Fixed-Income Trader's Alaskan Sojourn Produces New CTA

Sep 17 2012 | 1:15pm ET

Five years in Alaska forced one-time quantitative fixed-income trader Michael Cook to reinvent himself. Now that Cook is back in London, he's put his new skills to the test with a commodity trading adviser.

Cook, formerly of Hydra Capital Management and Bank of America, and his partner, Anthony Peters, have founded Katmai Capital Advisors. The new firm will launch its maiden program, Commodities+, a managed accounts platform, on Oct. 1.

Katmai didn't only get its name from Cook's former home—the firm is named for Alaska's Katmai National Park. Cook's time in the remote U.S. state, prompted by the relocation of his wife, who works in the oil industry, made him broaden his investment horizons.

"It was clear I would not be able to continue to trading institutional fixed-income, so I had to change markets to something more flexible," Cook told FINalternatives. "Essentially, my options were stocks or futures and futures looked by far the more interesting."

But how does a long-time fixed-income trader break into something like futures? Cook turned to a veteran of the field, Larry Williams.

"He said that what I needed to do was to follow the well-trodden path and enter a real-money trading competition to establish myself in the futures arena." He did so, entering—and winning—Robbins Financial Group's World Cup Championship of Trading twice, in 2007 in futures and 2011 in equities.

Cook has taken that newfound expertise to create Commodities+, which will invest exclusively in exchange-traded futures and options. Cook bills the fund as "a more efficient commodities in investment vehicle than passive, long-only commodity investments, such as ETFs." He promises a product distinct from "classic trend-following programs," investing widely in terms of markets and holding periods.

“The most common way of trading is to have a view on the market or a particular product, and to establish an outright futures position, with or without a stop loss against this position,” explained Cook. “This is quite a blunt way of expressing such view and does not always represent the optimal risk/reward payout for the view."

“In order to achieve the optimal risk/reward for each view/trade, dependent upon the specific situation, a far more efficient trade may be a combination of futures and options spreads. The Katmai models generate different trade combinations in different situations.”

Katmai will also differentiate itself from the average CTA in the number of trade input drivers it takes into account.

“In uncertain markets and constantly changing market conditions, always focussing on the same inputs can lead to problems!” Cook said. “Typical trend-following programs will generally focus on few main drivers such as price and volume. Katmai uses up to 20 different drivers, such as price, option market and volatility data, cycles and seasonals, sentiment, relative market participant data (commitment of traders), etc."

Katmai, which also boasts program analysts Benjamin Denney and Mattea Dibble, received approval from the UK Financial Services Authority earlier this year and Cook is currently in talks with potential investors. He puts the capacity of the Commodities+ strategy—which carries a minimum investment requirement of US$250,000 on an individual managed account basis—at US$150 million. Management fees are 1.5% annually.

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