Enduring and enhancing trend following

Tropin began his finance career at brokerage Rosenthal Group (later Rosenthal Cramer and now part of Marex) and FCM Shearson Loeb Rhoades before moving to Dean Witter, which he helped to build into one of the largest CPOs of the 1980s.

“In the 1980s, as MD of Managed Futures at Dean Witter Reynolds, I was mainly allocating to external CTAs such as Commodities Corporation in the US and AHL in Europe, while also running an internally managed strategy for high-net-worth investors,” says Tropin. In 1989, Tropin moved to John Henry, one of the prominent CTA managers of that era. In 1994, Tropin decided to start his own hedge fund, Graham Capital, supported by his friends at Tudor. Tropin then taught himself how to code and designed and programmed all of Graham’s original trading systems, which aimed to be less volatile than other trend strategies.

Tropin’s early involvement in the nascent CTA trend following industry has endured throughout Graham’s life. In 2024, roughly USD 4.4 billion of Graham’s total assets of circa USD 20 billion are run in its Tactical Trend strategy in comingled funds and managed accounts.

The core investment process and philosophy underpinning Tactical Trend has remained consistent since that program’s inception in 2006, but models have been enhanced and re-evaluated. Changes have honed and refined existing models with adjusted parameters or data points. For instance, a Risk Overlay was added in January 2012 to control market and sector exposures and build a more diversified portfolio. The latest incarnations of Graham’s trend models are also more dynamically adaptive. Ongoing research streams include non-price data, portfolio construction and optimizing transaction costs. All research goes through a rigorous, multi-layered and multi-stage review process before and after implementation. While Tactical Trend is constantly refined with the help of Graham’s quant research team, the attractive payoff profile of the strategy that has been so valuable to investors remains the same — evolution, not revolution, is Graham’s research approach.

Synergistic discretionary strategies

Graham Capital was entirely systematic for its first four years before starting to hire discretionary managers in 1998 and commencing trading in discretionary strategies, which have many potential synergies with the systematic approaches. “We share quant analytics, flow data, and some of the managers we interview combine discretionary and quant approaches. We have long and rich enough datasets to support both types of traders,” says Tropin. Graham’s discretionary macro portfolio managers use very diverse strategies that can vary considerably in terms of markets traded and time horizons and are, in general, very tactical in nature. Whereas the firm’s quant strategies exclusively trade delta one instruments, discretionary teams can use OTC or listed options and swaps.

Strength in diversity of macro views

In contrast to some other macro houses, founder Tropin is not a discretionary trader, and in fact no single central risk taker dominates. This reduces the risk of getting caught in a wrong trade when 2-3 macro themes dominate the book in some macro funds. “We like to see a range of macro perspectives to generate diversification and better risk adjusted returns,” says Tropin. Graham’s multi-portfolio manager model includes 22 portfolio management teams. They can trade one or more asset classes, including G10 and emerging markets rates. There is no house view, and managers may hold opposing positions. Teams do, however, need to stay within their mandates. Graham has a highly experienced risk management team and a sophisticated risk framework, which allows risk factors and P&L to be monitored and analysed in real time. Graham conducts a daily Risk Committee meeting where the firm’s most senior investment professionals discuss markets and exposures.

Quantitative macro beyond trend

Quant macro draws inspiration, in part, from Graham’s discretionary expertise in macroeconomic fundamentals to create complementary return streams alongside both discretionary macro and trend-following strategies, creating a trinity of diversification.

Quantitative strategies remain primarily directional but are not just following price trends: they can use price and non-price inputs. Beyond trend following, fundamental macro, carry, value/reversion and other diversifying strategies are traded. A directional long/short carry strategy uses proprietary methods to define equilibrium carry across all asset classes and employs money management techniques designed to mitigate left tail losses. Quantitative fundamental signals are identified with historical statistical analysis, which applies fluid, dynamic and non-linear models to at least 500 fundamental data points, including macroeconomic releases, macroeconomic surveys, supply and demand indicators and market sentiment.

Blended quant and discretionary vehicles

Since Graham first started discretionary investing, clients have been able to access hybrid programs in comingled vehicles. Graham Proprietary Matrix, which has been trading since 1999, combines a 50% risk allocation to portfolio managers and 50% in quantitative research strategies in a single fund trading thousands of markets and showing zero correlation to equities and fixed income since inception. Since 2006, Graham Core Macro has provided another blended solution. Later on, discretionary fundamental expertise contributed to the creation of Quant Macro in 2014, which uses both fundamental macro and price-based indicators to establish return forecasts across global markets within an entirely systematic approach.

By year-end 2024, Graham was running circa USD 12 billion in quantitative strategies: Tactical Trend, Graham Quant Macro, K4D and others, including Systematic Equity Market Neutral and Customized Risk Mitigation. Most of the circa USD 7.2 billion in discretionary strategies is in macro, the blended Proprietary Matrix and a standalone credit offering. These liquid strategies are scalable. Research, technology and new sources of alpha are all part of the firm’s long-standing approach to building capacity in an orderly fashion.

Adding quant equity strategies

Some 70-80% of assets overall are in macro, including both quantitative and discretionary macro strategies, but equity market neutral strategies and the credit team provide additional diversification. The equity market neutral strategy is dollar-neutral and constrains beta, style, factor, sector and industry exposures and often has a better opportunity set amid greater dispersion and more independent stock movement. “Quantitative equity was a natural fit to add additional alpha to the firm, including synergies with our technology platform. We are always looking to add alpha to enhance the investor experience for consistency of performance and generate the best risk adjusted returns,” says Tropin.

The investment universe includes more than 5,000 stocks across the US, Europe and, more recently, Asia. Systematic Equity Market Neutral has grown its mix of data inputs over the years to include price and volume data, analyst estimates, sentiment data, news, and various other inputs, including business-process data, as well as niche and alternative datasets. Signal analytics have also evolved, encompassing time-series, cross-sectional, clustering algorithms, and various signal transformation techniques as well as AI and alternative data.

Liquid macro

Innovation has been seen in data inputs and analytical techniques but not so much in the investment universe, though there has been some exposure to digital assets. Alternative markets have not been traded due to liquidity considerations, which have also reduced the commodity weighting. “Macro market exposure is broadly equal across asset classes, though commodities have been somewhat smaller as they are less liquid, and it is harder to find talented traders. A typical quantitative allocation has been 25-30% in each of fixed income, foreign exchange and equities, with 10% in commodities,” says Tropin.

Highs and lows

Tropin reflects on three decades: “In late 1998 we were fortunate to hire a very strong Fed watcher and short-term fixed income trader, Fred Levin, who was terrific at predicting what the Fed would do on a 6-month timeframe. A few years later, the TMT bubble bursting was tough for long only equity investors but great for us”.

Tropin found the start of the GFC a sobering experience. “In 2007 we had a mortgage team that had to take some cuts and bruises to sell securities that had become less liquid, and we started the daily risk meeting which was a very useful discipline. If necessary, we cut risk and position sizes to stay liquid because a shock like SVB (Silicon Valley Bank) can always come out of nowhere.” The Risk Committee proactively reviews market, liquidity, operational and counterparty risks.

“By contrast, 2008 proved to be a very good year after we overcame some challenges in the summer,” recalls Tropin. “Naturally, clients had other problems, and Graham was used as an ATM to provide liquidity, and more recently there were outflows after a banner year for both quantitative and discretionary strategies in 2022. Graham has always taken pride in being able to pay out redemptions on time.”

At the individual model and trader level, there has always been some trial and error over the 30 years. “We built some models that turned out to have left tail sensitivities and some traders that did not live up to expectations,” says Tropin.

Delegation and succession

Tropin continues to chair the firm’s Executive Committee and Investment Committee and is an active member of the Risk Committee but has delegated as the firm grew. Co-CIO Pablo Calderini joined in 2010 as both overall CIO and CIO of discretionary strategies, and there is a CIO of quant strategies. In February 2025, Jens Foehrenbach, who was previously Head of Public Markets, Discretionary Investments at Man Group, became Co-CIO and President. “The CIOs make decisions on who to hire and how to allocate capital. We are always looking to cultivate the next generation of leadership, although I continue to be very engaged in all aspects of the firm,” says Tropin.

The war for talent

“The war for talent is more intense than ever. We prioritise attracting and retaining the best while ensuring our compensation structure aligns with delivering long-term value to our clients,” says Tropin. Nonetheless, Graham can provide traders with more formulaic remuneration through a passthrough structure created in 2022, which is attracting client interest. Graham has lured traders from pod shop giants, but at certain points of the cycle has also hired from traditional asset managers, such as Kacper Brzezniak from Allianz.

Yet traders who join Graham are not merely looking to ‘eat what they kill’. “We are more than just an economic platform. We also offer a cultural experience to learn from colleagues and share a culture of collaboration,” says Tropin. ‘Lunch and learn’ development and educational sessions and senior leader ‘happy hours’ foster collaboration, and the entire portfolio management team meets frequently to discuss macro trading themes while peer group review drives forward the quant research.

Graham has had less staff turnover than many rivals and has combined some internal promotions with external team hires. Four or five new discretionary trading teams will start in early 2025. The firm is also diverse: the Women’s Network of Graham was formed in 2018 to facilitate education, mentorship and networking. Graham’s Chief Client Officer, Jennifer Ancker Whelen, is featured in The Hedge Fund Journal’s 50 Leading Women in Hedge Funds report published in association with EY, as has former portfolio manager Grace Gu.

Opening New York office

Graham is opening an office in New York City to complement its Connecticut, Florida and London offices. “This may appeal to people who do not find the suburban environment in Rowayton, Connecticut appealing. Some people want to be in New York City, which is the greatest city in the world in the minds of many, including myself,” says Tropin.

Of 189 staff in Connecticut, initially around 5 will move to New York, joining several others hired specifically for that new location, while others may split their time between both offices. Tropin is partly based in the Palm Beach, Florida office, which is normally home to 12 staff but can accommodate quite a few additional portfolio managers who may prefer the Florida climate in winter months.

Proprietary capital and alignment

Tropin is the largest internal investor and is exposed to a mix of quantitative and discretionary strategies. Proprietary capital is invested in the same strategies with the same liquidity as external clients. “We originally incubated strategies with proprietary capital. Now, internal and external investors have the same choices of exposure,” explains Tropin. New strategy launches occur inside the firm: Graham has not seeded any external managers or funds.

Client solutions through customization

In contrast to several other macro hedge fund managers, Tropin never contemplated turning the firm into a family office: “I have never lost enthusiasm for working with clients to achieve their investment objectives. Their success is synonymous with our success, and we feel a great sense of responsibility in trying to accomplish that”.

Graham was alert to the demand for liquid alternatives as one of the first US managers to launch a UCITS in 2010, in response to an enquiry from a long term strategic allocator. The liquid nature of Graham’s discretionary and quantitative models has been a good fit for the UCITS structure, though it does not perfectly track offshore vehicles and ‘40 Act structures also need to adjust models to allow for trading restrictions. Both UCITS and ‘40 Act vehicles can be accessed by retail clients.

Customization distinguishes Graham from the pod shops. Some USD 11 billion of Graham’s assets are customized strategies, including managed accounts and bespoke solutions. Customization may focus on particular markets, sectors, or instruments; risk/return objectives, including crisis tail risk protection or certain market betas. Some investors might exclude commodities or only trade them through swaps. Customized Risk Mitigation strategies are run for large public pension funds and can be accessed through comingled funds, funds of one, or managed accounts. These are scalable solutions that can target specific risk/return objectives, including equity crisis protection and market betas.

Macro renaissance

Tropin doubts if macro funds will once again become 70% of hedge fund assets as they were in the 1990s but does expect that macro will grow its market share. He judges that the opportunity set is strong for discretionary macro. “The environment is enhanced by more monetary policy moves, central bank activity, and divergence amid economic uncertainty in different parts of the global economy. This is much more exciting than the long QE era of more stable, correlated, less volatile and range-bound markets, with accommodative monetary policy boosting stocks and bonds together. The past few years have seen more rate changes from the Fed, ECB and BoE than the entire decade post-GFC. Consider that in the decade preceding the pandemic, between 2010 and 2019, there were only 13 rate hikes of 0.25 percentage points (equivalent) between the Fed, the ECB, and the BoE. In contrast, those three banks delivered roughly 60 0.25 percentage point rate rise equivalents between 2021 and 2023 and have already delivered 12 rate cuts of 0.25 percentage points (equivalent) since the second quarter of 2024,” says Tropin.

Macro divergence is plain and clear to see: US economic strength is delaying rate cuts, while Japan is tightening, and Europe has been cutting. Graham has capitalized on these moves, trading with a steepening bias in fixed income in 2025 and a long dollar bias. There has also been a long equity bias, though Graham is very cognizant of valuation and tech sector concentration risk in US equities, which are also rate sensitive.

Trump provides further spice: “Trump will definitely be disruptive to markets. We may not always get it right, but it will not be boring at all,” says Tropin.

After decades of trading through multiple crises, the battle-hardened Tropin warns, “It is inevitable that there will be some kind of unforeseen crisis, which could be caused by the deficit or geopolitics in Asia or the Middle East. Both Bitcoin and gold make sense for diversification”.

Regulation and industry groups

Tropin co-founded the hedge fund industry trade association, the Managed Futures Trade Association in the 1980s, which later became the Managed Funds Association (MFA), and which Tropin has chaired. Today Graham works with MFA, AIMA, SBAI and PRI.

Philanthropy

Tropin does still discuss markets with Paul Tudor Jones, but they spend more time talking about philanthropy through the Robin Hood foundation (of which Tropin became chairman in February 2025), which brings people out of poverty.

Tropin’s parents both worked for non-profit organisations (the United Nations and the International Committee for European Migration), and he is passionate about giving.

“We support people in need of food, shelter, and access to education. Robin Hood has been a guardian angel for New York City for more than three decades. Helping those with the least is our primary focus. I feel very strongly that if you are successful, you have a responsibility to give back. One of the greatest lessons Paul Jones has taught me over the years is to give with all your heart and soul,” says Tropin.

Graham supports local Connecticut causes, including food, toy and coat drives via Open Doors Shelter, as well as global initiatives such as reforestation via One Tree Planted. “The company or my family foundation works with about 75 charities,” sums up Tropin.