ACMP II Due Diligence
Frequently Asked Questions
We believe in a full transparency Policy and we would like our investors to have a full understanding of all aspects of what we do. Obviously details of our proprietary code (our ‘Algo’) must remain secret in order to protect our commercial interests and of course, those of our Clients!
Key to our Policy is a focus on improving transparency and customisation. Our investors require improved transparency to better their understanding of the investment being made by on their behalf. Customisation, both in investment mandate and commercial terms, is increasingly sought to ensure Clients can allocate to a broader range of investment opportunities which compliment their wider portfolios. ‘Managed Accounts’ are key to this evolution as they allow Clients increased transparency and more control, which allows better assessment of performance and liquidity.
Managed Accounts allow Clients to develop more optimal, customised hedge fund solutions.
The following FAQ is designed to offer prospective Clients full transparency and further information prior to making an important decision to invest in our ACMP II via a Managed Account.
Q. What is a Managed Account?
A. Managed accounts are separate investment accounts over which the investor has ultimate control. The underlying assets are owned by the investor and registered in its name. Day-to-day management of the account however is delegated to the appointed hedge fund manager.
Q. How is my investment allocated through a Managed Account structure?
A. A percent allocation management module, commonly known as PAMM, is operated by our broker to allow Clients to attach money to a specific trading strategy (i.e. ACMP II) where more than one Managed Account is operated on the basis of a limited power of attorney. PAMM allows us to manage simultaneously large numbers of managed accounts so that each managed account has its own ratio in PAMM. Trading activity results (trades, profit and loss) are allocated between managed accounts according to the ratio. Because currency trading typically achieves profitability within very narrow margins, a PAMM system allows more money to be brought into play while distributing the risk across (usually) multiple investors.
Q. Can I lose all my investment if something goes wrong?
A. When using leverage to seek superior returns there is the potential to magnify losses (as well as gains). Technically, this could result in an investment losing more than the initial capital allocated to it. Ultimate liability lies with the investor as owner of the underlying assets however, this risk can be managed by appropriate structuring of the Managed Account and the use of strict Risk Management Controls. This is a core focus of our activities.
Q. Where does my Counterparty risk lie?
A. Clients deposit funds with our Prime of Prime Broker’s bank: Ceská Sporitelna / Erste Bank Group. Ceská Sporitelna was founded in 1825 and has nearly 10,500 staff. 2016 profits were CZK 8.2bln. ; Our Prime brokers are Divisa Capital—Divisa UK Ltd (FCA Reg. No: 528328). The company focuses on foreign exchange, spot metals, contract for difference futures (CFD), and cash index CFDs catering to institutions and professional traders. Divisa UK Limited was incorporated in 2010 and is based in London, United Kingdom. Small accounts of less than USD 1,000,000 are held in individual Sub Accounts at Converse Bank. Accounts over USD 1,000,000 are held in individual Sub Accounts at Credit Agricole Bank.
Q. Who designed the underlying ACMP II trading systems you use?
A. Modelled in-house by two of the principals at Mediatrix Capital Inc. (“MCI” - our strategic partner’s) named Bryant Sewall and Michael Stewart.
Q. Are you subject to any licensing agreements?
A. Alternative Asset Management has exclusivity to offer ACMP II through our strategic partnership with MCI. Collectively hereafter referred to as “us” or “we”. (Note: MCI offer the same strategy under their own brand) The IP is proprietary, and 100% owned by us.
Q. How far back have you tested your systems?
A. We have been developing since 1999
Q. When did you last modify your systems?
A. Q1 of 2016. ACMP II systems were upgraded to trade 34 concurrent pairs, from 4. Additionally, we added a feature to our Stop Loss (“SL”), so that when a trade moves into a profit zone, but hasn’t hit the pre-set target price (“TP”), the SL moves up to a 1 pip gain break even. This allows us to cut trades that may have otherwise dipped into a negative, prior to hitting its target price. By utilizing this functionality, we hold less positions open, exit even with a small profit if we don’t hit the TP, and are able to continue trading, without holding as much open equity.
Q. How often do you evaluate/modify your systems?
A. Evaluation is constant. Modifications are typically 2-3 times a year or when an opportunity or need arises.
Q. Are there any limitations to your system?
A. Of course. The question is too broad to answer but examples may include very large size of AUM, and potential poor market liquidity …. Although both are unlikely / unrealistic.
Q. Does your system have a long or short bias?
A. Not at all. The system is completely unbiased to market direction.
Q. Do you inform your clients of minor changes to your system, methodology or risk control?
A. It depends on the changes made and if these changes are considered to have notable functional impact. Most of the time we do send out communication since the changes we make enhance the functionality to, for example: increase an asymmetrical return, decrease equity use, decrease the time to exit a trade etc. Other minor system enhancements that are too technical in nature to digest for the average non tech minded client, we don’t bother to discuss.
Q. Do you anticipate making any further changes to your systems?
A. Yes. We are always watching the analysing our systems, and the markets, to determine if there is a change(s) to optimise performance beyond where we are.
Q. Have you had other trading programs during the past five years, under this name or others? What was the start date for each?
A. Alternative Asset Management Ltd. managed the Alternative Currency Management Program (“ACMP”) for which is received a number of industry awards for top flight performance but through our partnership with Mediatrix Capital Inc. we have not offered any other program other than ACMP II. Our R&D team began system development in 2007, and began trading live with the algorithmic suite in 2013.
Q. How many systems are used to support your program?
A. 9 major algorithms, with numerous ancillary programs and Artificial Intelligence features.
Q. Are you always in the market, either long or short?
A. In the spot market, we are not “always” in the market. If the market is not conducive to trading, the system will wait for proper market conditions that can be taken advantage of. Since we are trading pairs, we are either long or short on one of the cross pairs when trading. Since we also have the ability to trade 34 concurrent pairs, it is typical that we are always in the market with a trade, and often we have multiple concurrent trades in place at any given time. But it is not a function of the system to always be in the market.
Q. What type of system do you use and to what extent? I.e. technical, fundamental, discretionary, trend following, counter-trend, reaction or anticipatory, chart patterns, seasonal cycles, spreads, options, arbitrage and so forth?
A. We have developed a Cycle/Swing trading system that is completely market directionally un-biased. Analysing various market inputs that are available real time, our system provides for market directional probability statistics, and signals a buy or a sell or a “do nothing”, based on strictly defined rules. The system has automated zone recovery functionality in the event a trade needs a zone recovery despite having signalled a high probability of a move in the opposite direction. Additional functionality, but not limited to, include automated SL placement, break even SL adjusters, same pair zone recovery, correlated pair trading for zone recovery, pre-set TP exits, and TP overrides when market conditions signal a run; to maximise gains.
Q. What is your estimate of the turnover of the strategy per year, per million dollars?
A. 3-4 yards (USD billion)
Q. What is your percentage estimate of winning vs. losing trades?
A. 80%+- / 20%+-
Q. What is the average length of winning vs. losing trades?
A. Between 1-2 Hr’s up to 1- 2 Day’s for Both
Q. What is the average gain on winning trades vs. average loss on losing trades?
A. We have both shorter term trades and swing trades. Short term trades are 10-50 PIP’s Target Profit vs. 10-25 SL with Trailing SL on Break Even +10. Swing Trades target 150-250 PIP’s with 35-50 SL with Trailing SL at Break Even plus 25. TP’s are based on the pairs average ranges on several different time frames.
Q. What are your contingency plans in the case of illness or death of key personnel?
A. We have 2 principal designers and architects/traders. We have 3 traders in addition to them who are familiar with the system. We have one staff member who is cross trained on all of the data input functionality of the system, and we have our system backed up in 3 locations. Additionally, we have portal access to the system in 6 global locations in case there is a disaster in one major hub, or prolonged power outages. In the event of death, we are 9 deep. In the event of illness, it is the same. The system is built to run on its own, although we choose to always have an override capability and watching eyes, particularly for events like the Brexit Vote, where real time data is irrelevant. In that instance, we chose to suspend trading until after the vote and until the market returned to normalcy. All positions were hedged and suspended. We had a double digit gain that month.
Q. What circumstances would shut your system down and close all open positions?
A. 70% draw down would close all open positions, and shut the system off, however we believe this could never occur since all open positions are all either; 1) in a zone recovery with a SL well inside of any possibility of a draw down anywhere near that large, or 2) in a profit zone that hasn’t hit TP, with a SL at a 1pip gain. We estimate a true account exposure is less than 7.5% in any market disaster simulation, due to the SL functionality. We emphasise that we managed well during the Brexit, and we made 3% after the CHF decoupled from the EUR even having had trades that were on the wrong side of that equation.
Additionally, circumstantially we can shut the system off, or manually close any open positions.
Q. What is method of re-entry into a market if you are stopped out?
A. Just as if there were no SL’s. The system is constantly evaluating directional probabilities, and if a signal is strong enough, it will take a trade whether there is or was an imminent SL, provided that the open equity isn’t in excess of 15% on the currency system and in excess of 20% on our ‘Super System’ (our Super System is the ACMP II 30 pair currency system augmented with 4 precious metal pairs; gold, silver, platinum and palladium. Please ask for further details).
Q. What type of R&D do you do on an ongoing basis?
A. It is regular. There is no predefined program. It is based on trying to achieve repeatable results, with less and less equity use. Some of the R&D is absolutely proprietary.
Q. Do you enter a market on strength or weakness for trend-following trades?
A. It can be both (not simultaneously obviously), depending on the strongest signalled probability of market direction. If we are looking at trend or counter trend…it will take the strength or weakness direction, if the probability is at a high enough percentage of market move to either one of the directions.
Q. What markets are your principal focus?
A. Spot Forex and Spot Metals. We trade 30 currency pairs, and 4 precious metal pairs.
Q. Do you intend on trading any cash, currency cross-rate or option markets?
A. We have a full spectrum of currency derivatives available to us in the event we decide we need the additional opportunities.
Q. What type of option strategies do you use?
A. Currently we do not utilise any FX Currency Options unless there is a severe volatility swing in a pair that makes it hard to resist.
Q. Do you trade foreign markets?
A. FX in USD, EUR, GBP, CHF and JPY Account Valuations
Q. Do you ever trade delivery month contracts?
Q. Do you trade inter and/or intra market spreads?
Q. Do you trade different markets by the same rules?
A. We trade different pairs and Metals but all in Spot.
Q. What is your allocation to various market sectors?
A. Spot Only
Q. How often do you change or review your asset allocation?
Q. What is your method for determining initial and ongoing exposure?
A. We try to keep all open exposure to a maximum 7.5% of Managed Account equity. Occasionally we’ll exceed this level but only on very volatile days. Typically we may often be as low as an average 5% of totally equity exposure.
Q. Do you scale in or enter an entire position at once?
A. Scale into all positions
Q. Do you scale out or exit an entire position at once?
A. Both, depending upon market activity.
Q. What type of markets does your system perform best/worst in?
A. Short Term Trades work a little better in Range Bound Markets and Swing Trades work better in Volatile Break Out and Trending Markets.
Q. What are your risk management parameters?
A. Our Risk parameters are different on each pair but are based on Multiple Time Frames in Relation to price ranges. Our models have SL’s on most all trades but also trail a SL to a slight Break Even+ if markets start stalling or are at specific calculated ranges or auto exit on reversal signals. A Typical Risk Parameter however is 3/1 RRR.
Q. How do you manage volatility or changes in volatility?
A. NA as Far as Derivatives unless there is a major swing one way or the other, however More Volatile markets in Spot Markets will tend to spark more trades if the ranges are consistently broken.
Q. Do you ever purposely stay out of a market?
A. Absolutely. Example: BREXIT we hedged a few open positions and stopped trading a few days prior and waited 2 weeks to start back up when markets normalised.
Q. How do you manage draw downs and subsequent recoveries?
A. Upon any unexpected DD, we’ll typically stop trading for a day or two, check markets and parameters and only start trading again on a limited basis until the Win/Loss Ratio is 80%+ and ratios are back to normal. We make no money unless we perform so our Margin Management and core Risk Management process is paramount to our success.
Q. How do you manage dramatically winning/losing positions?
A. Losing positions are cut at specific levels when there is normally a Zone Recovery Trade on the opposite side or a 3-4 to 1 SL Target Price is hit for a SL. When Markets on Swing Trades hit specific levels, our systems trail SL’s to protect the ranges exceeded and will exit those on reversal or 3rd and 4th deviation levels are hit.
Q. What is the maximum capital you can manage with your current system?
A. Well in excess of a USD billion dollars.
Q. How will equity growth affect your current trading program?
A. We trade our system through a PAMM that is able to allocate to 100,000 accounts. We would never grow to that many accounts. However, as the equity grows, we would typically keep accounts at a USD 10m size or less, so that the trades being submitted are not large enough to move the market, to draw attention or receive split fills.
As the equity growth occurs, we break accounts down into smaller amounts and leg-in multiple smaller trades for these smaller accounts. There will definitely come a point of diminished yield, but we are far from that, and our returns have been substantive enough that we could yield less, and still outperform most asset classes.
Q. What is your fee structure?
A. We charge a Performance Fee only (no Management Fees) on our Managed Accounts. For accounts that deposit between USD 250,000– USD 499,999, we charge a 50% on all NEW gains. Everything is based on an industry standard High Water Mark. Accounts that deposit between USD 500,000 - USD 999,999, we charge 40%, and for accounts that have deposited in excess of USD 1,000,000 we charge 35%.
Q. What separates you from everyone else?
A. We would rather not comment about everyone else, but we will say very specifically that our technology and methodology is superior and tested through time. We made a decision early on that the core of our development and investment on development will focus on defensive strategies, and managing the “what if’s”, with automation. Controlling the variable of a Black Swan event, or a trade that goes against the highest probability is what creates a winning track record. Developing automated functionality to achieve that is the combination of almost 40 years trading within our development team, and lots of time, trial and error to put experience to code. Outside of functionality, we would stand out as a partnership for our fraternal appreciation to one another, our loyalty to the partnership but particularly to our clients. We feel privileged to serve people, and we are proud to create wealth for our clients. Reputation for us is paramount. Capital Preservation is also our mantra.