Red Sky at Night, Investor's Delight

At work the other day - when CI Financial was doing their Q1 earnings call - I came across this new start-up capital management firm/hedge fund called Red Sky Capital Management (RSCM). The shop started in September 2010, has one fund called the "Red Sky Partner's Fund" and roughly $50 million in Assets Under Management. Putting aside an impressive 19 percent return since inception, there were two major things that grabbed me about the Partner's Fund.

First, is the investment style. The fund is headed by Tim Lazaris, who along with most of the rest of the team, worked as a portfolio manager at GMP before starting Red Sky. What he has brought to the table is in my opinion a very interesting blend of investment philosophies which (so far) are working very well. The team has managed to build an investment strategy which first focuses on long term fundamentals. Looking for deep value plays through a bottom-up analysis is a strategy that Benjamin Graham, Warren Buffett and the likes advocate. This serves as the core of the portfolio; the platform on which greater risks can be taken, if you will. To compliment (and contrast) this strategy, they also perform top-down macroeconomic market analyses. Where the first strategy focuses on finding long term investment prospects which may be out of Mr. Market's favour, and therefore cheap, the latter is based on market momentum and technical indicators. These types of trades generally have a much shorter life and as such require more constant attention. It appears that utilizing two near opposite strategies in the same fun might be a sign that the Red Sky team biting off more than they can chew, but the undertaking is noble, and it is clearly working thus far. In my opinion, this is a very interesting approach to portfolio diversification and risk management. If you want to read more follow this link: http://www.redskycm.com/pdf/Red%20Sky%20Investor%20Presentation.pdf. Red Sky outlines their investment strategy in this PowerPoint.

Second, mutual fund giant CI Financial owns a 35% ownership stake in RSCM. Since the early 2000s, CI has veered away from the hedge fund business and focused on building its equity, fixed income, and balanced funds. While the size of this investment compared to the size of CI is almost immaterial, the fact that it has invested in this start up hedge-fund-like firm exemplifies their faith in the team at RSCM.

Ultimately, Red Sky started up in the heat of a bull market coming out of the biggest recession since the great depression. Clearly the market has been on their side since inception. While they've still managed to beat the big indexes (see above), the real test of their creativity and investing skill will be through good, bad, and uncertain markets. So far, they certainly appear to be on the right track.

Author Disclosure: I do not have a position in any Red Sky products and do not intend to initiate one in the next 72 hours.