From the September 2012 issue of Investment Advisor • Subscribe!

August 21, 2012

On a Tear: How Altegris Made Alternatives Pay Off

Jon Sundt is a busy guy. It’s paying off big for him and his team at Altegris

Photography by David Johnson Photography by David Johnson

Maintaining the proper work/family balance ain’t easy, something Jon Sundt knows firsthand. While playing conference host to 400 top advisors and investors in early May (with such notable speakers as Mohamed El-Erian, Jeffrey Gundlach and John Mauldin), Sundt had to cut short an interview in order to race across town to his daughter’s play before racing back to introduce the next VIP.

The only time he had to continue the interview was a few weeks later in between bites of lunch at a San Francisco sidewalk café.

It’s all in a day’s work for the president and CEO of Altegris, the “it” alternative investment provider he founded in 2002. The firm, with its $3.27 billion in client assets and clearing services for $997 million in institutional assets, is attracting buzz; so much so that it was able to effortlessly attract the stellar speaker lineup for its conference.

Sure, he’s riding the alternative asset wave like so many others, but what sets the firm apart is its sharp focus on liquid alternatives—something that’s democratizing the space by bringing these once exclusive products downstream to the masses.

“I was one of the forerunners of bringing true, high-quality, best-of-breed managers to the market,” Sundt explains. “The problem that most advisors have is how do they know if these [managers] are any good?”

With short histories and few track records, he continues, there’s no sophisticated framework available for product research and evaluation.

“Most of their track records are in private placement format or individual managed account format,” he says. “So we decided to use the same expertise we’re using to package private products and move it in the investor space.”

And move they have. Sundt says the firm is “on a tear,” with four different product launches over the past year and a half.

“We went from managed futures products, which now have over a billion dollars in [them],” he begins ticking off new projects in rapid fire succession. “We’ve launched the evolution product, which combines managed futures with Jeffrey Gundlach’s investment from DoubleLine Funds. We’ve launched a global macro product, which has a subset of best-of-breed global macro managers. It’s different from managed futures in that while they tend to be systematic trend followers and computer-based, global macro managers are discretionary and typically follow fundamental-driven models. Combined with those three products, we’re close to $1.6 billion now.”

He isn’t finished and doesn’t stop (or care, it seems) for expressions of admiration.

“In April, we launched a long-short product. We’ve got three sub-advisors in that product, and we’re about to add a fourth. They’re extremely good.”

Just as Altegris offers a wide array of private placement products, he says, the idea is to build out an entire suite of best-of-breed access products in the mutual fund space. It will highlight the firm’s belief that “a lot of these managers will actually manage money in the ‘40 Act space if you give them a good opportunity to do so.”

Sundt began his career as an options trader in 1986. Whether he’s intense due to his background in options or he was drawn to a career in options because of his intensity is unclear. Just prior to founding Altegris, he served for six years as director of managed accounts for Man Financial, a subsidiary of the Man Group—the world’s largest hedge fund provider.

“I joined them for six years and ran a business for them doing the same thing Altegris is now doing, which is looking for good money managers,” he says. “I’d done my corporate stint and in 2002, I decided to go into business for myself and founded Altegris with three partners. I was the majority shareholder and founder. When I left Man, I rolled out my entire team. It was a very friendly separation, and we hit the ground running.”

“Hit the ground running” means $400 million in AUM then, which he (and his team) have built into a combined $4 billion-plus today.

His entrepreneurial spirit has gotten him noticed. Sundt is a past recipient of the Institutional Investor Mutual Fund Rising Star award, as well as the 2012 Ernst & Young Entrepreneur of the Year—San Diego.

So what’s behind the so-called “tear” he mentioned? Does the current market volatility speak to the type of products offered by the firm?

Like the alternative space in general—it’s complicated.

“Look, it’s no secret that over the last year-and-a-half, managed futures have been kind of flat,” he says. “But if you dive a little deeper over the last two decades, managed futures have done extremely well. And they tend to do well during periods of crisis; we like to call it ‘crisis alpha.’ So even though our flagship product is relatively flat for 2011, if you look at the third quarter of last year when the markets were down 13-14%, our products were up.”

Comparing them to a seatbelt, he adds, “You don’t need them until you get into an accident. Like not wearing a seatbelt, once something happens you say, ‘What was I thinking?’ It gives you a clue as to why alternatives are so important in a portfolio.”

So to borrow his term, crisis alpha must have been very good in 2008.

“Yeah, 2008 got everybody’s attention,” he agrees. “Managed futures and global macro managers did extremely well in 2008, by and large. Not all of them were good. But when one portfolio gets decimated by 50%, you always start to look around. The key is to really understand what you’re getting.”

Part of his job with Altegris is to educate investors and help them understand what the alternative universe is like: what styles are appropriate for what the client is looking for and doing everything to ensure those products deliver.

As for the future, Sundt isn’t slowing down; as witnessed firsthand, it’s not in his DNA (although he’ll continue to make time for his daughter).

“As far as growth goes last year we raised over $1 billion. We expect those types of numbers to continue. We’re going to launch an entire suite of liquid alternative products. As I mentioned, we just launched the long-short fund. In the next four weeks, we’ll be filing another document for another product. You can count on Altegris to continue to deliver the entire spectrum of [alternative products]. We have a lot of great relationships with managers around the world that we’re able to capitalize on, so we can bring the best products to market.”

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