Trader and CFA create local hedge fund


For some, the phrase “hedge fund” might conjure up memories of Bernie Madoff’s Ponzi scheme that came crashing down in 2008 — but a pair of local financial advisers say they are creating one that will be a trustworthy source of returns not tied to stock market performance.

Matt Boersen is managing partner and chartered financial analyst with Jenison-based Straight Path Wealth Management, and Terry Steffen has been a financial adviser at Straight Path since the company acquired his firm, SA Advisory, in 2016.

Together, the two — who have a combined 40-plus years of experience in the financial industry — are launching Avron Peak Fund LP, a hedge fund they will operate as co-principals out of Straight Path’s office at 1344 Baldwin St. in Jenison.

Steffen will handle the trading side of the fund, and Boersen will focus on operations.

Avron Peak Fund LP is only open to accredited U.S. investors, which the Securities and Exchange Commission defines as a person with a net worth of more than $1,000,000; a person with income over $200,000; or a corporation, partnership or LLC.

Under the terms of its SEC registration, the fund will close when it reaches 100 investors. Boersen said they’ve “pegged internally” that $100 million is the total amount of assets they could manage before becoming inefficient and losing profitability.

Steffen said the goal is to offer investors, primarily in West Michigan, the ability to meet face to face with their traders instead of interacting solely online with someone in New York they’ve never met.

Boersen agreed.

“Money is always very emotional, and people like seeing a face, especially in an age where we’ve seen so many bad actors in the financial sector, especially in some of the hedge fund sectors. Being able to meet you face to face, see the location, see the actual strategy that’s coming out of it, I think develops a high degree of trust that’s probably missing in a lot of the financial industry,” he said.

In a fact sheet for investors, Steffen said those concerned Avron Peak is a Ponzi scheme should know that a warning sign that Madoff’s hedge fund was fabricated was that it had no independent oversight; Madoff contacted all investors directly. That will not be the case with Avron Peak.

“We have an independent third party that administers our fund and provides client reporting,” he said. “We also have an independent auditor that audits the fund every year. Both the administrator and the auditor get their information directly from the custodian.”

The administrator is Red Bank, New Jersey-based Tower Fund Services, the auditor is Englewood, Colorado-based Richey May & Co. and the custodian is New York-based Interactive Brokers.

Trading strategy

The fund will invest in publicly traded securities and will use specific algorithms tested over a period of seven to eight years that analyze the right conditions for trade before buying and then selling off when a target is hit, rather than riding market fluctuations over time.

This quick-trading approach is called active trading, and “seeks profit from price movements in highly liquid markets … (such as) volatile stocks, foreign currency trades or derivatives” on a short-term basis, according to Investopedia. Active trading requires more technical acumen than other types of investing because it is on “predictive methods based upon an equity’s price charts,” Investopedia said.

Steffen noted active trading outside a hedge fund is rare because it is prohibitively expensive to pay the required trade commissions, which would “eat up most if not all the profits.” In a pooled account like a hedge fund, only one commission per trade is required for everyone in the fund.

Boersen said they will only manage a sliver of an investor’s portfolio, and the rest might be invested via other portfolio managers in index funds or in real property.

Avron Peak will use a noncorrelated trading strategy, where investments don’t move up and down with the market or try to beat the market, but rather provide “consistent, absolute returns over the course of time.” Part of this will be accomplished by “shorting,” where a trader profits on an asset that’s going down. If gold goes down 1%, the investor makes 1%. By using this strategy, they plan to offset losses in other parts of a client’s portfolio as a result of poor stock performance.

Steffen said these methods should be left to experienced traders with deep knowledge of code. He has been trading stocks since the 1990s and writing code since high school. He uses a program called AmiBroker designed to develop trading systems with multiple, simultaneous underlying strategies, which only can be used by those proficient in writing code.

“To do what we do requires understanding of the markets in depth and enough experience to know what works and what doesn’t,” he said.

Steffen said he is excited about Avron Peak because to his knowledge, it is the only hedge fund in West Michigan, or at least the only one currently open to investors.

It’s more common in Grand Rapids to see private equity, angel and real estate investors, he said, but hedge funds have far more liquidity in comparison.


Avron Peak will require a one-year commitment from investors to get the best returns over the long term.

Steffen and Boersen designed the fee structure to keep them sitting “on the same side of the table” as investors. In other words, most of their profit will come from the performance of the investments to incentivize them to be trustworthy and do their best work when trading.

Avron Peak will charge a 1% assets-under-management (AUM) fee and a 20% performance fee — which means they will charge 1% for everyone in the fund, then take an additional 20% cut of the profits “with a high water mark.”

“If the fund drops or has a negative year, we don’t then that next year get to all of a sudden make up the 20%. We have to make up all of the losses first before we ever get to participate back into profits. So, it’s profits from the high point only,” Boersen said.

“Unless we are truly making clients money … on a long-term basis, that’s the only way we’re going to make money. That 1% AUM fee is basically meant to cover the operational costs of the fund. … The only way that we make any money from the work that we’re doing inside the fund is going to be if we perform well for clients and make them money.”

Steffen said he realizes this hedge fund might seem exotic for some in West Michigan, but the strategies are far from rare.

“I think some people are going to look at this and go, ‘Oh, wow, these guys are doing something really strange and unusual and way too out-of-the-normal bailiwick for the rest of us.’ But that’s not true,” Steffen said.

“For example, the fund we’re going to be using to trade gold is a fund that trades just like a stock on the Stock Exchange, and that fund has been basically trending down for the last eight years. But that fund trades, on an average day, $1 billion. So, what does that tell us? That means this is not something new. This is not something that isn’t being done. What we’re doing here is being done big time by a lot of big players. We’re just bringing it to maybe more people who aren’t taking part in what is happening very commonly in the market. … It’s a way to profit from an asset that isn’t necessarily going up.”

A shorting stocks primer

Also known as short selling, shorting stocks is when traders sell stock they do not own but have taken on loan from a broker.

It is a common technique for speculators, hedge funds, individual investors comfortable with risk and arbitragers, or someone who buys currencies, securities or commodities from one country’s market to make a profit by selling them on another country’s market.

Short sellers profit if a security’s price declines. The trader is motivated to sell if they believe a stock’s price is declining, so they can buy it back later at a lower price and keep the difference.

If successful, the technique gives traders the ability to hedge their downside risk of a long position in the same security they are shorting.

It is called shorting because if a stock is trading at $100 per share, and the trader borrows 50 shares from a broker and sells them, the trader is now “short” 50 shares. If and when the sale price declines as expected, say, to $70 per share, the trader can close the short position by buying 50 shares at the lower price to return the borrowed shares to the broker.

The trader’s profit on the short sale, excluding commissions and interest on the margin account, is $1,500: ($100-$70) x 50 shares = $1,500.

The risk of loss with shorting is high, which is why it should only be done by those comfortable with losses who have the technical acumen for predictive valuations.

Shorting is legal, but in the past, greedy investors have used the technique to commit fraud. Short selling is part of what led to the 2008 financial collapse, as speculators bundled subprime mortgage products on which they knew borrowers would default in order to turn around and bet against them at a profit.

Sources: Investopedia, The Balance, HuffPost

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