This issue is all about the turning of the page. We are turning the page on MF Global and Peregrine, as MF customers are getting close to being made whole, and as Peregrine’s Russell Wassendorf is sentenced to 50 years in prison. The NFA is making strides toward the next phase, as new board members push for change, and as it assesses the findings of an independent investigator. And, as CTAs close the book on 2012 and look to 2013 and beyond, several weigh in on what the future holds for the managed futures sector.

Quote of the Day

“On average, CTAs seem to have one down year every six years. It was a very difficult year, particularly for purely trend-following funds, but you cannot have everything. The only investment style that makes money all of the time is fraud.”

-Ewan Kirk, founding partner of Cantab Capital Partners, in the article “Can managed futures adapt to deliver in the low interest rate world?”

Observations – Statistics – Commentary

Five Minutes with Tom Kadlec, President, ADM Investor Services, Inc.
John Lothian Newsletter
Tom Kadlec is president of ADM Investor Services (ADMIS), the futures commission merchant (FCM) subsidiary of Decatur, IL-based Archer Daniels Midland Co (ADM). He spoke with JLN Editor-at-Large Doug Ashburn at ADMIS’ recent National Broker Meeting, an annual convention of networking, information sharing, and cutting-edge economic research presentations. Kadlec’s message to brokers is that of financial stability and growth in the wake of diminished customer confidence and regulatory uncertainty. Transparency and communication, he says, are the keys.

Peregrine fraud investigation finds shortcomings at futures regulator
By Lynne Marek – Crain’s
The National Futures Association said it will implement 21 changes to how it oversees futures industry firms after an independent investigator found numerous auditing shortcomings in the wake of the $200 million financial fraud by futures broker Peregrine Financial Group Inc.
**JL: Interestingly, there were no whistleblowers uncovered by the report. There are lots of things in this report to think about.

A letter from NFA’s CEO and Chairman
Dear Members,
We wanted to send you a personal update on all that has happened in the months following the collapse of Peregrine Financial Group Inc. (PFG), and let you know that we have taken steps to refine and improve our regulatory practices and better protect you, your customers and the industry in the wake of this tragic situation.

Attain Capital’s Semi-annual CTA Rankings
Attain Capital Management
It’s that time of year again, when we have the data for all of the CTAs we track through 2012, allowing us to try and answer the question we get on a daily basis: What’s your BEST managed futures program?  That question is always a tricky one, as depending on who is asking it, they may want to know any one of several variations on who is best. Best last year? Best for all time? Best risk adjusted return? Best in terms of lowest drawdowns?
**DA: Great list, with a number of surprises. From what they are saying in the popular press, you wouldn’t think any CTAs made money last year. I like that in the “top 15 overall” category, numbers 1 and 2 were funds that had minimum investments of $100k and $50mm respectively.

Town Hall Meeting: Rethinking the NFA for Commodity Customers  
John Roe, Commodity Customer Coalition  
The Commodity Customer Coalition will host a public Town Hall meeting Monday February 4, 2013 to get customer feedback on the role of the NFA in protecting customers and regulating its registrants.  This will be the first in a series of Town Hall meetings designed to inform CCC co-founders and NFA Board Members-elect James Koutoulas and John Roe as to the public desire for reform at the National Futures Association.
**DA: Election congratulations to Mssrs. Roe and Koutoulas. We will get our first clue Monday as to how the CCC would like to steer the organization.

Altegris CTA Challenge 2013 Update
Altegris Clearing Solutions
We have just concluded the first month of the CTA Challenge. January results will be posted soon. We have just added an email sign-up for those interested in following us. To find out more, and to add your email to the list, visit the CTA Challenge portal site.
**DA: JLN Managed Futures is a media sponsor of the year-long event. Look here for periodic updates.   

Lead Stories

What does the future hold for CTAs?
Anthony Hodges – FOW
Much has been written about the lack of CTA performance over the past 3-4 years. Managed Futures proponents point to 2008, when CTAs demonstrated a remarkable ability to generate handsome profits when the financial world was in crisis, as a reason for including managed futures in a balanced portfolio.

Given These Returns, Where Does A Specialist Managed Futures Fund of Funds Go?
Simon Kerr, Hedge Fund Insight
One of the major decisions taken by the investing institutions that came back to hedge funds after the Credit Crunch was to stick with CTAs. In the period after the Credit Crunch that was not difficult – the Barclay  CTA index was up 14% in 2008, and some brand name CTAs up a lot more. The long term role of CTAs in a portfolio context was proven in adversity. So CTAs got a disproportionate share of fresh allocations to hedge funds in 2009-10.

Be Very Afraid When Fear Disappears From Markets
These days, many indicators suggest we are in an extremely low-risk market environment. The Chicago Board Options Exchange Volatility Index, or VIX, sometimes known as the fear index, has reached a five-year low. European sovereign-bond yields, long a source of anxiety, have eased since their uncomfortable march higher in 2011, and the euro has risen 13 percent from its 2010 low.
**DA: The only thing we have to fear is lack of fear itself. FDR is spinning in his grave.

The Political Implications of America’s Oil & Gas Boom
All About Alpha
s we begin a new year we wanted to take a look at the current energy landscape and see what the future holds for the global economy, America’s oil and gas boom, whether renewables will continue to be a favorite amongst investors and whether we should be focusing more attention on conservation and energy efficiency rather than our continuous effort to increase supply.

Bill Gross: Economy is headed for credit supernova
Futures Magazine
They say that time is money. What they don’t say is that money may be running out of time.

Managed Futures/Managed Funds

Can managed futures adapt to deliver in the low interest rate world?
After delivering stellar returns in 2008, managed futures and CTA strategies have attracted over $100 billion in assets as growing numbers of investors have been drawn to their diversification benefits. But following another year of negative returns for the sector, should investors continue to back them or are many of the existing quants models unable to cope with the zero interest rate, post-financial crisis world?

Lines Blur Between Hedge Funds and Asset Managers
Regulation is driving asset managers and hedge funds into the same space, according to Paris-based vendor Linedata’s annual survey of buy-side clients. Matt Gibbs, product manager for Northern Europe at Linedata, speaking at the survey release, says regulation is forcing asset managers to become more like hedge funds by focusing on a greater number of asset classes. Conversely, hedge funds have had to become more traditional.
**DA: To me, the only difference is where the fees are buried.

How to hold fickle commodities in your portfolio
Reuters via Yahoo! Finance
Commodities are among the most skittish investments. Not only do they react to global economic forces, they can seesaw with supply and demand, China’s voracious appetite for raw materials and the weather.
**DA: Good advice if your objective is long-only commodity exposure. If you would like exposure to both sides, come see us here in the managed futures space.

Alternative Ucits strategies deliver solid performance in 2012, says Alceda
Overall alternative Ucits strategies delivered solid performances in 2012, but managed futures struggled to keep up, according to the Q4 Alceda Quarterly Ucits review from Alceda Fund Management.

BTG Pactual shuts macro hedge fund to new money
The hedge fund arm of Brazilian bank BTG Pactual has shut its top-performing fund to new cash, in the latest sign managers believe markets may be too tough for trading huge amounts of money
**DA: Must be nice to be in a position to chase away AUM. But this is a good lesson in the limits of scalability.

Hedge Funds Boost Bullish Bets by Most Since July: Commodities
Hedge funds increased bullish commodity bets by the most in six months as accelerating growth from China to the U.S. boosted prices for a seventh week. Speculators raised net-long positions across 18 U.S. futures and options by 11 percent to 758,048 contracts in the week ended Jan. 22, the biggest gain since July 3, U.S. Commodity Futures Trading Commission data show. Bullish cru
de- oil bets reached a four-month high, while those for soybeans climbed by the most since March. Investors are the most bullish on cotton since February 2011.

Commodity Confusion
The torrid growth of exchange-traded funds is as clear a trend as you get in financial markets. Investors poured a record $191 billion into ETFs last year, driving 18% asset growth (27% including performance gains). One niche, though—commodities—has been somewhat sleepier. The nearly $11 billion that went into this group, though respectable, made for 10% growth, showing that investors are not as enthusiastic about commodity ETFs as they are about stock or bond ETFs. There are good reasons for that.

Need A Better Investment Strategy? Listen To A Woman – New data reveals that female hedge fund managers outperform their male competition.  
Male hedge fund managers, watch out for your jobs: a new report from financial services firm Rothstein Kass has revealed that female hedge fund managers significantly outperform their male counterparts. In the third quarter of 2012, they scored a net return of 8.95% (according to the Rothstein Kass Women in Alternative Investments Hedge Index) compared to a 2.69% net return overall on the HFRX Global Hedge Fund Index. But at the same time, women make up less than 20% of all C-suite members in the firms polled. Not enough people have yet woken up to the fact that it makes sense to hire more women in senior positions.

Pensions & Institutions

Pensions Bet Big With Private Equity
On the 13th floor of a sleek downtown office building here, the trading desks are manned overnight. The chief investment officer favors cowboy boots made of elephant skin. And when a bet pays off, even the secretaries can be entitled to bonuses. The office’s occupant isn’t a highflying hedge fund but the Teacher Retirement System of Texas, a public pension fund with 1.3 million members including schoolteachers, bus drivers and cafeteria workers across the state.
**DA: What happens when a “bet” doesn’t pay off?

Bridgewater’s Dalio Sees ‘Game Changer’ as Money Shifts
Ray Dalio, founder of Bridgewater Associates LP, the world’s biggest hedge fund, said 2013 will be a “game changer” for the economy as investors reallocate money after risks such as Europe’s sovereign debt crisis receded.
**DA: All this central bank pump-priming was destined to make its way into the market. Will they have the foresight to pull back in time, or will they err on the side of bubble-blowing? If recent history is a guide, “hello, bubble.”

U.K. Pension funds hold more bonds than shares for first time since 1975
The Telegraph
Last year funds held an average of 35pc of their assets in shares, compared with 39pc in bonds and other fixed-interest investments. In 2011 they still held more in shares – 42pc against 33pc in bonds, according to the annual survey of company pensions by the National Association of Pension Funds (NAPF).

What are the Most Commonly Used Strategies for Wealth Managers in Hedge Funds?
Hedge funds serve as an important component within wealth managers’ portfolios, providing protection from downside risk along with diversification benefits.

Analysis: Canadian hedge funds’ growth dreams face tough reality
Canadian hedge funds will likely remain more boutique than big box in the future, as lack of scale, poor returns and difficulty accessing big investors weigh down growth.
**DA: Article says Canadian pension funds largely prefer allocating to the “big boys” in New York and Boston, rather than domestic funds.

U.S. Endowments To Increase Hedge Fund Allocations Over Next Year
According to data firm Preqin, endowments in the United States have an average hedge fund allocation of 19.1%, and are looking to grow this over the next 12 months.

In a Volatile Economy, Colleges’ Endowment Returns Fall Flat
Chronicle of Higher Education
The value of college endowments fell back to earth in 2012, just a year after soaring an average of 19.2 percent, according to a new survey released on Friday. The Nacubo-Commonfund Study of Endowments, which looks at data from more than 800 education institutions in North America, found that endowments for the fiscal year that ended on June 30, 2012, were essentially flat, returning an average of minus-0.3 percent.


CFTC Staff to Host a Public Roundtable February 5 on Enhancing Customer Protections  
Press Release
The roundtable will focus on: the role of an “Examination Expert” to review Self-Regulatory Organization (SRO) examination programs; the proposed disclosures of firm specific risks and financial reporting; the proposed requirement for segregation and secured acknowledgement letters; and the proposed residual interest requirements for Futures Commission Merchants.

Futures Industry Moves Forward with Enhanced Customer Protections
Joanne Morrison – FI Magazine
Since the collapses of MF Global and Peregrine Financial, the futures industry has made significant progress to better protect customer funds with a series of actions that have led to better transparency and internal controls. Many of the recommendations are in line with initiatives recommended by an FIA task force early in 2012.

Recent compliance guidance from the National Futures Association
Association of Corporate Counsel
The National Futures Association (the “NFA”) has recently released a number of notices to CPOs and CTAs, summarized as follows and addressed in detail under the respective section headings below.

Reality dawns for alternatives sector
Financial Times
Radical reforms from Brussels that recast the way alternative funds are sold across Europe are catching hedge fund and private equity managers off balance. Starting as early as July, the Alternative Investment Fund Managers Directive (known in industry argot as the AIFMD) will disrupt how most alternative investment funds work in the EU by subjecting them to a diet of regulations and streamlining the way they are distributed across 27 countries.
**DA: For more on AIFMD, visit the page in MarketsReformWiki.

MF Global accord, once thought unlikely, goes before U.S. judge
By Nick Brown – Reuters
A year ago, the bankruptcy of MF Global, the collapsed brokerage run by former New Jersey G
overnor Jon Corzine, seemed like it would be a long and messy affair involving plenty of courtroom drama around the world.

Peregrine boss Wasendorf gets 50 years jail for fraud
A judge on Thursday sentenced the founder of Peregrine Financial Group to 50 years in prison for looting hundreds of millions of dollars from the brokerage, saying his customers would probably never recover the money they lost.

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