Looking at it’s no different than the way any good investor works. investing as a science is something that we believe we Why would you invest with Warren Buffett? Because, over do well, and therefore should be of value to investors. the past 30 years, Warren Buffett has made money, and you’re assuming that’s going to continue in the future. ALTEGRIS: What are your primary competitive edges? Conceptually, that’s no different than what we do. CANTAB: I believe one of things that distinguishes us Now getting into the details, what is different about is our technology. As a systematic CTA, technology is at Cantab compared to other systematic global macro the heart of what we do. So that is something we invest firms or CTAs (commodity trading advisors) or managed literally millions and millions of dollars a year in, and futures firms is, rather than having one dominating it allows us to have a different approach to investing. model—which is normally a long-term trend model— Typically, a CTA has a single model applied to multiple we have more than 20 models. And we group these assets. Because we have the technology that can support models into three clusters: a medium-term trend a much more complex investment thesis, we have many cluster, a value cluster and a short-term cluster. models applied to many assets. To some extent, you can “When I use the term ‘scientist’ to describe myself and my colleagues at Cantab, what I’m really talking about is a mindset. It’s a mindset of evidence-based investing and using the scientific method to think about investing.” [2] ALTEGRIS ADVISORS CANTAB CAPITAL PARTNERS | EWAN KIRK look at Cantab as a software development firm. That’s ALTEGRIS: What role can your strategy play the way we think about it. We use all of the techniques in a diversified portfolio for an investor? that a giant technology company might use to develop their software—source code control, rigorous regression CANTAB: I think an advantage that managed futures testing, code reviews and an open-source database. or CTAs have is they’re not just historically uncorrelated to equities in the good times; they’re also uncorrelated Something else that I think provides Cantab with a to equities in the bad times. And that’s something that’s competitive edge is the culture of the firm. We’ve extremely rare in investments. If you think about the typical obviously grown, but we are very keen to maintain the alternative investments, like real estate, equity long/short small-company feel that works so well in this kind of or private equity, all of those investment classes have research environment. There is very little hierarchy had a very high correlation to equities—and, therefore, here, and people are given a great deal of freedom to they’re not really alternatives, in my opinion. But with explore any ideas they might be interested in, and to take managed futures and CTAs, their primary competitive responsibility for those ideas and get them into production. edge is almost zero correlation to equities over the Everyone works together on the same problems—all market cycle. And therefore, a CTA or a co-mingled fund the code, all the analysis, all the data is shared with that contains many CTAs can be an extremely good everyone in the firm. And that collegial and collaborative investment in terms of diversifying risk in a portfolio. approach, I think, makes our scientists very productive. In addition, managed futures have been a great source of ALTEGRIS: What are some of the primary returns over the last 30 years. Obviously, past performance risks involved in pursing your strategy? is no guarantee of future performance, but you can take the statistical properties of investments and use them to CANTAB: One thing that could be viewed as a risk construct a portfolio which has a higher probability of being is the fact that we target a 20% volatility. That means successful in the future. And that’s the best you can do. that in the course of a year, our returns are expected to be plus or minus 20% or so around a median return. ALTEGRIS: What is the most satisfying aspect of your job? Some people would consider that to be quite risky— although it is no more risky than, say, equities, in my CANTAB: When we started Cantab, we got to design opinion. If you think about it, the equities markets went a firm that does stuff that I think is really cool. I really down more than 50% in 2008—now that’s a very big like computers and math; I am a geek.

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