Protect and grow
Convoy specializes in globally diversified investment strategies. Our mission is to provide excellent long-term money management.
Portfolio allocations are for illustrative purposes only and may not represent current or historical implementation of the Convoy Portfolio. See disclosures for more details.
Grounded in years of empirical research and practice, our portfolios are balanced to shocks in growth and inflation, and is ultra-diversified across assets and regions.
1. Holistic Risk Management
+ 2. Efficient Dynamic Trading System
+ 3. Unparalleled Transparency
= Sustainable Long-Term Success
Systematized, streamlined and robust, our trading operations minimize transaction costs and risks. Our cutting edge analytical and reporting tools provide clients with unparalleled transparency.
Founded in 2013, Convoy Investments, LLC is a privately held New York based investment firm specializing in globally diversified strategies. We employ a systematic and fundamental investment process that trades in over 200 markets globally in assets such as stocks, nominal bonds, inflation-linked bonds, commodities, credit and real estate.
Howard is a co-founder of Convoy Investments and is responsible for research and portfolio management. Prior to founding Convoy in 2013, Howard spent his career managing portfolios for institutional investors, most recently at Bridgewater Associates where he and Robert first met. Howard was part of a 3-member investment team responsible for overseeing and marketing the $70 billion All Weather Strategy on behalf of some of the largest and most sophisticated investors in the world, including sovereign wealth funds, pensions, endowments and foundations. Howard has co-authored white papers and commentaries on a broad range of investment topics such as tail risk, inflation and diversification.
Howard received a B.A. in mathematics and economics from Yale University and has been a competitive ballroom dancer for over ten years.
As the co-founder of Convoy Investments, Robert is responsible for strategic business planning and trading operations. Prior to founding Convoy, Robert spent his career working in technology and operations, most recently at Bridgewater Associates, where he was part of the team that built and oversaw critical components of operations systems. Prior to joining Bridgewater, Robert was part of a research team that developed the search engine technology at Doubleclick, which later spun off to become Shopwiki.
Robert received a B.S. in Economics and Computer Science from University of Wisconsin and a M.S. degree from Karolinska Institute in Sweden. Robert is an avid traveler and world explorer.
Yup is a non-executive advisor of Convoy Investments and is primarily responsible for business and investment product development. Yup is currently a Vice President at DB Private Equity, where he evaluates both partnership and direct investment opportunities across a broad spectrum of private equity, private debt and real assets globally. Previously, he worked at Performance Equity Management, a $13 billion global private equity firm and Silver Point Capital, a multi-strategy distressed debt hedge fund, both based in Greenwich, CT. Yup started his career with the Investment Banking and Capital Markets program at Citigroup in New York.
Yup received a B.A. in economics with major coursework in architecture from Yale University and speaks six languages.
Most funds in one way or another plug in and optimize around recent market characteristics. For example, after a long bond bull market in the 1960s, most funds held predominately bonds until the 1970s when the bond market crashed. The stock market then went on a 20-year bull run and the majority of portfolios shifted to stocks. Now with two stock market crashes in the last decade and half, that mentality is being shaken again. Each time change transpired, investors stuck with outdated portfolios suffered severe impairments to their capital base and financial future. Basing an investment approach on what has been recently successful is similar to driving a car by looking through the rear view mirrors. It is not the path to long-term success.
To create a portfolio that truly protects an investor’s financial future requires a deep, timeless, and universal understanding of how markets work and how asset prices move. All markets, even the most complex, are ultimately the sum of numerous but simple transactions between people. Therefore, at their most fundamental level, the economy and the markets can be understood through basic yet timeless and universal logic. The same understanding of the rise and burst of the Dutch Tulip Bubble of the early 1600s can be applied to comprehend the immensely complex sub-prime Debt Bubble in 2008. Companies come and go, markets emerge and fade, and countries rise and fall, but as long as people have the same tendencies towards material wealth, this logical understanding of markets will remain. A portfolio designed to perform consistently over long periods of time must be based on an ageless logic and on no other evanescent statistical measures. The Convoy Strategy is constructed on that understanding and rigorously stress tested through history and across the world. This is why we are confident our portfolios are built to stand the test of time.
We need a portfolio built on fundamental and timeless investment principles:
1. Assets make money over time.
2. They invariably suffer interim losses.
3. Different assets lose money at different times.
Strategy: Collect returns and minimize interim fluctuations by using the fact that assets don't all lose money at the same time.
The chart shows the cumulative return profile of a hypothetical example, stocks, bonds, real estate, commodities, gold and IL bonds. They all swing around an upwards trend.
The above chart shows cumulative returns of the major assets. They all swing around an upwards trend.
The chart shows the component returns of a hypothetical example, stocks, bonds, real estate, commodities, gold and IL bonds.
The above chart shows the conceptual components of asset returns. We want the growth but not the surprises.
All investments are vulnerable to some economic surprises, but what hurts one helps another. Balancing across the major economic drivers, growth and inflation, protects a portfolio against losses caused by economic surprises.
The left chart shows assets suffering from market swings. The right chart shows a balanced portfolio of the two, highlighting the surprise components being canceled out.
The charts show the cumulative returns, a risk balanced portfolio and the canceling surprise component of a hypothetical example, stocks/IL bonds and bonds/commodities.
Events like disasters and war are often unforeseeable and have unpredictable effects on markets. Diversifying across many markets around the world protects a portfolio against losses caused by extreme events.
These charts show a diversified portfolio against one suffering an extreme outcome (e.g. Japanese Earthquake).
The charts show concentrated and diversified portfolios of a hypothetical example and Japanese stocks through the 2011 Earthquake.
Portfolio allocations are for illustrative purposes only and may not represent current or historical implementation of the Convoy Portfolio. See disclosures for more details.
The resulting Convoy portfolio is balanced to shocks in growth and inflation, and is ultra-diversified across assets and regions.
Portfolio allocation based on a typical endowment portfolio.
In contrast, typical portfolios tend to be concentrated in stocks, the US, and be vulnerable to low growth and high inflation.
Our proprietary algorithm systematically monitor and manage our market risk. These charts show portfolio long/short/net leverage and VaR over time.
Our systems also monitor the health of major financial and sovereign counter-parties in real-time. These charts show the priced in default rates on some example entities.
Entire trading and operational systems are encrypted and run from a cloud server
Databases backed up in real-time to multiple servers and physical storage facilities
Customized end-to-end data authentication and encryption
We utilize the latest technology to back up and secure our intellectual property in real-time.
Our systems continuously monitor market conditions to minimize transaction costs. These charts show intra-day bid/ask spreads and trade volume of an example market.
Our systems intelligently weigh the real-time costs and benefits to optimize the timing and sizing of trades.
Our reporting systems provide daily return reports.
Our reporting systems provide daily return attribution.
Our reporting systems provide daily fund asset allocation.
Note: the data/returns shown on this page are dummy returns meant only to illustrate the client access user interface. Please login for your actual mandate return. See the bottom of this page and the disclosures page for additional information.
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Disclosures: The performance is for informational and educational purposes only and should not be relied upon as a prediction of future market performance or Convoy management performance. The performance provided is gross of management fees and includes the reinvestment of all interest, gains, and losses. No representation is being made that any account will or is likely to achieve returns similar to those shown. Past performance is not necessarily indicative of future results. Performance as of the current month is estimated and subject to change. Risk expectations shown here are based on our analysis and reasonable people may disagree with the assumptions used and expectations developed there from and there is no guarantee the expectations shown can be achieved. The expectations are considered hypothetical and are subject inherent limitations.
Please read the following disclosures as they provide important information and context. Additional information is available upon request except where the proprietary nature of the information precludes its dissemination.
Portfolio allocations shown on this site are for illustrative purposes only and may not reflect the actual or current implementation of our strategy. The performance is for informational and educational purposes only and should not be relied upon as a prediction of future market performance or Convoy management performance. The performance provided is gross of management fees and includes the reinvestment of all interest, gains, and losses. No representation is being made that any account will or is likely to achieve returns similar to those shown. Past performance are not necessarily indicative of future results. Performance as of the current month is estimated and subject to change. Risk expectations shown here are based on our analysis and reasonable people may disagree with the assumptions used and expectations developed there from and there is no guarantee the expectations shown can be achieved. The expectations are considered hypothetical and are subject inherent limitations.
Client returns reported here are gross of fees total returns. The returns reported are based on market prices and intended for informational purposes only. Final redemption value may be impacted by transaction costs and liquidity considerations. This document is not intended to be legally binding. For the full legal contract, each investor should carefully review the Private Placement Memorandum, the Limited Partnership Agreement, and the Subscription Agreement. The views expressed here are sole that of Convoy Investments LLC and are subject to change without notice. Reasonable people may disagree. You should assume that Convoy Investments LLC has a financial interest in the views discussed. The research presented is for informational and educational purposes only and is not an offer to sell or the solicitation of an offer to buy the investments mentioned. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. Investors should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, where appropriate, seek professional advice, including tax advice. Investment decisions should not be based solely on simulated, hypothetical or illustrative information. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of Convoy Investments LLC.
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As long as the yuan is undervalued relative to the dollar, China can technically peg the yuan for as long as it wants to. In layman terms, China is like a store having a sale on their currency (and therefore their export industry) - the store can technically have a sale for as long as it wants to.
Because the yuan is undervalued, stuff is cheap and so China exports more than it imports. Therefore there is a higher demand for yuan than say for the dollar. In order for the market to not push the price of yuan up to a sustainable equilibrium state, the Chinese government has to take the other side and pony up yuan for dollars. This is why the Chinese has traded so many yuans (which were in turn used to buy plasma tv's etc) for pieces of paper (bonds) from the US. Because China owns the printing press to the yuan and US owns the printing press to dollars and bonds, this process can go on for as long as both sides want it to go on.
The thing that will stop the pegged currency dynamic is when one side decides it no longer makes sense. The US came close to doing so in 2008 when its debt had piled up so much that consumers were less willing to further borrow yuans and buy tvs from China - i.e. the Great Recession. China is also considering growth options beyond their export industry - you can only hold so many trillion piece of paper from the US before you start worrying a bit about getting those tvs you've been shipping all those years back.
While the timing of when the end isn't clear, an entity acting in its own self interest will not continue to lend indefinitely.
A bond bubble bursts will naturally hurt those who are holding bonds. The ones who are hurt the most are the ones who are holding the largest amount of bonds with the longest duration (e.g. 30 year bonds vs. 3 month bills). The single largest owner of US bonds is China, so they'd likely take the biggest hit.
Central banks manage the currency, and they generally manage two priorities - high growth and stable inflation. Too much currency means unstable high inflation while too little currency means there isn't enough liquidity for people to buy and sell, choking off growth. Central banks have to balance these two factors to find the appropriate amount of currency that can both maintain a healthy growth and stable inflation. The actual process is more like trial and error - set this much currency and see what happens to growth and inflation and adjust accordingly - than an exact science.
Prices for anything (including currencies) move because there is a difference in demand and supply. If demand is higher, price goes up and if supply is higher, price goes down. For a central bank to maintain the price, they have to ensure that supply and demand are the same. So when the demand for their currency is higher than what the market is naturally willing to supply, they have to become a market participant to sell their currency in return for the foreign currency they are pegged to (i.e. China with their yuan against US dollars). When the demand for their currency is lower, they have to go to the market to sell their reserves (be it gold or other currencies) and buy their own currency (i.e. Bank of England trying to hold up the pound before Soros broke them).
Our markets and economies are more intricate now than ever before. It can often be intimidating to understand how all the pieces fit together. Despite their increasing complexity, the economy and markets still consist of nothing more than interactions between people just like you and me. Therefore, I believe that at their roots, the markets still behave according to the same simple ideas connected to fundamental human nature. I believe that the most reliable way to understand the markets at a deep level is to explore the full implications of those basic ideas.
Instead of just giving you a snapshot of where the world is today, I’d like to first explore one simple concept that has driven much of our markets not only in the past year, but for practically all of our economic history – debt, or “something, typically money, that is owed or due” as defined by the Merriam-Webster Dictionary. I hope a deeper appreciation of this concept will help you understand not only what is going on today, but also the past and the future.
Our recent past was dominated by the story of debt. From the US fiscal cliff to the European Debt Crisis, countries across the world continue to face over-indebtedness. This struggle has and will continue to drive the markets. This is not a recent phenomenon – debt has been around for as long as we’ve had markets. For example, debt was commonplace dating as far back as the biblical times. Jewish law at the time even went so far as to provide Jubilee Cycles as a form of debt resolution. As long as we’ve had debt, we’ve also had crises caused by people borrowing far more than they can realistically repay. Almost every country in existence has at some point defaulted on its debt. To give you a sense of the frequency of these debt problems, the country of Mexico alone had 9 cases of sovereign default since 1800 (1827, 1833, 1844, 1850, 1866, 1898, 1914, 1928-1930s, 1982).Why is debt such a pervasive part of our society and history?
Debt is an essential part of our society because one of our most basic material goals is to save for the future, whether it is for retirement, a rainy day or for our future generations. Saving for the future is a simple concept – consume less than you produce. In fact, it is so straightforward and primitive a need that even squirrels learn to eat fewer acorns than they can find and bury some for the winter.
Unfortunately, despite its simplicity, saving a significant portion what we produce for the future is almost impossible for us humans. The human race collectively produced, sold and consumed around $70 trillion worth of goods and services last year. However, an exceedingly small portion of that $70 trillion can actually be saved for the future. Many things are perishable (e.g. food) while other things devalue quickly (e.g. iPads and computers). Most of what we produce and sell is services, which by nature must be consumed as soon as they are produced. The non-perishable things that can actually be stored (e.g. bars of gold, barrels of oil, or real estate) have a supply that is either limited or grows slowly. So despite the advancements to our economic system and standard of living, it is actually very difficult to save what we produce for the future.
Given that in aggregate, our civilization must quickly consume most of what we produce, the only way you can save is to find people who are willing to consume more than they produce today and borrow from you. You can’t become wealthy independent of someone else becoming indebted and your wealth is nothing more than that person’s promise to pay you back. While this is a relatively straightforward concept, it has major implications on how our economies and investments work.Why do we always over indulge on debt?
Debt grows to high levels over years because both the savers and the borrowers are incentivized to continue the debt building process. The savers want to convince the borrowers to consume because that is the primary way for the savers to become wealthier. For example, throughout the build up to the subprime mortgage debt crisis, investors of subprime mortgage back securities continued to push mortgage lenders to lower lending standards so that the incremental subprime borrower could buy a house and push up housing prices. Or on a larger scale, saver nations are still holding their currencies lower than their true economic value to incentivize indebted countries to borrow and consume. This has happened in the last 10 years in Europe as Germany’s export and banking industry boomed while the rest of Europe fell into greater debt.
At the same time, borrowers are incentivized to continue improving their standard of living through the cheap credit provided by the savers. For example, the average American felt their standard of living rise over the last 40 years because they have more plasma TVs and bigger houses. Think of how many consumers felt their lives improve because of the low financing rates (ultimately provided by saver nations) on cars and houses, or the cheap goods found in Wal-Marts (also sourced from saver nations). Of course, much of that economic growth and standard of living improvement was financed through readily available debt. As a result, Americans are more indebted now than ever. The same set of circumstances exists for both the subprime mortgage borrowers and periphery Europe.
Because the incentives of the savers and borrowers align, debt tends to build on itself and grow over decades while giving everyone the perception of prosperity and stability. This is why the last 40 years of global prosperity had the, until recently, ignored effect of also creating the greatest debt bubble in history.
As it always happens in these debt build-ups, at some point the savers and the borrowers both realize the fragility of their situation. The debt reaches a level where the borrowers have trouble making payments and the savers recognize that the borrowers are unlikely to pay back their debts. At that point, lending tightens up as fear seizes the credit markets and compounds the borrower’s woes. Today, this process has already occurred between the lenders and borrowers of subprime mortgages and between Germany and the periphery Europe. Debtor countries like the US and saver nations like China are in the process of realizing this fact as well. Through this process, growth tends to lock up, as it has in the last few years, because a significant portion of the population can no longer finance their consumption through the dried up debt pipelines. This slow down in growth is painful for everyone and central banks generally employ policies to reduce the debt to low enough a level to reignite the borrowing process. This is what is happening today across the world.What does the debt reduction process mean for an investor who is a net saver?
Our whole system of savings and investments is built on promises, promises of promises, and promises of promises of promises. For example, stock derivatives are a promise to stocks, which themselves are a company’s promise to future dividends. Bonds are a government’s promise to give you cash in the future. Cash you have in your checking or savings account is a bank’s promise that cash will come out of the ATM. Even the cash in your mattress is no more than piece of paper signifying a promise from the government.
As a result, our perception of wealth is volatile and tenuous. For example, most people’s 401K and investment portfolios lost almost 30% in 2008, and as a result, they lost a significant portion of their wealth. One question I get consistently asked is, “how is it possible for 30% of the world’s wealth to just get up and disappear?” It would be as baffling for a squirrel to wake up and find that 3 out of her 10 buried acorns simply disappeared into thin air. I’d say it isn’t that our wealth was there and then disappeared; rather, our wealth was never there for us in the concrete way that acorns are there for squirrels. Our wealth, unfortunately, is only worth as much as the promises behind it. In 2008, we learned, painfully, that those promises were not so trust-worthy and we recognized the reality of their “value.”
Going forward, it is in the interest of central banks across the world to lower the debt to a level that can reignite borrowing and economic growth. That process essentially means policies that will, in one way or another, break promises to savers. That broken promise can come brutally quick in the form of a default, as a number of periphery European countries were close to doing. Or more likely, the broken promise can come slowly and insidiously in the form of inflation, the devaluing of both debts and savings.
All of the promises in our economy and markets, no matter how seemingly safe, can be broken, and has been broken many times in the past. While you cannot avoid relying on promises if you want to save and you can’t consistently predict which promises will be broken when and how, what you can do is diversify the types of promises you hold. Accept promises that are structured differently from a variety of entities and across numerous countries and regions.
Generally speaking, faster growth doesn't necessarily mean higher returns. Growth is in and of it self a good thing, but it generally also comes with a higher price tag, which inherently lowers the return of the investment. For example, a porsche is clearly better than a say a toyota camry, but do you think a porsche that cost $100 mil is a better investment than a toyota camry that cost $100? No. So the attractiveness of an investment depends on how good it is intrinsically (growth in this case) and how the market is pricing it. Generally speak, the market is relatively efficient at pricing in factors such as growth, so you won't be able to get a steal of a deal that easily.
The long term interest rate is actually just an average of short term rates going into the future. So the long term interest rate is determined by the market's expectations of the short rates going forward. Short rates are set by the central bank, which generally manages according to maximum employment (and growth) and stable inflation. So rising long term rates means that the markets think the central bank is going to raise rates going forward. In this case it is likely because the market's expectation of inflation and growth has gone up.
If there is a way to make risk free money, then people in the market will typically make the money until there is no longer risk free money. This is the link between interest rate parity and currencies.
So, e.g., let's say Australia is willing to give you 5% interest risk free and Japan is willing to give you 1% interest risk free. Seems like a good deal to simply borrow from Japan for 1% invest in Australia for 5% and make 4% risk free, right? The problem is that you can only borrow from Japan in yen and you'd have to convert it to Australian dollar to invest in Australia. Also, lots of other people have the same idea as you - selling yens to buy dollars, in turn pushing down the price of yen and pushing up the price of dollars. This dynamic will happen until the market reaches an equilibrium where it doesn't expect there to be much of a profit to be made from borrowing yen and buying dollars and pocketing the 4% interest rate difference. This is exactly at the point where the yen's price has been pushed so low relative to the dollar that the market expects the yen to rebound by 4% relative to the dollar, perfectly offsetting the "risk free" 4% interest rate differential.
People acting rationally and wanting to get risk free returns is what ties together interest rates and currencies across different countries.
College costs tend to go up with inflation + 1 or 2 %. So ideally you want to put your savings in something that also goes up with inflation - this is your ideal hedge against all future scenarios, including ones where inflation and college tuition goes up drastically. The most direct form of inflation investment is TIPS or inflation linked bonds. They will pay you 1% (currently) real interest rate plus whatever inflation has occurred.
Convoy will generally only trade in large, public, and liquid markets listed on established exchanges. For example, Convoy typically invests in global bonds, stock indexes, ETFs, commodities, foreign currencies, real estate trusts, as well as other derivative instruments such as futures. Because it mostly invests in markets that are public and liquid and maintains a low level of leverage, the fund has never and does not expect to run into liquidity constraints.
We believe that risks don’t just come from market risks. In fact, risks often come from operational failures. Therefore, we approach risk management from a holistic perspective. Below we detail how we manage some common investment and operational risks.
Reducing the risk of loss is the cornerstone of the Convoy Strategy. Convoy diversifies risk across many types of assets with different drivers of losses and diversifies across multiple countries. We consider the safety of a properly diversified and balanced portfolio to be our dominant form of risk controls. As one market loses because of a certain set of economic conditions, another will rise to recoup the losses. We closely monitor the balance and overall leverage of the portfolio to ensure the proper functioning of diversification.
We do not utilize common strategies such as stop-losses or put options because we believe those to be inefficient methods of simply reducing your exposure to investment return and risks.
Convoy’s entire database and trading systems are encrypted and run from an online cloud system. In addition, the database and trading systems are backed up in real-time to a different cloud storage providers and various separate physical storage devices at three separate locations. There is extremely low risk to the business associated with a computer, an office, or even a cloud service provider becoming impaired. Further, the portfolio can be monitored and trades can be executed from anywhere in the world with a computer.
We believe that FX exposures do not have a systematically positive return versus the US dollar over time. As such, we seek to hedge out the FX exposure that is inherent in foreign assets. However, we balance the increased portfolio efficiency from hedging each FX exposure against the trading costs. Because some FX markets are undeveloped and prohibitively expensive to hedge, we ultimately leave a small portion of our FX exposures, mostly that of emerging markets, unhedged.
Because Convoy is a passive strategy, the fund will hold a position indefinitely. Over time, as markets become more developed and cheap enough to trade, we may add certain markets. Alternatively, should war or other extreme events make a market illiquid or prohibitively expensive to trade, we will divest from certain markets. These are factors we actively monitor.
Therefore, we will hold a position unless: 1) As mentioned above, markets get removed because of extreme events. 2) A position size becomes rebalanced because of normal market price movements or changes in our risk estimate for the market. 3) Redemption requests from clients
Therefore, Convoy Fund's portfolio turnover is predominately caused by normal portfolio rebalancing, rolling of futures contracts, and occasionally by added or removed markets. However, because we rigorously balance trading costs incurred against the benefits of rebalancing, the level of portfolio turnover is kept relatively low at around 200% of equity.
The Convoy Strategy seeks to balance risk across assets with different drivers of losses. Therefore, we must lever up low-risk assets such as bonds and lever down high-risk assets such as stocks. In aggregate, the strategy employs a moderate level of leverage at around 2 times equity. In other words, a $100 investment in Convoy would be used to buy around $200 worth of market exposure, the vast majority of which would be in low-risk assets such as bonds and inflation linked bonds. Leverage is primarily implemented through futures contracts.
Convoy recognizes potential risks involved with leverage. As such, leverage is something we have researched in depth and have extensive experience with. Further, leverage is kept at a moderate level and always closely monitored. While dangerous if not well managed, leverage is not inherently risky; used properly, it is an essential tool to actually reducing risk through diversification and balance.
The Convoy Funds diversifies globally across developed and emerging countries, various political blocs, commodity importers and exporter countries, and trade surplus and deficit countries. We would not expect the strategy to be overly exposed to any geopolitical risks other than global and systematic ones (e.g. world war, global warming).