From the September 01, 2010 issue of Futures Magazine • Subscribe!

Greenwave: Calm in a sea of volatility

Jamie Charles gained an appreciation for currencies while spending a year studying in Brussels, Belgium in college, foreshadowing a career in trading and developing currency-based strategies, including those he uses now at Greenwave Capital Management. In Brussels, Charles noticed that people routinely carried several currencies and the fluctuations of the various European currencies became part of his daily life.

He already was interested in trading and upon graduation from Lafayette College he visited a bank trading desk in New York and was drawn to the excitement. An entry level position at Bank of America soon led to a trading opportunity, which Charles snapped up. He began to take risk for the bank mainly as a market maker. From there his career took off and Charles would work as a proprietary trader for numerous banks.

His next big break came when First Chicago created a commodity trading advisor (CTA) arm. A former boss selected Charles to build a forex program. Charles jumped at the opportunity because he had family in Chicago and the bank had built a reputation of building innovative trading businesses.

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First Chicago would abandon its CTA arm but Charles’ program survived and he took it independent. However, Charles’ main client decided to stop allocating to the sector so he closed shop and went back to proprietary trading for banks.

In 1998, he met Scott Ramsey of Denali Asset Management. Charles would work closely with Ramsey for the next eight years focusing on forex. He moved with Denali to the Virgin Islands but in 2006 he left to be closer to his family.

That is when he formed his short-term discretionary macro- based CTA Greenwave. The significance of the name has to do with the calming effect of ocean waves. "Greenwave is a hybrid term of ocean waves and the mindset that surrounds greed in the financial world," Charles says, adding poetically, "In an ocean of volatility, I have been a sea of calm for my investors."

Calm may be an understatement as Greenwave’s returns appear downright boring. It earned 10.32% in 2007 and the returns since, up slightly, would be rounded to flat by most managers. However, institutional allocators have different metrics and judging by his allocations, it is pretty darn exciting. He has grown to $125 million under management since launching in January 2007 and has not suffered any redemptions.

Those returns may be a bit misleading as they overestimate fees and use very little leverage. His margin to equity ratio is about 1% and never goes above 3%. "My clients rate performance on return on margin use. It speaks to my business model; providing clients exceptional returns on margin," Charles says.

Basically if an investor can choose to ramp up a typical CTA a couple of times, they can gear Greenwave much higher in their managed accounts as they are only applying a couple percent of the minimum investment to margin.

"My philosophy of trading has had an evolution because markets are dynamic and to survive and thrive, you have to adapt to the changes that are occurring at warp speed," he says. "My trading is based on my fundamental macro view; I am only using the quant end to help me trade this view."

Greenwave's approach is unique. "My strategies do not correlate with CTA indexes [or] other foreign exchange benchmarks and traders," Charles says. He also trades many more currencies; 25 as opposed to the five or 10 most forex managers trade.

That reach is further utilized in his newest program, the Greenwave Dollar Short program. It is basically a "better" dollar index that serves as a hedge against dollar depreciation and comes in two flavors: Alpha and Beta. Inspired by a customer who realized he had too much exposure to a loss of dollar purchasing power, Charles went about creating a composite of 20-25 currencies that provides a clearer reflection of the global economy. It includes currencies from six continents.

The Beta is rebalanced quarterly and is simply a dollar short play reflecting his more elegant index. The alpha program is managed daily and he can increase or decrease the exposures. "They both [are] short dollars. [Alpha] can be actively managed and can be defensive when the dollar is going up and aggressive when the dollar is going down," he says.

Charles is cautious in his core strategies and is not surprised they have been popular despite relative flat performance in what he describes as brutal markets over the last few years.

"My strategy is particularly attractive for what has happened in the last two or three years because markets are changing so dynamically, so precipitously that most trading strategies in the CTA space cannot adapt as quickly as they need to. My discretionary approach allows me to adapt," he says.

Charles is precise in his language and in his approach to trading, which has served to calm the savage beast that is the forex market. Perhaps a little calm is what is needed in these turbulent times. Greenwave’s customers seem to think so.

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