Jerry Parker & Moritz Seibert: Deep Dive into Trend Following, Fees, and Risk

Navigating Market Chaos

• 🧠 The speakers agree that chaos, dislocations, and unexpected events are constant in markets, regardless of the era.
• 🎯 Trend following systems are designed to navigate these uncertainties, rather than predicting specific events like political actions or global crises.
• ⚠️ Jerry Parker noted that Trump's tariffs negatively impacted his performance, but emphasized sticking to systematic processes.

Risk, Leverage, and Drawdowns

• 📈 Jerry Parker's early career saw 200% annual returns with 60% drawdowns, later aiming for 20% returns with expected 40% drawdowns.
• 📉 Moritz Seibert highlights that max drawdown can average twice the annual return, and clients must be prepared for significant pain.
• 💬 Takahē Capital requires personal conversations with clients to ensure they understand and can handle potential deep drawdowns, filtering out institutional allocators who can't tolerate volatility.
• 🚫 Moritz argues against drawdown control functions that reduce position sizes based on past drawdowns, as they are often over-optimized for small sample sizes.
• ✅ Both emphasize appropriate position sizing and initial stop-losses as the best way to control risk, keeping losses small for eventual big winners.

Systematic vs. Discretionary Trading

• 🤖 The speakers strongly advocate for 100% systematic trading, believing that deviating from systems (discretion) throws research out the window.
• 🛠️ While generally systematic, they acknowledge that extreme, unforeseen geopolitical events (e.g., nuclear war) might necessitate discretionary risk reduction, though this should be rare.
• 🧠 Moritz warns against recency bias (e.g., V-shaped recoveries) influencing system changes, as historical data shows such patterns are not statistical anomalies.

Fees, Terminology, and Performance Metrics

• 💰 The discussion delves into incentive fees vs. management fees, with Takahē Capital opting for an incentive-fee-only model to align with client performance.
• 📊 Both critique the Sharpe Ratio as an inappropriate metric for non-normal trend following returns, with Moritz suggesting the MAR ratio (CAGR/Max Drawdown) as a better alternative.
• 🏷️ They discuss the terms "CTA," "Trend Following," and "Managed Futures", with a preference for "systematic trend following" and a critique of "managed futures" for often implying performance smoothing.
• 🎯 Takahē's business model includes a maximum AUM of $500 million to prevent watering down strategies and ensure access to smaller, diversified markets.