New launches in the managed futures space are few and far between, but 2023 saw systematic CTA, Takahē Capital, come to market. Greg Winterton spoke with Moritz Seibert, Founder & CEO, to learn more about his firm and his views on the managed futures corner of the hedge fund industry more broadly.
GW: Moritz, you have actually been running the strategies that Takahē operates for many years. Why the decision to open up to outside capital?
MS: Indeed, our strategies have been traded with live funds since November 2017. From the outset, we emphasized transparency and shared details about our trades, positions, and performance on our website Twoquants.com. The interest grew from there and several people inquired about allocating money to our portfolio. However, at that time we neither had an investable product nor the necessary regulatory registrations. This changed in June 2022 with the launch of the Takahē Global Quantitative Fund. Everyone at Takahē is passionate about our business and we’ve been looking forward to this moment for a long time.
GW: Tell us more about the strategies you run, and the markets they trade.
MS: We trade close to 90 different futures markets, including all the major macro markets as well as some smaller ones such as white maize, oats, canola, palm oil, or orange juice. Our approach combines single market trend following strategies with momentum-driven calendar spread positions in commodities. We also trade options and focus on the implementation of long-sided delta replacement trades to increase our exposure to positive outlier trades. The spread and options trading part is what sets us apart from other managers in this space.
GW: If you look at some of the well-watched indexes in the market – the SG CTA Index, the Barclay CTA Index – 2023 was hardly a banner year for the space. What have been some of the factors affecting CTA performance last year?
MS: We’ve seen considerable dispersion in the trend following space in 2022. While a few managers saw double-digit or high single-digit gains, most CTAs hovered around zero or produced single-digit losses. Looking back, the Silicon Valley Bank incident in March was a key event for trend following funds. Concerns about a possible banking crisis in the USA led to a sharp drop in short-term interest rates globally – a move which went against the short bond positions held by most trend following funds at the time. The SG CTA Index had its worst-ever day in March. Additionally, we experienced a fair amount of range-bound, non-trending markets which caused whipsaw-losses, for instance in some equity index and metal markets. However, some markets had – and continue to have – very nice trends, for example long cocoa and long orange juice, or short natural gas more recently.
GW: There are many in the managed futures space that say that too many investors buy these products at the top and sell at the bottom. What’s your message here?
MS: Unfortunately, the statistics validate this statement. Good performance attracts attention and capital. However, performance-chasing is akin to an emotional bias that leads to underperformance and disappointment. My recommendation is twofold: First, investors should resist the marketing allures of managers emphasizing their recent strong performance. Regression to the mean is a fact, which is why it’s better to buy a good CTA on a drawdown. Second, once an investor has made the decision to allocate to the space, it’s crucial to stick with the appropriate and required investment time horizon. For most trend following funds, this horizon is at least 3-5 years.
GW: Back to Takahē specifically. What’s on your radar for the coming 12-18 months or so?
MS: Our number one focus is to generate attractive, uncorrelated performance well ahead of the return on cash. A recurring question at Takahē is: How can we increase our expected rate of return without taking on tail risks or deteriorating our trade statistics? We can improve our edge by adding more markets and strategies to our portfolio. Our trading methods work well on all sorts of markets, and the more independent markets we can trade, the better. We’d like to add the freight and power markets as well as some smaller FX markets to our mix in the coming 12-18 months since these markets have a much greater chance of decoupling from macro events than, say, the bond, equity, or petroleum markets. In our case, introducing new strategies is a much harder task than adding more markets due to our strict focus on resilience and robustness.
Moritz Seibert is Founder and CEO at Takahē Capital