Q:  What is the history of the firm and how the fund was conceived? A : Context Asset Management is an innovative provider of alternative mutual funds for both the retail and institutional investor. We believe that there is a combination of factors; both from the demand side and from the manager side, that is leading to an increase in quality of alternative managers that are now willing to offer their expertise to the retail marketplace. On the demand side, there is a real need for non-correlated strategies among the investor base. This is most acutely seen from the upper end of the mass affluent all the way up to the mid-tier of wealthy investors that has, to a large degree, been kept out of the private market. The result is that there is a market opportunity to deliver on that demand. What you need is the willingness of high-quality managers and subadvisors to participate in alternative mutual fund structures. John Culbertson, our CIO, comes from a quantitative background at Cooper Neff and in more recent years was a family office allocator to hedge funds. What he saw in the marketplace led to his belief that there was a real opportunity to put quality managers inside of accessible mutual fund structures and make that more widely available to retail investors. Two years ago, what we at Context refer to as Wave I, a lot of professionals in the alternative category would have talked about adverse selection; that is, those advisors that were willing to come into the mutual fund space weren’t necessarily the better advisors. We are rapidly moving to wave II, where if you have the right talent and systems in place, you can source high-quality managers to be subadvisors. It’s in the wake of this change that we launched Context Asset Management to take advantage of our talent, infrastructure and process to provide alternative mutual funds to retail investors. We are essentially an open architecture investment firm that will partner with strong alternative managers as we seek to deliver, in mutual fund form; a high quality product that we think will stand apart. While there have certainly been a number of offerings, the perception of the market is that it’s been alternatives light. Q:  What is lacking in the first generation of alternative funds in the marketplace? A : Wave I of alternative mutual funds was closely correlated to traditional asset classes. The true value of alternative mutual funds is that they are not highly correlated to traditional assets so that they offer portfolio diversification. The simplest way to explain that is just to take the alternatives universe and measure its correlation to the S&P 500 index and what you find is that, despite alternatives in the name, much of the universe is similar. In large part, there are two different types of alternatives. One is a diversified kind of multi-asset class, an asset allocation fund that may be somewhat tactical and move around and is characterized as long/short, but when measured in the simplest terms of correlation, is highly correlated. To Context, that doesn’t fulfill one of the elements of success in alternatives, which is actually being different. So finding alternatives that are truly different based on correlation is part of our goal. Then the second kind of alternatives are flexible bond funds that call themselves alternative and, to some degree, they could be seen as alternative in that they might be more flexible in interest rate risk but we think that’s only accessing one piece of the broader universe of investment options to deliver something that’s different. So our focus is on what we think is the next evolution in the liquid alternatives market, which is truly being thoughtful about the kinds of strategies and the kinds of managers we pick and then delivering them in mutual fund form to the marketplace. Another way we think about alternatives is the difference idea. We think , that the higher correlation we are seeing in the alternative universe is a bit of the industry falling short, frankly, on what we think is supposed to be a kind of fundamental goal of alternative investing; that is, provide a return stream that is truly separate and different. This is important because in combination with the rest of your portfolio and the traditional risks, all these closet indexes and funds that are essentially no more than different forms of beta. From our perspective, there’s nothing inappropriate about that kind of exposure. It’s certainly warranted on some level and the long-term risk premium is generally positive for most asset classes but where the value, in part, for alternatives comes is actually delivering on a return stream that is different and that is less correlated. So we have an explicit objective of a correlation less than 0.5, and we think that could successfully deliver on the promise of alternatives. Q:  What are your investment philosophy and core beliefs? A : We are trying to create and build, not just for this product but for our future vehicles as well, a firm that delivers on the promise of alternatives. It harkens back to the original days of hedge funds that were meant to deliver modest returns and modest risks; so more efficient return streams, higher Sharpe ratio return streams, and also ones that were less correlated. It’s that last piece that gave you a diversifier and it’s both of those layers that we think are important. So this particular fund is a multi-strategy, multi-manager offering and at inception will make use of eight sub advisors across a range of different alternative strategies. The overall goal of the fund is to deliver a reasonable return with a similar volatility or total risk level. Q:  How large is the alternative investing industry and how has the industry changed in the last six years? A : According to industry researchers, assets under management in the alternative mutual fund market approached $400 billon at the end of January 2014 and flows into alternative mutual funds are expected to grow 250% by 2017. The category is one of the fastest growing asset classes in the United States. Pre-2008, there was significant complacency around the level of risk that one had in the traditional 60:40 allocation between stocks and bonds in a portfolio. For a few years following the crash, there was an equal level of over-reaction to the level of risk. We are entering a period where advisors and investors have a better understanding of risk and they are looking for investment solutions that reduce risk and increase the diversity of their portfolios. At the same time, hedge fund managers are looking for new channels, as they need to broaden their investor base. The combination of these two market factors are creating significant demand for products that are uncorrelated that diversify portfolios and that reduce risk while generating reasonable returns. These are the market drivers for alternative mutual funds. Q:  What is your manager selection process and how do you evaluate strategies? A : There are a lot of layers to this but I would break it down into four larger buckets. First, when you think about managers, you’re really trying to get at the core of how they make money. We like to cut through all the hype and ask, “How do they make money? What is their edge? How did they achieve their edge and then maintain it and how sustainable is that edge?” These questions cut through most of the other elements so that’s our starting point. The second bucket is really the size, or scale. Both the growth and scale affect the strategy, but then also the surrounding firm. What other kinds of strategies do they run? What other kind of management mandates do they have? The third bucket to examine is the infrastructure. To what degree do technology and the resources of the firm impact the process? It’s not just about investment technology but then around, and this is particularly important, obviously translating to the mutual fund world - is there a culture of compliance on some level and would you be able to take and harness, in a specific way, the infrastructure of the particular sub advisor inside the mutual fund world? Finally, we analyze the people and their skill sets, background, strengths, weaknesses and biases. We want to understand their decision-making process? What is the nature of the strategy and the rules-based or the qualitative-based choices that are made in that decision-making process? It’s really thorough close examination and understanding across all four of those broader elements that you come to a decision around whether or not you want to be partners in this endeavor. Q:  What is unique about the eight sub-advisors that you have selected in your strategy? A : The fund’s eight subadvisors satisfy four broad categories. The categories aren’t necessarily traditional hedge fund return kinds of categories because a long/short equity manager can fall across a couple of different buckets. We are designing and building something that is looking to deliver a more efficient return stream. In what we call a higher volatility with the potential for settling higher correlation to the equity markets bucket, we have two managers. The first is Highland Capital, who probably is better known for managing credit risk. They happen to also have a strong energy and natural resources capability, so we are using them in that capacity as well in what we call specialty equity in energy and natural resources part of the portfolio. The second manager in that bucket is Phineas. Phineas is a global long/short equity manager. They historically have been focused on knowledge-based industries including things like technology, communications and media, but overall they have a fair amount of, flexibility with respect to overall market risk, probably ranging between 20% long and 80% long in the last five years. They are really what you would consider more traditional equity long/short with broad flexibility to be exposed to the market in some tactical way overall. The second bucket is still equity sourced but different in two big respects. It tends to be medium volatility; so slightly less volatile than the first bucket, but also by design and by construction, much more explicitly market-neutral. In that bucket, we have Kellner Capital, and Wetherby Capital, who will run a long/short market-neutral equity portfolio. The third bucket is an opportunistic credit bucket. We have two managers focused in two different, very distinct parts of the credit markets – a high yield and stressed strategy. ESN Management will execute a structured credit strategy and they’re really non-overlapping in the kinds of securities they buy and idiosyncratic in the strategies they put on. The fourth and final bucket is a counter-cyclical bucket and that’s made up of a volatility strategy and a relative-value, fixed-income strategy. The volatility strategy is managed by Del Mar and the relative-value, fixed-income strategy is managed by First Principles. That bucket is really designed to be ballast. So we think even these head strategies have characteristics in more challenging and more volatile markets when traditional growth-related betas are hit hard. That combination of 8 subadvisors and 4 overarching categories provides for a flexible allocation approach as we strive to meet or beat our performance goals. Q:  Do you include commodities, currencies and REITs as part of the alternative investment universe? A : It’s possible, in an alternative mutual fund structure, to include commodity risk and I think it’s a viable potential choice as a beta. There are some active managers within that category that may provide some value add beyond simple, passive market risk. But we’ve struggled to find managers that can deliver on that notion. To the extent we think it may warrant its own place and potentially as a stand-alone, commodity risk has its place in an alternatives bucket and for real asset allocation. At the moment, and this could develop, we’ve chosen a slightly indirect path with a manager like Highland that has an energy and natural resource focus and that’s it, but that’s not to say we wouldn’t employ the flexibility down the road. Q:  How do you define, monitor and manage risk? A : At the highest level, we are not simply looking at and understanding the subadvisors; we’re thinking about and managing how the risk rolls up at the portfolio level. We’ve partnered with a third party provider to deliver modeling that’s at the portfolio level so we can understand and make decisions on the potential for overlap across managers, things that might be hidden or less clear perhaps because of different asset classes, etc. So risk mitigation at the portfolio level is an important piece even in a multi-strategy, multi-manager structure. Q:  When do you decide to drop or replace a manager or a strategy? A : Returns are certainly a piece of the performance criteria, but we also look at how consistent and true and reliable that manager remains to their core strength, core strategy and their core expertise and to the extent they drift or to the extent they start to take undue risks or start to really deliver in a way that is markedly different than what’s been a consistent approach to this point. Finally, we’re looking for truly neutral or counter-typical kinds of return profiles from the other buckets; again, to the extent they drift from these outcomes in some market where they put themselves on the watch list.