David Gerstenhaber, a former "Tiger Cub" and president of Argonaut Capital Management, certainly has an undeserving lack of coverage here. His global macro fund Argonaut's typical time frame for holding an investment is around "half a business cycle." I recalled in one of his interviews he asserted that the global macro universe is expanding, unlike other strategies, whereas he opined that the value of the equity market is much lower than it used to be and the market has a gradual process of de-equitization, though there are more participants in the long/short U.S. equity space.Here are some insights from his risk/reward framework at Argonaut:
Talking With David Gerstenhaber, Manager, Argonaut Aggressive Global Partnership Fund
Gerstenhaber's steady piloting means his fund has never had a down year since it was started in 2000.
Last year, his Argonaut Aggressive Global Partnership fund, which uses a global macro strategy, gained 12.3% while the Standard & Poor's 500 fell 37% and the Credit Suisse/Tremont Global Macro Index slid 4.6%.
That was hardly an outlying performance. The New York-based fund has never had a down year since it was started in the summer of 2000. Through 2008, its three-year average annualized return was 11.7%. During the same span, the S&P was down more than 8% a year, and the global macro index was up 8.3%. Since inception, the fund has soared 18.4% annually, versus a broad market decline of 3.8% and a 12.7% gain by the average global macro fund.
Global macro funds search for investment trends in stocks, bonds, commodities, interest rates and currencies, then bet on them in markets around the world. Says the 48-year-old Gerstenhaber: "We study macroeconomic data, central-bank policies, and government and market data that's maintained in a real-time global proprietary economic database." But unlike some other global macro-fund managers, he also drills down into individual market behavior, searching for value that isn't fully reflected in market prices.
This is a big factor driving the fund's outperformance, according to Gerstenhaber, a Yale graduate who received a master's in economics from Cambridge University on a Fulbright scholarship.
Gerstenhaber attributes part of his consistent performance to first-hand analysis. "Even the best data is always dated," he explains, "but what you see on the ground is [in] real time."
Gerstenhaber also systematically takes money off the board as targets are hit and constantly reevaluates targets to avoid being hurt by unrealistic expectations.
The fund seeks to limit daily losses to no more than 2.5%. If losses mount in any calendar month to 7%, positions are sold or completely hedged to prevent further damage.
"This not only prevents losses from spiraling," explains Gerstenhaber, "but creates an automatic 'time out' that forces us to reevaluate all positions." At the start of the next month, after the team figures out what drove the losses, some positions are reinstated, while others are replaced.
Note: Italics copied in verbatim
