Key Takeaways
- • Tahoe Fund L.P., managed by Incline Investment Management, employs a proprietary Systematic Hybrid trend-following strategy with two dynamically switching "alpha engines" designed to generate returns in both bullish and bearish market environments.
- • The first engine monitors 72 global futures markets across commodities, interest rates, energy, currencies, stock indices, and metals, executing long or short positions as trends emerge; the second engine invests long-only in large-cap U.S. equities (consumer discretionary, materials, healthcare, financials) with tactical short index futures hedges during defined downtrends.
- • The fund delivered 22% year-to-date returns through September 30, 2022, demonstrating outperformance during a volatile market year when traditional trend-following strategies faced headwinds.
- • The dual-engine architecture allocates capital more efficiently than traditional managed futures portfolios (which typically hold 85% cash), by dynamically shifting between equity-driven performance during low-volatility periods and futures-driven performance when market volatility and price magnitude increase.
- • Risk management is enforced through position limits, dynamic stops, diversification protocols, defined entry/exit criteria, and liquidity controls across both engines.
Summary
Incline Investment Management's Tahoe Fund L.P. operates a two-engine systematic trend-following strategy designed to capture market dislocations that conventional investment models may miss. The approach reflects a structural evolution in managed futures design, addressing a historical challenge: traditional managed futures portfolios typically maintain 85% cash positions, which constrains return generation. The Systematic Hybrid program solves this by deploying capital across two independent but complementary engines that activate based on market regime.
The first engine monitors 72 global futures contracts spanning commodities, interest rates, energy, currencies, equity indices, and precious metals. This engine executes both long and short positions as trend breakouts develop, enabling the strategy to profit from directional moves in either market direction. The second engine takes a contrasting approach, deploying capital in large-cap U.S. equities concentrated in consumer discretionary, materials, healthcare, and financial sectors on a long-only basis. To protect equity exposure during defined market downtrends, the strategy employs short index futures positions, which can result in net short equity exposure during severe corrections.
The innovation lies in the dynamic switching mechanism. During periods of elevated volatility and rapid price movements—precisely when traditional models struggle—the futures engine assumes performance leadership by capturing the magnitude and frequency of global market swings. Conversely, during low-volatility regimes where equity markets generate steady returns with minimal drawdown risk, the equity engine drives portfolio performance. This regime-adaptive allocation reduces reliance on static asset weighting and improves risk-adjusted returns.
Portfolio risk is constrained through layered controls: position size limits, dynamic stop-losses, geographic and sector diversification, precisely defined entry and exit protocols, and liquidity thresholds that prevent forced liquidations during market stress. Performance through September 30, 2022—a year marked by aggressive Federal Reserve tightening, inflation concerns, and equities under pressure—yielded 22% year-to-date gains, substantially outpacing both traditional equity indices and many conventional managed futures vehicles. CEO Ted Parkhill of Incline Investment Management presented the strategy at the Small Managers - Big Alpha Episode 10 webinar on October 4, 2022.
The first engine monitors 72 global futures contracts spanning commodities, interest rates, energy, currencies, equity indices, and precious metals. This engine executes both long and short positions as trend breakouts develop, enabling the strategy to profit from directional moves in either market direction. The second engine takes a contrasting approach, deploying capital in large-cap U.S. equities concentrated in consumer discretionary, materials, healthcare, and financial sectors on a long-only basis. To protect equity exposure during defined market downtrends, the strategy employs short index futures positions, which can result in net short equity exposure during severe corrections.
The innovation lies in the dynamic switching mechanism. During periods of elevated volatility and rapid price movements—precisely when traditional models struggle—the futures engine assumes performance leadership by capturing the magnitude and frequency of global market swings. Conversely, during low-volatility regimes where equity markets generate steady returns with minimal drawdown risk, the equity engine drives portfolio performance. This regime-adaptive allocation reduces reliance on static asset weighting and improves risk-adjusted returns.
Portfolio risk is constrained through layered controls: position size limits, dynamic stop-losses, geographic and sector diversification, precisely defined entry and exit protocols, and liquidity thresholds that prevent forced liquidations during market stress. Performance through September 30, 2022—a year marked by aggressive Federal Reserve tightening, inflation concerns, and equities under pressure—yielded 22% year-to-date gains, substantially outpacing both traditional equity indices and many conventional managed futures vehicles. CEO Ted Parkhill of Incline Investment Management presented the strategy at the Small Managers - Big Alpha Episode 10 webinar on October 4, 2022.
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