Kevin Jamali has it going. Kevin is a Principal of Auctos Capital Management, a firm we first profiled in JLN Managed Futures back in February of 2010. Auctos is a Commodity Trading Advisor that is building a CTA business the right way.
Of course, I am conflicted. Very conflicted. You see, Kevin has some partners that include one of my oldest friends in the business. In fact, I have known John J. Ruth just about as long as I have known what futures were. He was a partner in a CBOT member firm named Victor Grain, and I worked for another partner, Tom Cashman. That was from 1978 to 1983.
Later, in 1989, he was a senior executive with LIT America when I was hired as an off the floor futures trader by a proprietary trading group that was backed by LIT. He has more recently been one of the owners of Century Trading Group, which has offices literally a floor right under where I sit in the CBOT’s Annex. John Ruth is one of the most respected men in the futures industry and one of the humblest. He is also one of the industry’s most private, eschewing the limelight and working comfortably behind the scenes. For him to step out in public as a Principal of Auctos is a significant statement.
I am also conflicted because Auctos is the type of CTA product I would very much like to sell to my brokerage clients. And my being registered with Price Asset Management, a company that among other things helps raise money for CTAs, is another conflct. We could well end up representing Auctos to clients and other brokers.
All of these and other conflicts of interest make me pause before praising Kevin and Auctos too broadly for fear of sounding like a shill. So you have to make me a deal. If you forgive me my conflicts, I will share my transparently disclosed, but biased thoughts here. Besides, you are supposed to do your own due diligence anyway.
To start, I am not going to talk about the trading performance of Auctos. If you want to find that out, you can read the disclosure document on Auctos Capital Management’s website, www.auctoscapital.com. Needless to say, I would not be wasting virtual ink by praising a CTA whose quantitative performance was not worthy of consideration for investment.
Kevin has built a company, not just a track record. There are eight people who work for the company now, though they may have other jobs or responsibilities as well. He is looking to expand by adding another person to the research function. In fact, he says 80% of the company’s expenses are for research. Kevin makes it sound like it is a team effort at Auctos, which is a good foundation.
“It is important to have solid people around you,” Kevin told me in a recent interview from The Price Group’s offices, upstairs from his. “Team chemistry is key.”
Auctos now has $25 million under management, which is up from $10 million when we wrote the story in JLN Managed Futures almost a year ago. Kevin and the Auctos team built the company and the trading systems to be able to manage much larger sums. Much larger.
When they launched in 2007, Auctos had two systems they traded. Now, they have eight trading models using three strategies sectors. They have trend following, spreads and pattern recognition strategies.
Their strategies have 70 different profit and loss line items generated from markets around the world, which includes a combination of 40 outright markets and 30 calendar spreads. They are not just in commodities, they are in financials. They don’t just trade directional, they also trade spreads. When they made improvements in 2009, adding six systems, they saw their average holding period for a position change from more than 250 days to 120 in their trend following system.
Kevin says “2011 is a critical year for us.” So far they have grown by investments mostly from individual investors, many with ties to Century Group as customers. Next they need to attract investments from institutional investors.
That looks promising, as Auctos now has two key elements in place to attract institutional investors – a 3-year track record along with the critical threshold of $25 million in assets under management. That will lend a hand in convincing allocators that the firm has long-term viability.
I believe they have the right ingredients to make that leap. They have very solid people, some of the most upstanding people I know. They have wisdom on the team, which is unusual for young hot shot CTAs. That wisdom and good team chemistry are keys to growing successfully.
However, their weakness (because everyone has a weakness) is marketing. This is not an uncommon problem for CTAs. (See last month’s JLN Managed Futures interview with Kristin Fox.) The good part about this weakness is that they have concentrated on developing a quality product and company. They have not focused on marketing and sales and are not unduly influenced by marketing considerations.
Kevin is a trader. He was a proprietary trader in a company full of proprietary traders. He approached this as a trader, not as a marketer, broker or salesman. I consider Kevin’s and the team’s weakness in marketing to be a company strength.
I believe they have their priorities straight. They are in this for the long term. They are in this to grow it to a significant size. Maybe I have seen the Kevin Costner baseball movie “Field of Dreams” too many times. However, this is a good case for “build it and they will come.”
Kevin and Auctos have built a good qualitative and quantitative track record. They have diversified trading strategies. They have good offerings with individual managed accounts with a $1 million minimum and a fund for smaller investments (consult Auctos or your broker for more details). They set out to establish a CTA firm with the values and integrity to match that of the Principals behind it. Now, I am biased, conflicted and fully disclosed, but I think Kevin Jamali and Auctos have it going.
Now that’s marketing.
Of course, there are many other firms out there in a similar position, either starting out and building a track record, or growing and looking to take it to the next level. All of it starts with the strong foundation of building a CTA the right way. That’s a story everyone in this space should aspire to.
(Jim Kharouf, Jessica Titlebaum and Sarah Rudolph contributed to this commentary)