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24 MARCH, 2009
Opalesque Futures Intelligence: How did youdevelop an investment philosophy?Mark Rosenberg: I always thought marketsrun on fear and greed and go through booms
and busts. Markets are mostly efcient but are
at times irrational. You have to have ways tomake money in both situations, be prepared for
irrational markets as well as efcient markets.
Convergent strategies are about prices
converging in efcient markets. That’s the kind
of bet Long-Term Capital Management made.In 1998 the Asian crisis frightened investors,who sold the under-priced assets LTCM hadbought, causing the arbitrage strategy tocollapse. But there are other strategies – likemanaged futures – that can make money inirrational markets.OFI: What does that mean in terms of returns?MR: During periods of relative calm,convergent strategies tend to make stable,attractive returns. In an extreme event,however, there is the tail-risk of a large loss.By contrast, divergent strategies perform bestwhen volatility and uncertainty rise. I havenot found many truisms in markets, but thisis one of them. The convergent/divergentdistinction is the real difference in investmentstrategies, as 2008 showed. If you take the
worst months for stocks, you see our diversied
trading program tends to move in the oppositedirection at those times—it becomes negativelycorrelated to stocks. Ditto for the worst monthsfor bonds.OFI: Are most investments convergent?Paul Lucek: Being long stocks and bonds is aconvergent strategy, so vast pension assets areconvergent. Most hedge fund strategies arerelative value based, so they’re convergent.Managed futures is one of the few true
FOUNDING FATHER Q&A
How to Hedge Irrational Markets
Certain strategies work well at times of nancial stress. Mark Rosenberg,chairman and chief investment ofcer of SSARIS Advisors LLC, explains why. Paul Lucek, the rm’s director of research and senior portfoliomanager, adds his observations.The SSARIS Diversied Trading Program made about 52% in 2008 and has returned almost 18% annualized since inception. The rm manages several other strategies and runs a fund of funds business for State Street,the institutional asset manager and custodian. The fund of funds arm wontwo industry awards this month. State Street Global Advisors and ABP, aEuropean pension fund, are majority owners of SSARIS.Mr. Rosenberg became aware of nancial markets at age 14, when heasked his father whether there was a way to make money without workingin a factory. He started trading futures in 1968 and founded a commodity trading advisor business in 1983—that was the inception of the Diversied Trading Program, which has been in operation continuously since then.