how did the discussion of Movchan's GEIST fund results end

A month ago, I publicly voiced several questions to Andrey Movchan and Elena Chirkova regarding their GEIST equity fund. This was followed by a lengthy (now non-public) correspondence with Movchan's marketing department – I am publishing the results.

Brief background

At the end of August, I wrote a short note with public questions addressed to representatives of the investment company Movchan's. They concerned information posted on the Movchan's website about the historical results of the GEIST equity fund. In my opinion, potential investors and visitors to the site could have been misled about two things:

1. GEIST's results were shown not from the fund's launch, but from 01/01/2022 – that is, from the exact point when the fund began to outperform the S&P500 benchmark index (after a long period of lagging behind it). However, no justification was given for choosing such a starting point.

2. The juxtaposition of the phrases “4 years of history” and “Volatility is much lower than the S&P500, with comparable returns” could have given investors the false impression that the GEIST fund had demonstrated returns similar to the index over its entire life (when in fact the fund had underperformed by about 13% per annum).

How it all ended

Our initial communication didn't go well (as you may remember from the previous post), but a few days after the material was published, the head of Movchan's marketing department contacted me and tried to answer the questions I had. As a result of this dialogue, the Movchan's team held a number of internal discussions and GEIST Foundation page on the company's website has been corrected.

Firstly, the reference point for displaying the fund's results has been corrected from 01/01/2022 to 01/07/2023and an explanation was added under the graph:

The GEIST fund was launched in July 2020. In 2022, a decision was made to change strategy and work began on transforming the fund into a fund of equity funds (investing in third-party funds). By July 2023, the share of investments in third-party funds had become significant (more than a quarter of net assets), and we consider July 1, 2023, as the date of the strategy change.

In my opinion, this view is correct. The starting point of 01.07.2023 was not chosen arbitrarily, it really corresponds to the public information about the date of the change in the GEIST fund strategy. Previously, the fund managers carried out active investments on their own, and since mid-2023, GEIST has become mostly a fund of investments in other funds. It turns out that the most relevant period of historical data for assessing the results of the current strategy by potential investors really begins somewhere around July 2023.

I think an even better solution would be to show the full history of the fund's results on the website, and split it into two parts (before / after the strategy change). But the current presentation is also not incorrect (especially considering that those who are going to invest in GEIST are still required to disclose the entire history).

Secondly, part of the phrase about “return comparable to S&P500” was removed from the site’s header. I no longer see any inconsistencies with reality in the current wording:

A small fly in the ointment

Until now, all the discussion revolved around the GEIST fund, but Movchan's also has the Absolute Return fund ARGO. This fund has undergone a similar strategy adjustment since 2021: it has moved from purely “standalone” investments to investments in other people’s hedge funds.

However, the approach to presenting the change in strategy is different here: a footnote about this event is also added under the chart, but ARGO's results are shown since the fund's inception in 2016.

To me, it looks like “ARGO has been beating the benchmark since the beginning, so we'll show the full history for it; and GEIST has been woefully underperforming the benchmark for the first two years, so we'll use the moment when the strategy changed as a starting point for it.”

At the same time, as I wrote above, I like the approach to demonstrating ARGO results (without cutting off “extra” pieces of history) even more, but overall both options look okay separately. The only questions are raised by the inconsistent application of different approaches in similar cases – as if the choice of one or another option is determined primarily by the logic of “it is better to choose the one where the comparison with the index looks prettier.”

Movchan's representatives commented on their decision as follows: “We do not consider the change in ARGO's strategy to be so fundamental, the deviations in the debt markets are significantly smaller, and the share of funds in ARGO does not exceed 50%.”

It seems to me that this somewhat contradicts the approach voiced above for the GEIST fund, where a significant change in strategy was recognized as exceeding the 25% threshold for the share of external funds in the portfolio. Oh well – in general, this point is not that super-critical.

Bottom line

I am glad that Movchan's ultimately responded to my questions in the most dignified manner: they examined the situation in detail and made adjustments to their marketing materials where necessary.

I still don't think investing in their GEIST fund if you want equity market exposure is a good idea (it's back to performing nearly half as well as the S&P500 since the strategy change) – but at least the fund's information is correctly disclosed on the website.

At the same time we also agreed to record for my channel “live” interview with Andrey Movchan in November, when he is next in Cyprus. So, if you have ideas for interesting / sharp questions to ask him – feel free to write them in the comments, I will try to take them into account when preparing for the conversation!

P.S. After the publication of my previous material about Movchan's, investors in their funds were found in the comments: among them there are all sorts – and satisfiedAnd Not good. I'm providing links to both of them so you can evaluate their experience yourself. =)