IRON Financial's strength-the area in which it can add value to a client's portfolio-is alpha management, Izenstark says. "We can add value as an asset manager by increasing return and lowering the overall standard deviation in a client's portfolio, which again comes to the alpha side," he says. Most clients allocate a piece of their overall assets to the firm, very often coming to the firm for the proprietary alternative strategies in which it specializes, he adds.

Alternative Strategies
IRON Financial's focus is designing liquid alternative strategies, whether in a 1940 Act mutual fund or an ETF that can be bought and sold with the push of a button, or a separately managed account that affords the client full liquidity, disclosure and transparency and that does not involve long lockups.

"We started the business with a high-yield strategy," Izenstark says.

The firm looks for the best risk-adjusted exposure to the high-yield market, which includes limiting drawdown during adverse market conditions.

The firm's high-yield strategy is a model Izenstark designed in the 1980s when he was a member of the Chicago Board of Trade, trading 30-year Treasury bonds. "Back then, there was a lot more volatility, so you had a less buy-and-hold mentality," he says. "The bond market was perceived as a lot more risky, a lot more volatile. By investing in money markets, you could get 9%; so unless you were doing something that had the potential of getting you higher than that, what was the point?"

He says the strategy is designed to look at the yield curve, credit spread and flows in and out of the high-yield market. It adjusts the exposure to the current high-yield market. Over time, it allows the manager to keep the lowest-cost, highest-quality exposure during good markets, which is beta, and then adjust the risk of that exposure during adverse market conditions. This is the alpha-"which is the only reason people should invest with us," he says.

IRON Financial delivers the high-yield strategy in a mutual fund it launched in October 2006: the IRON Strategic Income Fund (IFUNX). "We do it inside a mutual fund so the individual trades are the largest possible because it's inside a pooled account," says Izenstark. "The hedging techniques we use can be done only inside a qualified institutional type of account."

As of April 30, Morningstar ranked the fund number one out of 487 funds in the high-yield bond fund category for the sixth consecutive month, based on its three-year annualized return. The fund received a five-star rating in March, as well as a Morningstar return rating of "high" and Morningstar risk rating of "low," the most favorable ratings in those categories.
"We're not just exposed to the high-yield market," says Izenstark. "We'll use hedging techniques to limit credit risk during adverse market conditions."
IRON Financial offers other strategies in a managed account format. "We also manage short-term corporate bond strategies, convertible strategies and dedicated short-stock strategies," says Izenstark. "We call those alpha strategies. The whole idea is to try to lower the risk and increase the average annual return to your portfolio."

The IRON Financial team discusses portfolio construction with its high-net-worth clients or their consultants to show how the firm's strategies may fit into their portfolios. "They may say, for instance, that they would like dedicated exposure to high yield, but don't know when to invest in it and when to raise debt," says Izenstark. "Our strategy is designed to provide dedicated exposure to high yield, so they don't have to think about when to increase or decrease exposure to the market. That's what we do."

The same thing applies to the way the firm manages convertibles, short-term corporate bonds and short-stock strategies. "Most people don't understand what a dedicated short-stock strategy would be," he says. "A separately managed account is a way they can do it, have full transparency and see how that fits into their portfolio."