Why We Turned Down New Business Last Week

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Marriage, just like new business relationships, should be a joyful experience.  However, what to do if you find yourself courting someone going straight for your knickers after your first date?  Last week we turned down new business from an institutional buyer.  For a growing company, it is always disappointing to turn down a new client relationship.  Yet in this case it was the prudent thing to keep growing our business.


Last week in our Insights piece we mentioned for the first time our investment strategy at Carden Futures called the Night Prowler.  The Night Prowler is an innovative strategy that trades in the overnight session of the futures markets.  It is quite profitable with low maximum losses and could very well be the best product we have ever developed.  Literally 2/3 of the trades are profitable.  But it comes with a catch.  Because it only trades in the overnight session, liquidity is limited.  We estimate that we can only manage $25 million in the strategy before returns are impacted.  So we have to be careful how much information we share in order to protect the limited opportunity we are exploiting.


The institutional buyer was a highly sophisticated futures trading firm that runs a fund of futures funds and also engages in its own proprietary trading.  We explained the Night Prowler strategy to the buyer as much as we could without revealing trade secrets, and they were immediately interested.  They asked to open a separately managed account that we would trade for them.  Again, great validation; they only work with the best.  The only problem is the separate account would allow them to see every trade we make.  To the untrained eye, the trades would be meaningless.  However, to an expert, the trades would have meaning and over time it is likely that our intellectual capital would be compromised.  We offered to manage their money in a fund structure that we recently set up for the Night Prowler, but they were not interested.  We believe they are good people, but if you show someone how to make money, it is highly unlikely that they won’t use their new knowledge.  So we had to err on the side of caution and turn down their business.


This isn’t to say that we do not take separate accounts.  We manage many separate accounts for the Night Prowler strategy.  But we only manage separate accounts for clients that we have vetted, who we know have non-commercial interests in futures trading.  These are the type of clients that we don’t mind going for our knickers.  If you would like to learn more about the Night Prowler and how it can add value to your investment portfolio, please check out this presentation.


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