Coquest is making a bigger push into the managed futures space.
The firm, which announced the addition of Max Eagye as managing director last week to further expand its managed futures business, sees an opportunity to grow within the space with individual investors, complementing its client base of high net-worth individuals and institutions.
John Vassallo, who co-founded Coquest with Dennis Weinman 25 years ago, said the potential for the space is still strong. The firm bought a 50 percent stake in a managed futures broker called Mega Capital six years ago and purchased the rest of the company last year.
“Time and time again, managed futures has shown that it does play a role in a portfolio,” Vassallo said. “Since 2008, we have seen some large investors invest in the managed futures space. And what we’ve seen over the past year is more non-correlation, more volatility. As investors, we have to invest bravely.”
Eagye, well-known in the space as an executive with Altegris, will help in bringing that message to new customers. It’s also a message that, if conveyed properly, will draw in investors looking to diversify their portfolios. Many investors incorrectly equate stock performance with managed futures performance. Vassallo said managed futures may provide a year’s worth of returns in just one month after 11 months of flat or negative returns.
“I think the reality is, this is a different asset class,” Vassallo said. “If we do a good job of preparing them on how managed futures perform, we’ll keep those clients.”
Vassallo would like to keep the CTA Challenge, which Eagye started at Altegris in an effort to find new trader talent. Coquest maintains a stable of about 20 CTAs which are vetted by the firm and mixed and matched for clients looking for specific exposures. Vassallo said there are new and interesting traders who may be a good fit for its clients.
“It’s not good enough to find good traders,” he said. “You need to find traders who have a comparative advantage. There are a lot of good traders out there but they have to be better than the good ones.”
By that, Vassallo means that the CTAs he seeks are those who know when to step out of the market because their strategy is not working in the current trading environment. And they must be able to explain what it is that makes them better than others out there.
“Through this last four year period, the traders who have impressed me are those that admittedly were not in the best market environment, but yet didn’t lose money,” he said. “To me, I appreciate traders who can articulate their competitive advantage and then still be disciplined enough to recognize when the markets are not conducive to them.”
The challenge for Vassallo’s team now is to continue to find new CTA talent as well as new investors willing to integrate managed futures into their portfolios.