Despite the challenges of the pandemic, Gresham Investment Management is on the rise, with its CTA strategy growing from a dedicated team of four to a largely dedicated team of 12, with a third of that growth occurring since the pandemic began.
Scott Kerson, Head of Systematic Strategies, says: “Despite external challenges, we’ve been able to hire high calibre people on the research and technology side.”
Much of its success is down to its view of the business as a partnership between Gresham and its investors. “This business is not just about managing other people’s money, it’s about managing money in a collective way in which everybody’s incentives are aligned,” Kerson says.
As such, Gresham hard-closed its CTA fund earlier this year due to capacity constraints in order to respect the prerogative of alpha and diversification that the fund is trying to provide.
A robust model
Gresham differentiates itself in the market by producing a stream of excess returns that are uncorrelated with traditional asset class benchmarks and competing investment styles. Its investment thesis is unique in that the fund has taken a classical investment toolkit and applied it with a singular focus to exotic or alternative commodity markets.
From an investment perspective, the CTA fund has been comfortable over the past 18 months because its models have performed as they should, and not just through having anticipated and delivered positive returns. “Our trading profiles have been normal, our risk profile has been normal, and our transaction and friction costs of implementation have been within the model assumptions that we use,” Kerson says.
An evolving industry
While Gresham is a trend follower from a market style investment perspective, that is not the case from an industry evolution perspective. However, three things that the fund has shared with the industry is the increasing interest in new asset classes such as crypto assets; the conversation around machine learning and big data; and the growing conversation about ESG.
“All of those affect us as a systematic hedge fund in one form or another, but none have really had a material impact; they’ve been relatively independent of the way we manage the model, which is a testament to the robustness of the model design,” Kerson says.
Predictions for the future
In particular, Kerson believes that ESG will keep growing in relevance, and the fund will continue to adapt to meet such demands from its investors. However, there are issues that may need further attention at an industry level.
Kerson says: “I think there is a large degree of uncertainty around how to integrate ESG concerns within the absolute return asset and systematic space, specifically as you’re not making discretionary decisions about certain companies and commodities. That raises interesting challenges that I think the industry hasn’t yet thought through carefully, not because we haven’t cared about them, but because it’s complicated and nuanced.”
Over the coming months, he feels that ESG and governance issues will only create more pressures to do things differently. “The transition to more efficient, less carbon-intensive economies, is going to have all sorts of implications for asset flows and asset allocation as well as for the way we produce and consume things. And that will continue to create both opportunities and threats to anybody in the space.”
Scott Kerson, Head of Systematic Strategies, Gresham Investment Management
Scott Kerson is responsible for strategy research across Gresham’s quantitative trading business. Prior to joining Gresham, Kerson was a partner at AHL Partners, LP, where he was Head of Commodities and a member of the AHL Research Advisory Board. Previously, Kerson held a variety of commodity research and trading positions, including Commodities Model Owner in Barclays Global Investors systematic macro group, Discretionary Trader and Quant at Ospraie and Amaranth, and Managing Director at Deutsche Bank and Merrill Lynch. Kerson holds a BA in Economics with Highest Honors from the University of California at Santa Cruz and departed ‘AbD’ with a MA in Financial Economics from Duke University.
