Steben & Company Due Diligence Visit

NikolasOn April 28th, our investment analyst, Nikolas Boyce, went to Gaithersburg, Maryland to visit one of our fund managers, Steben & Company. Here is his commentary:

I started off the day with breakfast with Brad Weltler, VP of Distribution. He used to be the former Regional Director for the territory that included South Dakota. Then, Brad and I headed over to the Steben headquarters, which are located in a multi-story office building.

After Brad introduced me to a number of Steben employees, I sat down in the conference room with Senior Portfolio Manager, Chris Maxey. We went over the three different funds they currently offer (Steben Select Multi-Strategy Fund, Steben Managed Futures Strategy Fund, and Futures Portfolio Fund L.P.) from an investment perspective.

I spent some time clarifying the costs of their funds. He said that their philosophy is that keeping costs low is more important in long-only market beta strategies such as long-only bond or equity strategies that are essentially trying to capture market returns. With equity-like strategies that fall into the Absolute Return and Managed Futures asset classes, investors are paying for alpha generation (returns that beat their benchmark or the market they are following on a risk-adjusted basis) so costs are less important as long as the manager is generating alpha. Most of the perceived high costs are the result of incentive fees earned by the underlying managers from positive performance.

I also received an update on the various managers they have in their three funds and learned more about what they look for in a Commodity Trading Advisor (CTA) or hedge fund manager.

Next, I met with Basak Akiska, Director of Operational Due Diligence. Basak is in charge of looking at the operations of any CTA or hedge fund manager that Chris and his investment team have identified as a potential candidate for inclusion into one of their three funds. She has a background in audits and brings that attention to detail in her position at Steben. She compiles all of the information she gathers on a manager in an extensive report. I had the opportunity to page through one of them and I came away very impressed with the comprehensive and standardized approach to vetting managers.

Before lunch, I met briefly with Francine Rosenberger, General Counsel. She is responsible for making sure Steben’s internal processes comply with SEC, NFA and FINRA rules and regulations. She shared an example of how it can be challenging to be in agreement with all three organization’s regulations. We can relate to that here at KFG.

Regional Account Executives Kyle Pollock and Jolene Betterly took me to lunch. Kyle is assigned to Bryan Brumund, who is the Regional Director assigned to the area that contains South Dakota. After lunch, we went over the application form for the Steben Select fund. They gave me some tips on how to fill it out and I passed these onto our account manager, Lilly Vaughn, when I returned home.

Overall, it was a great experience to visit Steben’s headquarters to take a deeper look at how they run their business and ultimately how they are working towards generating value for you, the client.

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