Gyrostat Capital Management: Innovating Risk-Managed Portfolios For Australian Investors

In our latest Leaders InFocus conversation, we explore the innovative strategies of Gyrostat Capital Management, recently recognised as the Most Innovative Wealth Management Australia 2025. Founded by Craig Racine, Gyrostat has been at the forefront of developing risk-managed equity funds designed to provide downside protection while capturing market opportunities. With a 14-year track record, their flagship Class A fund aims for returns of 6–8% per annum in trending markets, and >8% in changing markets.  The 3 year returns exceed 9.9% pa at 28 February 2025. In this discussion, Craig shares insights into Gyrostat’s unique approach to risk management, the development of their proprietary investment strategies, and how they cater to lower-risk investors seeking both protection and performance in today’s dynamic financial landscape. 

Brett:

Congratulations on winning Most Innovative in Wealth Management, Australia, 2025. How does this recognition validate Gyrostat's unique approach to risk-managed portfolios?

Craig:

Well, I think number one, it really starts to build trust in the Gyrostat brand. The fact that we're doing shares always protected was something relatively new when we started 14 years ago. The perception was that having something always protected was just too expensive. To have our results, and to have that fact recognised, that not only can we do it but we can generate a great return, is really very helpful in opening doors and building confidence. It’s also a great reflection on the work the team has done. We put a lot of effort in, so we appreciate peer recognition. Fabulous.

Brett:

Your Risk-Managed Equity Fund is a standout product. Can you explain how your proprietary risk management overlay works to protect portfolios while still capturing market opportunities?

Craig:

Yes. The initial question was: what segment of the market's needs aren't being met? And it was lower-risk investors. We've seen that throughout my career, whether it was the Asian Financial Crisis, the internet boom and bust in 2000, the GFC, COVID, etc. There have been so many reviews showing that a segment of the market’s needs just aren't being met.

The idea was always to have a hard risk tolerance. In our case, we have no more than 3% of capital at risk per quarter. The way we achieve that is as follows. For instance, if we have an investment of a million dollars in ASX top 20 stocks that we spread across, about 95% of the money buys the underlying stock, and about 5% is used to buy the lowest-risk protection, for whatever time period that may be.

So that’s how we're able not only to have protection in place but, in the event that the market rallies or moves, we can adjust that protection lever. That’s really what Gyrostat is all about: shares always protected.

Brett:

Just thinking of the hockey stick payoff structure, it’s a key innovation in your fund’s design. How does this structure provide reliable downside protection and enable investors to benefit from market gains?

Craig:

First, the fund has three key features. Let me set the frame and then explain.

Number one is the lower risk: no more than 3% of capital for the quarter. In a simplified example, if we were to buy a stock for $100 for the quarter, it will have protection at the $97 level, worst case. That’s the first feature we’ve always had, so our investors get a far lower-risk investment.

Second, we’ve designed it such that it increases in value if the stock falls. The way we do that is: if we buy 10,000 shares, we’ll buy protection over more than 10,000, just a little extra. As a result, in the event the stock falls, the protection must rise. There’s a direct correlation. The more it falls, the more that extra protection increases in value. That’s how we consistently increase returns when markets fall.

For example, in March, both of our funds were up over 3.5% in the first couple of weeks, as there were fairly steep falls in stocks. That extra protection kicks in.

Third, and what took us longer to develop: whatever happens, whether the stock goes up or down, you must generate consistent returns. Regardless of what the stock does, we have to make sure our investors get a good return.

We do that by investing in stocks, particularly commodities, that move a lot. They jump on the open, up 2%, up 5%, down 3%. It’s on that opening that we capture profits and then close down the risk.

In current markets, if, for instance, a stock jumps straight up to $105, we’ve made significant money. Then we run our systems and move the protection lever up, locking in those gains and adding some extra protection to restore the 95% stock, 5% protection balance.

Because you’ve got both upward and downward facing strategies, essentially a two-dimensional payoff, we can make money in whatever direction the market moves. And as long as there's enough movement, we can defray the erosion costs of protection by trading in and out of the overlay. That’s really the innovation we’ve brought.

Brett:

Going on to the strong annualised returns of the Class A and Class B funds: what are the main factors driving this consistent performance, particularly during volatile, mild conditions? You touched on this already, but could you expand on that particular element?

Craig:

Yes. When allocating our capital, we look for stocks with a wider range, those inherently more volatile, because that creates more opportunities to capture gains and close them down as soon as they materialise.

About four or five years ago, we allocated significantly more to big commodity stocks: the BHPs, the Rios, the Woodsides, the Index itself. They have a track record of moving 2 to 3%, three or four times a week. There's just a natural, inherent volatility in those stocks. Every time that happens, we make money, whether the movement is up or down.

The really big gains come from large gaps on the open. It's a parabolic gain. The difference between a 3% and a 5% gain is significant. Once we get those bigger moves, that’s where the supersize returns come from. On average, those stocks move like that about 70 times a year. We have all the statistical data, so we allocate our capital accordingly.

Because 95% of the capital owns the underlying stock, we also pick up dividends, delivering a respectable yield, and in Australia, franking credits as well.

We hold the stock and constantly rebalance the protection element.

Recently, our returns have improved further due to geopolitical uncertainty. We’ve increased our weighting in Australian banks. With all the questions about interest rate margins and the future of the economy, there's been a real pickup in 2% or more moves and wider ranges.

So, our asset allocations adjust to reflect conditions. We've been operating at full strength over the last year. There was a time when the banks weren't moving much, so we shifted capital to commodities. But we can also deploy into oil and gas, retail stocks, investment banks. There’s a wide variety of asset classes we can use.

Brett:

Your investment strategy includes disciplined stock selection from the ASX 20. How does that targeted approach contribute to the fund's non-correlation with the broader market?

Craig:

The big thing is that, in all market conditions, you can get your trades done. These are large-cap stocks, with lots of liquidity and plenty of market makers. We’ve faced all kinds of situations over the last 14 years and always managed good trade execution. That’s key to our stock selection.

Protection, by its nature, is also non-correlated with the stock. So while it’s a concentrated portfolio, we benefit from sector rotation among our key segments in the Australian market, plus a position in the Index.

Also, when stocks go down and protection increases in value, that directly creates non-correlated returns. Our three-year beta is about -0.2. We make money in more volatile markets. It doesn’t matter much whether stocks go up or down. We shine when markets fall, and that suits lower-risk investors.

Brett:

Looking at the types of investors you attract, you’ve got a diverse range: family offices, SMSFs, retirees, charitable foundations. What specific features of your funds appeal to these segments?

Craig:

Our core question is always: are you a lower-risk investor? If your risk tolerance doesn’t allow for a 20 to 30% drawdown, then our Class A fund, with a 3% risk tolerance, is ideal.

The ideal client is someone at or near retirement who wants to shift from a long-only, beta-one manager to an absolute return strategy and de-risk their portfolio.

Our first segment is dealer groups. That’s where we've focused most of our attention so far, along with platforms and model portfolios.

The biggest segment in Australia is the self-managed super fund, self-directed investor. With a tax file number and minimal documentation, they can apply online and qualify as a wholesale investor. That’s the second segment for Class A.

Then we found that high-net-worth investors often have a higher risk tolerance. So, our Class B fund is a leveraged version of Class A. It carries a 6% quarterly risk tolerance, offers higher returns, and uses the same absolute return strategy. It’s aimed at family offices and intergenerational wealth.

We also decided to develop a suite of products benchmarked to the Index for moderate-risk investors. That’s Class C, where the protection is still present, but at a 98% stock to 2% protection ratio.

We have three versions: Australian, Hong Kong, and global.

For example, the Hong Kong product, which operates in a more volatile market, has outperformed by double digits every year, and by more than 34% in the last 12 months versus the Index. Dynamic hedging is particularly effective in generating absolute returns.

Brett:

Just thinking about the integration of advanced tech and data analytics—how do these tools improve your ability to manage risk in your funds?

Craig:

Tech is absolutely critical. We have a direct feed to all live option prices on the stocks and assets we invest in.

For example, in our Class A and B funds—our absolute return strategies on the Australian Index—we receive live quotes at market open for protection levels, across all series from 3 to 12 months, and sometimes up to 18. Each of these has a live price, reflecting different market participants' perceptions of risk. That shows up as differences in implied volatility.

Sometimes it’s elevated at the short end and expected to settle later. That skew is where we generate returns.

Whenever the pricing diverges from textbook models, we can see it instantly. Our proprietary software analyses all of that data and presents the lowest-cost protection available at that time. The investment team reviews the opportunity and self-executes the trade.

There’s a lot happening at the moment. Risk perceptions are shifting quickly. In the past few weeks, we’ve seen renewed demand for tail-risk protection, which hadn’t been present for some time. We can see capital moving before broader market prices reflect it.

Currently, volatility is extreme at the short end. But as you move out to mid-dated options, there are windows where protection remains affordable. Our technology lets us access those prices instantly. After 14 years of development, we’ve built stock-specific tools that give us this competitive advantage.

Brett:

As the wealth management landscape evolves with digital transformation and regulatory change, what broader industry trends do you see shaping the future of asset management in Australia? And how will they influence investor expectations?

Craig:

From our perspective, the most obvious trend is the ageing population and the resulting need for new types of products.

We know that the traditional accumulation phase comes with higher drawdowns. Since 2010, we’ve seen signs of change. The industry has already published criteria outlining what types of products are needed for this shift.

The core themes are consistent: you need exposure to some growth asset to address longevity risk, some form of risk management technique, and a requirement for reliable income. In our case, the income comes from dividends. But if dividends aren’t there, we can generate income through the risk management overlay.

The market is becoming more dynamic. We’re seeing product innovation that directly addresses these segmented needs.

I believe we’ll soon see grids or frameworks from asset consultants that map different strategies to different market conditions. For example: “In rising markets, this product performs well; in range-bound conditions, these are optimal; during downtrends, this works; in sell-offs, use this.”

Because we’ve done this for 14 years, we’ve got the data to back it up. We can demonstrate historical performance in each of those scenarios and show which products correlate and which do not.

So yes, the big trend is product innovation designed to meet increasingly segmented investor profiles.

Brett:

What specific new initiatives or enhancements is Gyrostat planning to refine your risk-managed equity fund and drive innovation across your product suite?

Craig:

In our absolute return funds, we monitor the ASX’s monthly option turnover data. Occasionally, new stocks gain significant liquidity.

That prompts us to ask: can we now add CSL? Should we consider Macquarie Bank? Is Wesfarmers appropriate? How do these stocks contribute to diversification and overall performance?

We’re applying the same core approach, but expanding the asset set. That gives us greater scalability and allows us to pursue the best available returns.

Each day, for every asset we track, we generate a grid showing the range of returns we can expect based on current option market conditions.

We look at each stock and ask: does this one have a consistent pattern of volatility? Does it gap frequently? If so, it qualifies for inclusion.

This approach lets us make allocation decisions without relying on jargon. It’s just a number. Here’s what we own. Here’s the required protection. Here’s how the returns change with market movement.

So, we expect to expand the list of eligible stocks.

In addition, we’re exploring the further commercialisation of active ETF-style products. These aren’t ETFs, but they’re benchmarked against indexes and structured for segments like retirees.

Whether you want exposure to Australian equities, US dollar-denominated investments, or Hong Kong markets, the same principle applies. And there’s no reason we couldn’t eventually offer UK, European, or sector-specific products if demand is there.

For now, our objective is to bed down the five core products we’ve launched, solidify the investment infrastructure, and build out our corporate and distribution partnerships. After that, we can scale and extend the range based on demand.

Brett:

It sounds like a very exciting time.

Craig:

I think so, yes. What’s really changed is that people now recognise they need an umbrella. They’ve always suspected it, but there’s nothing like opening a statement and seeing a loss you didn’t expect. That’s when it really hits.

Since January or February, we’ve seen a noticeable uptick in direct enquiries and due diligence processes.

And once you enter this kind of environment, you usually see a three-to-five-year phase where volatility is elevated. That suits our strategies well.

From a client’s perspective, it reinforces a very simple idea: we don’t want to be exposed to these kinds of losses. What else can we invest in?

Brett:

Craig, I think that gives us a really good overview of the work you're doing for Gyrostat’s clients—delivering both protection and return. It's something that’s important in all market conditions, but especially in today’s turbulent geopolitical environment.

Brett Hurll, Executive Editor at Global Financial Market Review, draws on over 35 years of international experience across technology and finance sectors, providing readers with sharp analysis and unique perspectives on emerging trends, market shifts, and the complex interplay between global business and political dynamics. His extensive background and senior leadership role position him as a trusted voice on financial markets and economic developments. If you have an interesting editorial reach out to our team at editoral@gfmreview.com