Good things take time, and that is certainly true when forming a new alternative asset management firm and launching a new multi-manager, multi-strategy alternative mutual fund. Nor is either one easy, but that is exactly what Context Asset Management has done. Conceived and formed in 2013, and formally launched this week, Context was established with a clear objective of providing investors with “products that deliver more efficient portfolios that are less related to traditional asset classes,” noted Andrew Dudley, one of two portfolio managers for Context’s new mutual fund and Senior Portfolio Manager of Context Asset Management, with whom I spoke about the new firm and the new fund.
The Firm – Context Asset Management
Context Asset Management brings together a wide range of individuals with deep skill sets in investment firm management, strategy, portfolio construction, portfolio management, manager selection and risk management across both alternative and traditional asset classes, in addition to marketing and product development. Steve Kneeley, the firm’s Chief Executive Officer, was previously CEO of Spider Management and, earlier, a co-founder of Turner Investment Partners, while John Culbertson, the firm’s Chief Investment Officer, was the CIO for a large family office where he oversaw a portfolio of hedge funds and was responsible for asset allocation decisions. On the marketing side, Kevin Garton, the firm’s Chief Marketing Officer, joined Context after having a long career in marketing, product development and sales for financial services, technology and consumer product companies.
While multi-manager, multi-strategy funds are not new to the market, Context believes they can do things differently. Their real focus is on building more risk-efficient portfolios that help investors diversify away from the risks embedded in stocks and bonds, and generate smoother, more efficient investment outcomes. As Dudley noted, “One of the key’s to success in alternatives is having a low correlation to traditional risk assets. Its on this metric that we think we can be different.”
One of the ways that Context will aim to deliver on this low correlation objective is by focusing on finding smaller managers who have a greater opportunity to deliver differentiated returns. “Size is the enemy of delivering successful alternative investment returns. So the potential for success is greater with what we call ‘right sized’ managers for each strategy.”
This principal of focusing on delivering a low correlation, and aiming to be different through careful manager selection and portfolio construction, is clearly at the heart of Context’s mission.
The Fund – Context Alternative Strategies Fund
The new fund brings together eight hedge fund managers across four different investment styles: Long/short equity, market neutral, opportunistic credit and counter cyclical. Each manager, and each investment style, has been selected to help drive the fund toward the overall risk, return and correlation characteristics that Context has in mind.
Dudley noted that ideally, they will be able to deliver a correlation to the equity market in the range of 0.3 to 0.5. While few alternative strategies deliver zero correlation, with market neutral and managed futures strategies generally being the exception, a low correlation will help diversify a portfolio and smooth longer-term returns. Avoiding market gyrations is the goal of many investors, and that is what Context is trying to help investors do with their new fund.
The eight underlying managers of the fund, and their areas of focus, are as follows:
- Phineus Partners (Long-Short Equity—Global)
- Highland Capital Management (Specialty Equity—Energy & Materials)
- Weatherbie Capital (Long-Short Equity—Market Neutral)
- Kellner Capital (Merger Arbitrage—Global)
- ESM Management (Credit Opportunities—Structured Credit)
- Armory Funds (Credit Opportunities—High Yield Distressed Debt)
- First Principles Capital Management (Relative value—Fixed Income)
- Del Mar (Volatility—Managed Futures)
Key Fund Facts
- Fund Name: Context Alternative Strategies Fund
- Ticker: CALTX
- Inception: 3/20/14
- Objective: The Fund seeks capital appreciation with an emphasis on absolute returns and low correlation to the broader U.S. equity and bond markets.
- Management Fee: 1.95%
- Fund Structure: Actively managed multi-manager, multi-strategy structure
- Firm Website: Context Asset Management
- Fund Website: Context Alternative Strategies Fund
This is a fund to keep an eye on. The team behind the firm and the fund is about as solid as it can get, and the manager structure and allocations are established to deliver on the fund’s objectives. It will be interesting to compare the development of this fund with that of some of the other recent launches from traditional fund of hedge fund firms such as Arden, Morgan Stanley AIP, Collins Capital, K2 and Blackstone, all of whom also bring deep hedge fund skill sets to the table.