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 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 .

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 -term career in 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 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.

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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 . 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.”

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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. So firstly what risk. The fact that managed futures can be long or short the firm does, day to day, is stuff that I really like doing. equities and bonds means that, in a sense, there’s less And the other thing that Erich and I get to do is only overall systemic risk with those asset classes. The risks hire people we like. So every day, I get to wake up in to think about here are more about implementation or the morning and do a job I really like, with people I getting trades in and out of the market. This is why a really like. It’s hard to beat that. And by creating an robust system infrastructure is incredibly important. environment that makes smart, creative people more productive, I fundamentally believe that it can make our For systematic managers like us, when people ask: What models, our systems, our technology and, ultimately, do you think is going to happen in the future? We always our returns for our investors better in the long run. say: We don’t know. I can’t really project whether next year will be a good year for Cantab or a bad year. It’s also not very clear what if anything the macro environment could throw at us to make it difficult or not difficult for any one of our models. One of the reasons why we have so many models is our belief that, by diversifying the model types, it makes us more robust in different market regimes.

There is no guarantee that any investment will achieve its objectives, generate profits or avoid losses.

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It is important to remember that there are risks inherent in any investment and there can be no assurance that any investment product or strategy will achieve its objectives, generate profits or avoid losses. The statements contained herein reflect the opinions of Ewan Kirk and Cantab Capital Partners, and are not necessarily those of Altegris Advisors, LLC. Certain statements are forward-looking and/or based on market conditions at the time of writing, manager expectations, projections, and information available only to Cantab Capital Partners. Such statements may or may not be accurate over the long-term and are subject to change without notice. The strategy discussed is only one component of the overall strategy utilized in the Altegris Managed Futures Strategy Fund, and should not be the only consideration for investment. Any securities or sectors identified do not represent all of the past or current holdings in the fund or strategy of the manager. Although a certain type of security or sector may have been featured as a top performer, there are other securities that were not mentioned that may have been underperformers. The reader should not assume that any sectors or types of securities discussed were or will be profitable and reference to such sectors should not be construed as a recommendation or investment advice of any kind. Mutual fund investing involves risk including the possible loss of principal. The investment expertise of the portfolio manager may prove to be inaccurate and may not produce the desired results. The manager’s judgments about the attractiveness, value and potential appreciation or depreciation of a particular security in which the fund invests may prove to be inaccurate and may not produce the desired results. The risks specific to the Altegris Managed Futures Strategy Fund include commodity risk, credit risk, derivatives risk, risk, foreign currency risk, foreign investment risk, issuer-specific risk, leverage risk, liquidity risk, management risk, market risk, non-diversification risk, short position risk, structured notes risk, taxation risk, underlying pool risk, and wholly-owned subsidiary risk. Altegris Advisors LLC is an SEC-registered investment adviser that advises alternative strategy mutual funds that may pursue investment returns through a combination of equity long short and/or other investment strategies. Investors should carefully consider the investment objectives, risks, charges and expenses of the Fund. This and other important information about a Fund is contained in a Fund’s Prospectus, which can be obtained by calling (888) 524-9441. The Prospectus should be read carefully before investing. Funds are distributed by Northern Lights Distributors, LLC member FINRA. Altegris Advisors, Cantab Capital Partners and Northern Lights Distributors are not affiliated.

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