How to Implement an Alternative Investment Strategy

Matt Hamilton, CFO and CCO at Rayne Capital, explains how his team attracted new clients and grew revenue with its atypical approach

After completing a chartered accountant program with Ernst & Young, Matt Hamilton developed his passion for investment by working for a small investment firm. There, he managed a diverse investment portfolio that included everything from real estate and start-up companies to public stocks and bonds. With that experience under his belt, Hamilton cofounded his own money management firm, Penbrooke Partners Investment Mangament, which focused on alternative investments before he and his two partners eventually merged with Rayne Capital Management Inc. in early 2014. (Photo by Tammy Hanratty.)
After completing a chartered accountant program with Ernst & Young, Matt Hamilton developed his passion for investment by working for a small investment firm. There, he managed a diverse investment portfolio that included everything from real estate and start-up companies to public stocks and bonds. With that experience under his belt, Hamilton cofounded his own money management firm, Penbrooke Partners Investment Mangament, which focused on alternative investments before he and his two partners eventually merged with Rayne Capital Management Inc. in early 2014. (Photo by Tammy Hanratty.)

1. Secure financial and administrative support

After years of professional investment experience managing a diverse portfolio, Matt Hamilton and his partners merged their firm, Penbrooke Partners Investment Management, with the larger Rayne Capital Management Inc. They brought with them a different type of investment strategy that allows clients to increase their returns in a rising or falling market.

“The merger has been outstanding for us,” Hamilton says. “We were able to grow rapidly with a bigger platform and have more than doubled our staff. Being able to share relationships and resources by combining with another independent investment firm is great for our clients and our performance.” In turn, Hamilton’s alternative investment strategy has created a huge opportunity for Rayne Capital because it offers clients a way to increase their investments even during volatility in the market.

2. Ensure your strategy is suited for the marketplace

The broad name of the investment category that Hamilton’s group manages is a long/short fund. It incorporates both the traditional long stocks—those bought in hopes that the price will increase and yield dividends—and short stocks, which pay off when they go down in value. “Basically you borrow a stock you think will fall in price from a broker and then sell it into the marketplace,” Hamilton explains. “To close out the short position, you buy back the stock in the market at its new, lower price and then return the borrowed stock to settle the obligation.”

It’s an unfamiliar strategy for many investors to bet against a stock, but the approach can let an investor move independently from the rest of the market. “We can make money whether or not stocks are going up or down because the shorted stocks can balance the long positions,” Hamilton says.

Hamilton knew the alternative investment strategy would be particularly suited for Canada because it’s a resource-based economy. “It can be boom and bust with high swings followed by dramatic downward drops,” he says. The long/short strategy is ideal for a resource-based market because it takes much of that volatility out of investing.

3. Set yourself apart from competitors

Since Canada’s financial industry is focused on promoting producers of oil, gold, and other natural resources, there is a temptation for investors to get too aggressive in these sectors when things are going well. But Hamilton knows from experience that fund companies can lose their focus and become too aggressive, which usually ends in disappointment. “These are cyclical commodities and they’ll roll over, and that’s when investors get caught,” he says.

“Our clients don’t want to swing for the fences; they want to focus on preserving their wealth,” Hamilton adds. The alternative fund has provided steady returns of 10.03 percent annualized since inception with low volatility and rare negative months—ideal for investors that want to hold onto their wealth.  “It’s a bit of an educational process for our clients,” he says. “When they understand what we’re trying to do, they appreciate it.”

4. Build a reputation

As a start-up fund, it’s difficult to attract new clients because no one wants to invest in something without a history of a solid performance. Hamilton’s fund at Rayne Capital helped overcome investors’ initial uneasiness with some great early success in shorting stocks. The fund’s steady growth performance over time continues to appeal to wary investors. “It’s important that we do what we say we’re going to do,” Hamilton says. For Rayne, that means offering safe investments with steady returns.

“Trust is very important to this business,” Hamilton says. “Investors need to trust that you’re going to work on their behalf and keep their investments safe. That can only happen with a track record of steady performance that shows you are dependable.”

5. Market your strategy

Hamilton enjoys building relationships with his clients at Rayne because character and integrity are key components to its company culture. The firm puts the same care into managing relationships with clients as it does ensuring steady rates of return.

To that end, Rayne Capital hired a vice president of business development with an investment background who will be focusing on the marketing and relationship-building side of the business. “It’s not your everyday fund where you just hope it goes up,” Hamilton says. “It takes a bit of education to understand how we can make money in any market climate.” As the fund steadily climbs in value, Rayne Capital continues to prove just how effective an alternative strategy can be.