Catalyst Funds CEO Talks Alternative Investment Strategies For Retail Investors

Catalyst Funds is a decade-old alternative asset management firm with 25 mutual funds and $5.8 billion in assets under management. While the company does have some more traditional long-only equity funds and fixed income funds, that is “definitely not the focus,” CEO Jerry Szilagyi told Benzinga in a recent conversation.

“Our main focus is on what are sometimes referred to as liquid alternative strategies,” Szilagyi said. “That includes options trading strategies, managed futures, multi-alternative macro funds [...] We also have some long/short equity and then some strategies that are kind of in between traditional and alternative, such as MLPs and bank loan funds.”

The Alternative Products

Benzinga: One of Catalyst’s alternative products, the Catalyst/Millburn Hedge Strategy Fund MBXIX, recently won the title of the Alternative Product of the Year at the 2017 Mutual Fund Industry Awards. So, what makes it so special? How does it work?

Szilagyi: This fund has a track record going back about 19 years. It was a hedge fund until about a year and a half ago, when we converted it to a mutual fund.

What this means is we changed the legal structure of the fund from a limited partnership to a mutual fund trust. So, pretty much everything else about the fund remained the same: the shareholders, the investment strategy, the portfolio manager, etc.

Now it becomes more regulated under the SEC and, because of that, it then becomes available to more retail investors instead of just accredited investors.

BZ: What are the advantages of having converted this hedge fund to a mutual fund? Did you effectively diminish the entry thresholds so that more retail investors could be able to access the funds?

Szilagyi: There are a few different benefits to investors.

One is that the funds is now available to a larger group of investors, general retail investors as opposed to just accredited investors. Another advantage is that, as an open end mutual fund, there is a lot more liquidity (unlike a hedge fund) and transparency — due to things like the daily calculation and report of the NAV.

So, I would say those are the four major benefits of the mutual fund structure: it’s more access by investors, daily liquidity, more transparency and more regulatory oversight.

BZ: Just to be clear, this means that an investor of yours, someone who wants to get into the Catalyst/Millburn Fund, does not have to have $200,000 of annual income or a net work over $1 million? Just anyone with a certain amount of money to invest qualifies here?

Szilagyi: That is correct. There are no net worth or income requirements. You just have to meet the minimum investment requirement for the fund, which is $2,500.

So, that’s one of the things that we’ve been doing: bringing these unique investment strategies that were previously only accessible to wealthy investors to the mass market.

BZ: What about strategies with low correlations with the capital markets? Are you introducing these to the public?

Szilagyi: These types of alternative strategies generally have lower correlations to the market in general, as measured by the SPDR S&P 500 ETF Trust SPY, and therefore they can provide a significant benefit to a shareholder’s portfolio overall; a diversification benefit. As we’ve seen sometimes, such as in 2008, many of the traditional assets classes became very correlated in the downturn, whereas some of these alternative strategies were not correlated to the market overall and actually showed positive returns in 2008, for example.

The Catalyst Millburn Fund was one of those funds that was positive in 2008. Many of the managed futures strategy funds that were around in 2008 also showed positive returns. So, that is really one of the main benefits of these liquid alternative strategies and, when they are included in investors’ portfolio, they play a very important diversification and risk management role.

BZ: Let’s talk investments for a minute. What else are you investing in, besides alternative strategies like managed futures and options?

Szilagyi: We do have some investments in a lot of different commodities: oil, gold, and corn are some of the larger commodities that we have investments in, through a few of our managed futures funds.

BZ: Are you investing in any sort of ETFs?

Szilagyi: In our Hedge Futures Strategy Fund, that is an option trading strategy in S&P 500 futures options, so option contracts on the S&P 500. So, the S&P 500 is the main underlying in the fund, which is right now about a $2.7 billion fund. 

Keep tuned for Part 2 of this interview, where Szilagyi goes into the process and implications of converting a hedge fund into a mutual fund.

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