Richard can you tell us a little about your background and what you particularly like about the currency trading and investment business?
I spent 20 years trading FX for Lloyds Banking Group. The role there was slightly different to what I do now as it involved servicing the FX requirements of Central Banks and massive corporate clients as well as proprietary trading to further increase profits. Even after all this time, the excitement and passion after a successful days trading is still a fantastic feeling.
When was Sharpe + Signa founded and what are the main objectives of the business?
Sharpe+Signa was founded in the summer of 2010 with our objective of course of being profitable for our clients. Therefore, achieving and continuously maintaining an absolute return was and still is, our main objective. However, managing risk in a disciplined manner has been the key to our success since our inception.
Who are the key people involved in the firm and what are their main day to day responsibilities?
Apart from myself as head of trading, Garen Ovsepyan is Founder of the firm and Portfolio Manager, Richard Shennan is Sr Portfolio Manager and Trader and Amit Patel is a Sr Strategist and Trader
Rich Shennan and myself are the two Senior Traders. We are the most active and make sure we are always about for the more volatile trading sessions. Amit plants the seeds for many of our medium and longer term ideas as well as trading shorter term on a daily basis. Garen leads up our risk committee and is in charge of constantly reviewing daily activity (giving us a hard time!) and also has a hand in the longer term strategies we take on board.
What sort of clients and investors are likely to be attracted to the services of Sharpe + Signa?
Hopefully all investors are “attracted” to our Firm for both our performance as well as the level of customized and personalized service we provide to them. However, our aim is to attract the institutional level investors (family offices, fund of funds, hedge funds and alike) who are looking for a manager with great discipline in managing risk and the ability to transform/adapt itself to existing market conditions at any time and continue to be able to produce alpha regardless of the market environment we find ourselves in..
What currency investment programs do you offer and what are they seeking to exploit?
We currently run one strategy, which is the Managed Currency Series. It is our main strategy in which we have a balanced blend of our technical, fundamental, and quantitative as well as market intelligence analyses in the decision making. We look for opportunities that other managers in the FX space may forego and filter out the noise a lot of times and try not to do what every other market participant in the market place is doing. We are by no means contrarian, but just like to be precise and concrete with the positions we take on board.
How would you describe your approach to investing and the trading methodologies that you apply?
Our strategy is fundamental and technical in that our Firm seeks risk-adjusted returns, which are uncorrelated to other investment strategies and markets by trading in the most liquid assets available to our investors, which currency markets provide. The strategy behind the Managed Currency Series is intended to generate alpha in most market conditions by benefiting from currency trends, cycles, abnormalities and of course volatility. The Managed Currency Series can be categorized as being a unique blend of short/medium/long term, and most importantly discretionary in terms of our strategy. We are not biased towards any particular currency thus creating room for absolute returns. Risk management is closely monitored via brokerage provided platforms to ensure capital preservation at all times with the expertise of our trading team as well as input from our research department.
In what fundamental ways do you think your firms investment approach and use of market intelligence and analysis differs from many other managers?
Given in today’s world, most FX market participants in the HF/CTA space are primarily systematic or somewhat systematic in terms of the decision making process, market intelligence, which is essentially market flow, is mostly disregarded. We believe that having a good scope of what is going on in the market and the underlying supply and demand is essential given we are discretionary as we collect as much data with respect to market flow and thus internally analyse this information to get a better understanding of the psychology, positioning and bias within the market participants out there.
I think the fact that our two Senior Traders come from a Banking background and have almost 40 years experience helps us maintain our discretionary style. The market can be purely order driven at times, if a massive order is going through the market, it will move that way. If the market has got itself too long/short it will reverse as stop loss hunting takes over. We don’t concentrate on tops and bottoms, as there is enough movement in the market to jump onboard once a new trend is already underway. The market is moving up and down 100s of points a day, we prefer to stay flexible and never commit to a view.
What do you consider to be the main advantages of the discretionary strategy used with the Sharpe + Signa Managed Currency series for investors looking for more diversification within their portfolios?
We believe that risk-adjusted returns can be consistently realized in today’s currency markets by applying proper technical and fundamental rules for trading, collectively with a strong discipline and a keenness for robust risk management. From a combined 100+ years of experience from our team in the currency markets, we believe that they can be a very efficient asset class that interchanges due to numerous elements that coexist in the Global Macro Economic platform. It is only with the acceptance of how these variables effect these factors that stimulate currency variations, to which we have determined as being an absolute foundation in creating pure alpha in risk adjusted returns.
“Our strategy is fundamental and technical in that our Firm seeks risk-adjusted returns, which are uncorrelated to other investment strategies and markets by trading in the most liquid assets available to our investors, which currency markets provide.”
Sharpe + Signa has established a separate Risk management unit. How does Risk management influence and shape your overall investment philosophy and what functions does your Risk committee have?
Our risk committee is responsible for the implementation of risk and investment strategies. This unit is headed by Garen Ovsepyan, and includes myszelf, Amit Patel as well as Richard Shennan. We meet weekly to review performance, risk levels and strategy within our Firm. The committee is accountable for ensuring compliance with the predetermined risk parameters set forth and also to enforce action in case these guidelines are breached.
What steps do you take to manage your strategic entry points and what techniques do you use to help adapt your strategies to the prevailing market conditions?
Strategies include probability based forecast using artificial intelligence. Our models are constantly evolving and learning current market environments to try and incorporate the noise and market psychology that is around us at all times. I believe our information flow is better than the vast majority of firms. We are patient, wait for an opportunity when we think the odds are in our favour and enter when the time is right. Every trade we take has a well thought out reason and plan behind it. Once those reasons are no longer valid we cut out and move on to the next one.
How do you achieve more robust and effective money management during the trading process?
Risk management I believe is the key to this, as without risk management, money management will become obsolete. Having the proper discipline for managing risk ties in directly with effective and robust money management. We have learned that any day we don’t lose money is a good day, therefore we don’t have the “need” to trade every day on the hour to the minute! We are patient when it comes to trade ideas as we want to be precise in this manner, and thus this becomes embedded with money management. Utilizing hard-stops on all entries, intra-day or long term, also helps us along the way as we stay disciplined in money management.
To what extent has Sharpe + Signa developed research agendas and analytical programmes to help identify trading opportunities, improve the design of new trading models and to maintain the performance of your investment strategies?
At Sharpe + Signa we are constantly making sure that our models and research is adaptive to current market conditions. A model which worked well during the Bull Run in EURUSD will most likely fail in current market environment. Hence the key remains to combine outputs from cross markets in order to derive a logical directional market view in a single market,. For example the EURUSD model output is cross verified with other financial instruments which exhibit strong correlations (most relevant). We have invested in artificial intelligence and statistical arbitrage based research driven projects which have turned out quite well for us over the last 3 years.
How do you go about back-testing your trading systems and signals to confirm that your strategies will perform as required?
Our models go through very intense forward testing, artificial intelligence based models require training of data set. Data set is carefully selected by our team (Amit Patel mainly) depending upon their range for forecast, which can be weekly or monthly. Our models are not merely buy/sell signals but are probability based prediction models which give us directional views and thus utilized as an additional “tool” for analyzing the markets given we are 100% discretionary when it comes to trading and execution.
How frequently do you fine tune your proprietary algorithms and what steps do you take to ensure that your trade execution pathways are continually optimized to reduce latency and better meet your investment objectives?
It depends on which algorithms a fund may be using, the in-house models we developed and utilize hardly requires fine tuning as they are artificial intelligence based and constantly adapting to changing market scenarios. Again, if an algorithm uses closing prices of a financial instrument then it may be vulnerable to new price ranges, but if the same algorithm is trained on normalized values like % change etc then it requires minimal adjustment going into trhe future, which is how we have developed ours to adapt.
Many money managers suffered during the financial crisis. How has Sharpe + Signa performed over the last few years and in what ways has its investment approach shielded the firm from the worst effects of turbulence in the financial markets?
The ability to take a step back and look at the bigger picture has paid great dividends for us as we look to step away from all the noise that the market sometimes does not filter out. Again, I will stress the discipline we’ve garnered in managing risk and sticking to our guns. As we don’t have the “need” to trade day in day out, we trade when we see the right opportunity arise as we are precise in the levels we choose to enter/exit of our positions. Our team overall has developed a great understanding of and the ability to adapt to the ever changing market conditions.
What electronic trading platforms do you find most appropriate to use and what factors influenced your choice?
Currenex, Integral and a few leading top tiered bank platforms. Our needs are fairly straight forward, decent liquidity and an order system you can trust. Too many platforms make things far too complicated. A traders needs are actually fairly basic as long as it’s a system that is fair. We expect our take profits to be executed once hit, our Stops only to be executed if the market was actually there, and enough liquidity for our fills to be done at the level expected.
How did you go about building your trading desk IT infrastructure and how was the trading software and connectivity technology provided?
Garen Ovsepyan, who founded the Firm set up the IT infrastructure. We connect via FIX API to our managed accounts depending on where the client holds their funds, either FCM/Brokerage or Prime Brokerage accounts.
In what ways has technology made your business more sustainable and increased trading and investment opportunities for the firm within the FX market?
Given we are discretionary and can easily trade via voice, and sometimes prefer to do so via voice, I wouldn’t say it has increased trading and investment opportunities to a great effect, but of course electronic execution has made decision making more about timeliness and readiness in the markets.
What new strategies and products have you been exploring as part of your continuing efforts to widen the range of currency investment solutions and services you make available to clients?
At this time we have no plans to offer any other asset classes as part of our investment solutions for our clients, however, when our AUM permits and we feel the necessity for diversification, we will explore other asset classes. Although we trade FX only currently, it doesn’t necessarily mean that we’re not keeping up with other asset classes to stay informed. Essentially we follow everything from German Bunds to U.S. Treasuries, equity markets ranging from Tokyo to Brazil, and commodities like gold, oil and crops. We also follow M&A activity to see where there can be large sums of money being exchanged and etc, so given we are fully aware of most things happening in the Global Macro scene, I believe we are fully prepared to expand on our offering when our AUM reaches a level where we feel that diversification will be beneficial to our clients.
Looking ahead, where do you see the main challenges facing Sharpe + Signa as you seek new ways for capturing and exploiting investment opportunities with currencies?
With respect to main challenges we see for our Firm I think that we can all attest to the fact that raising capital in today’s environment has been quite frustrating, especially when you have allocators, hedge funds, fund of funds and everyone else “chasing” returns. It’s increasingly hard to secure investors for managers such as ourselves, even though we have a proven track record over the last three years. So the biggest challenge I see for us is raising capital, in terms of the markets, we have to be ready at all times to adapt and change with the changing environment, which I believe our team has done quite well over the last few years as well.