Zenith Investment Partners (Zenith) Head of Alternatives Research Daniel Liptak said that occasionally an investment opportunity presents itself that questions why no one has offered something similar before. The FRM Sigma Fund is one of those offerings.
Daniel Liptak said, “The FRM Sigma Fund provides an efficient use of cash tied to a strong risk management and research process which Zenith views as an excellent approach to investing into systematic managed futures programs (commonly referred to as CTA’s). Accordingly Zenith has awarded the FRM Sigma Alpha Fund as Highly Recommended.”
The events of 2008 and the associated liquidity crises brought to sharp relief some of the unintended risks assumed when investing in hedge funds and CTA’s. These risks include:
- lack of transparency;
- liquidity mismatch;
- model based pricing; and
- a lack of separation of the investment team and the back office;
Daniel Liptak continued, “FRM Sigma provides a response to the above issues and it does so by investing in thoroughly researched trading programs through an internal managed account platform.”
“Where an underlying manager is unable to work with a managed account FRM will only invest if a single investor fund is created for it. Such a structure provides FRM the alibility to independently manage risk, cash and pricing of the underlying securities.”
Liptak added, “This approach clearly removes the underlying managers from noninvestment risks. The added value of this approach is that FRM can efficiently use nominal leverage to target return and volatility outcomes associated with single strategy funds.”
“In contrast, however, to single manager funds FRM Sigma provides diversification benefits; as it invests across different strategies which can react differently to market shocks.”
Daniel Liptak concluded, “CTA’s are currently in high demand, but as with all strategies there are risks. Zenith maintains that the FRM structure and the investment process should provide investors with an attractive opportunity to capture returns from CTA funds and navigate some of the downside risks.”
