Observations/Commentary

Emerging Manager Forum Miami, Conference Update
CTA Expo
Don’t miss out on Emerging Manager Forum Miami 2015, December 10 at the Eden Roc Hotel! Registrations this year are still running ahead of registrations last year. We now have over 200 registered, including 80 registered as capital sources and 48 participating traders; nearly 50% of those attending are Hedge Funds. The registration trends that began last year seem to be continuing with substantial numbers from South Florida and many new names.

The Conference Program is now available online. In it you will find an informative and engaging mix of speakers and topics for both Traders and Investors. Click HERE to view the conference brochure and HERE to register for the event.

Peeling back the layers of the European regulatory onion with Finex’s Andrew Gebhardt
JohnLothianNews.com

As regulatory bodies implement sweeping new rules for the financial industry in the wake of the ’08 crisis, an increasing problem lies in navigating these always complex and occasionally differing rules and regs across international boundaries.

JLN sat down with Andrew Gebhardt, managing partner at Finex LLP, to see how the situation is playing out for investment funds in Europe.

The short answer is not well.

Watch the video »

Trying To Stop The Next Flash Crash
JohnLothianNews.com

Last week, the CFTC announced its new automated trading rules, marking a major shift on how automated trading will be developed and implemented in the coming years.
View the Story »
**Check out our updated story on automated trading regulation.

***DA: For a complete summary of the rule, and related documents, plus links to related topics, visit the rule’s page in MarketsReformWiki.

US regulators propose powers to scrutinise algo traders’ source code
FT.com
Under a rule proposed last week, source code repositories would be open to inspection by the Commodity Futures Trading Commission and the US Department of Justice without a subpoena.
The idea of sharing source code with government officials is emerging as the most controversial element of the CFTC’s new regulation on automated trading — Reg AT for short — which attempts to catch up with the explosion in automated trading over the past 10 years.
jlne.ws/1TiUClf

**JK: Big brother wants to look at source code. The question is just how will they do that – safely and securely?

Trafigura Says It’s Winding Down Flagship Commodity Hedge Fund
Bloomberg Business
Commodities trader Trafigura Pte Ltd. said it is closing its flagship Galena Metals Fund, the latest hedge fund victim of the rout in raw materials markets from oil to copper.
Commodities hedge funds are heading for their worst year since the 2008-09 global financial crisis, with some shutting down — including the $450 million Armajaro Commodities Fund — after losing money and clients.
jlne.ws/1TiRRAz

**JK – Time to get out when you can fill up your gas tank for $30 and put in new plumbing for $2.00 and change.

Cliff Asness on investment success
Business Insider
“I used to think being great at investing long-term was about genius,” Asness said. “Genius is still good, but more and more I think it’s about doing something reasonable, that makes sense, and then sticking to it with incredible fortitude through the tough times.”
jlne.ws/1QsgSLJ

**JK: Meet Cliff Asness once you’ll start thinking about investing with him. Calstrs did. (See below in Managed Futures section)

Q&A with Yogi Dewan: Why everyone misunderstands risk
William Railton – City AM
For high net worth families, preserving wealth for future generations is more important than risking it for an outsized return. “Financial markets are environments for preserving wealth,” explains Yogi Dewan, chief executive and founder of boutique wealth management firm Hassium Asset Management. “But whether you invest in equities, real estate or government bonds, there’s no guarantee you’ll see your investment back. And market volatility around geopolitical events shouldn’t affect the money you’ve spent a lifetime making.”
bit.ly/1Qw4FW6

Corzine to reflect on ‘Success and Failure’ Thursday at FDU
New Jersey Hills: Florham Park Eagle News
The former New Jersey Governor, U.S. Senator and Goldman Sachs CEO will share his experiences on “A Life with Purpose: Reflections on Success and Failure” when he visits Florham Park for a presentation at Fairleigh Dickinson University’s Campus at Florham from 7:30 to 9 p.m. this Thursday, Dec. 3, in Lenfell Hall in Hennessy Hall on the campus at 285 Madison Ave. Corzine will deliver his presentation to students enrolled in the university’s Silberman College of Business, and his talk will be followed by a question-and-answer session for students only.
jlne.ws/1HD16Lk

***JL: Expect a group of protestors from “FCM Lives Matter” to be present at the event.

Lead Stories

CTA Launches Fall to Lowest Level Since 2006
Preqin
Underwhelming performance in 2015 and high investor dissatisfaction reduce inflows and demand for CTA funds
jlne.ws/1TiD7S7

***DA: I see the fund world as a bathtub, where both the spigot and drain are always open. Sometimes it is filling faster than it is draining, and sometimes it is the other way.

R.J. O’Brien (UK) Limited Wins “Best FCM – Innovation” Award At CTA Intelligence European Services Awards 2015
Chicago-based R.J. O’Brien & Associates (RJO), the oldest and largest independent futures brokerage and clearing firm in the United States, today announced that its London-based affiliate R.J. O’Brien (UK) Limited has won the award for “Best FCM – Innovation” at the CTA Intelligence European Services Awards 2015. The awards issued by CTA Intelligence magazine recognize those who have provided outstanding support and services to the European managed futures industry over the past 12 months.
jlne.ws/1TiR5DI

Barclay CTA Index Down 0.78% in October; Global Equity Rally Challenges Trend Followers
BarclayHedge
Managed futures traders lost 0.78% in October according to the Barclay CTA Index compiled by BarclayHedge. The Index is down 1.52% year to date.
jlne.ws/1TiRvty

Barclay Hedge Fund Index Gains 2.19% in October; Hedge Funds Rebound on Global Equity Rally
BarclayHedge
Hedge funds gained 2.19% in October according to the Barclay Hedge Fund Index compiled by BarclayHedge. The Index rebounded in October after four months of losses, and is now up 0.69% in 2015.
jlne.ws/1TiRINA

Giving Back Has Made This 41-Year-Old Retired Billionaire Less Popular
Bloomberg Business
When John Arnold was a trader, he had a serene — some would say bloodless — way of seeing the world. He wanted the truth, the cold, hard truth, and embraced the power of an idea no one else was seeing. Then he bet nearly everything he had on it. In 2006, Arnold’s hedge fund, Centaurus Advisors, took a huge contrarian position on natural gas prices and made a fortune. In 2008, it anticipated the commodities crash.
jlne.ws/1HaIodU

Managed Futures/Managed Funds

Calstrs invests $500m with Graham and AQR
CTA Intelligence
he California State Teacher’s Retirement System (Calstrs) has increased its allocation to CTA strategies from Graham Capital and AQR to a combined $500m. The $192bn pension committed $300m to Graham and $200m to AQR Managed Futures during the third quarter, a Calstrs spokesperson confirmed.
jlne.ws/1TiCE2s

Managed Futures: Best And Worst Funds In October
Seeking Alpha
Managed futures funds suffered category-wide losses of 1.82% in October, reversing course after posting gains of 1.21% the prior month. There were still standout performers within the category, though, as the top three managed futures funds notched monthly gains ranging from 1.20% to 2.53%.
jlne.ws/1Outlx1

Bear Market, Managed Futures Funds Held Up in August Downturn
Wealth Management
While the S&P 500 Index plunged 9.43 percent during the week of Aug. 17, bear market funds gained 14.52 percent, and managed futures funds were up 0.21 percent, according to Morningstar data.
jlne.ws/1OutCzU

***DA: But it turned around in a hurry.

PIMCO Considers Alternatives For Portfolio Diversification
Seeking Alpha
With yields near multi-decade lows, many investors have determined that the compensation for holding cash, U.S. Treasuries, developed-market sovereign bonds, and other traditional diversifiers simply isn’t adequate.
jlne.ws/1TiReH0

Capping fees could be best way to control fund management costs
Pauline Skypala – FT
In the days before governments decided deregulation was a good idea, UK investment fund charges were restricted under the 1958 Prevention of Fraud Act. The limit, of 13¼ per cent over 20 years, which translated into initial charges of 3-5 per cent and annual fees of 0.375-0.5 per cent, was discarded in 1980, just about the time I started writing about the investment industry.
on.ft.com/1ldIG9i

***DA: One way or another, this is a market in search of an equilibrium.

Top Hedge Funds break $1.1B threshold, led by strong quarters from Citadel and AQR HedgeTracker
The latest Top U.S. Equity Hedge Fund list has been released, revealing that the top 100 hedge funds now manage more than $1.1 billion in assets. Overall, the assets of the top funds increased by nearly $27 billion, or 2.5%, over the quarter.
jlne.ws/1TiymYQ

Filings Show Rocky Quarter for Many Hedge Funds
By ALEXANDRA STEVENSON and MATTHEW GOLDSTEIN – NY Times
Some of the richest investors on Wall Street on Monday gave the world a glimpse of how they make their money. Or, in the case of the last quarter, how many of them lost money for their clients.
nyti.ms/1NZ0MaQ

Pensions & Institutions

CalPERS Takes One Step to Monitor Private Equity
PublicCEO
Using a new data system, CalPERS last week issued its first report on fees paid private equity firms, a type of investment that created a new class of billionaires and is criticized for debt-laden company takeovers resulting in job losses and bankruptcies.
Private equity has yielded the highest CalPERS investment returns, needed to reach a goal of earning an average of 7.5 percent a year, while providing some protection against stock market plunges.
Private equity also has given CalPERS its biggest scandal. A former board member, Alfred Villalobos, collected about $50 million in “placement” fees from firms seeking CalPERS investments.
jlne.ws/1TiVfeE

***DA: And the word is the disclosure may “unleash a trend” according to this story

World’s Biggest Pension Fund Loses $64 Billion Amid Equity Rout
Anna Kitanaka – Bloomberg
The world’s biggest pension fund posted its worst quarterly loss since at least 2008 after a global stock rout in August and September wiped $64 billion off the Japanese asset manager’s investments.
bloom.bg/21otg33

Investors psyched by the endowment effect
John Authers – FT
Whenever you are trying to value your own investments, beware of the “endowment effect”. It is one of the most pervasive errors we make, and one of the most costly. It vitiates portfolio returns and it also has profound consequences in more important areas of human endeavour.
on.ft.com/1LzdEhA

Investing In Hedge Funds: Investor Strategy – In or out
IPE
Despite what should be an attractive environment there are reasons to question the value of hedge funds. Regulation, market conditions and lack of start-ups make it a more difficult environment than first appears. Hedge funds should highlight how they help investors achieve diversification
jlne.ws/1TiVwyn

Investing In Hedge Funds: Liquid Hedge Funds – Fad or the future?
IPE
Niki Natarajan reports on how hedge funds are using onshore vehicles to replicate the returns of the offshore market. Are these a way of making investment in hedge funds easier or simply another risky alternative?
jlne.ws/1TiWjze

***DA: Yes and, um, yes?

As public pensions shift from hedge funds, hedge funds look to Main Street
TheHill
Institutional investors took notice last year when CalPERS, the giant California public employee pension fund, declared that it would no longer invest in hedge funds. Disappointed with the high fees it was paying and the mediocre performance it was getting, the pension fund announced its plans to pull $4 billion from the 24 hedge funds and six hedge fund-of-funds in which, on the recommendation of financial advisers, it had invested. Hedge fund results have trailed the Standard & Poor’s 500 since 2009, continuing a trend that led Bloomberg Business to run a story with the headline “Hedge Funds Are for Suckers.”
jlne.ws/1TiWUB2

Hedge fund diversity grows
Securities Lending Times
“Pensions, endowments, foundations, insurers and family offices are different entities, with different challenges and divergent investment aims. But what many of them have in common is a wish to see hedge funds as another method of investing in equities, bonds and other asset classes, rather than as a separate asset class.”
jlne.ws/1TiX2jV

Regulation

CFTC votes to propose registration, risk controls for automated-trading firms
By ANDREW ACKERMAN – WSJ
The Commodity Futures Trading Commission took its first concrete step toward boosting oversight of rapid-fire traders, advancing plans to increase controls of computerized trading after a series of market glitches.
on.wsj.com/1PO8EgM

***DA: For a complete summary of the rule, and related documents, plus links to related topics, visit the rule’s page in MarketsReformWiki

EU MiFID Market-Law Delay Nears as Lawmakers Pledge Backing
Julia Verlaine and John Glover – Bloomberg
Parliament informs EU Commission’s Hill of stance in letters
Implementing rules must be wrapped up swiftly, Ferber says
The European Union moved closer to pushing back the start date of financial-market rules known as MiFID II, as the bloc’s parliament threw its support behind a one-year delay.
bloom.bg/1kWILyH

Wall St. Faces Mounting Criticism From Regulators
NY Times
Despite the fallout from the 2008 financial crisis, Wall Street still has a tendency to dismiss as frivolous some of the ethical issues it faces daily.
nyti.ms/1Nto7CP

Improper delegation of authorised activities – a notice for financial adviser firms and their advisers
UK FCA
Firms that are approached to delegate their regulated activities, such as providing pension switching advice, to an unauthorised third party need to be aware of the serious implications that may arise as a result of entering into this type of arrangement.
bit.ly/1IjD9Zo

Dodd-Frank 5 Years Later: Where Are We Now? Derivatives Regulation for Asset Managers
Latham & Watkins LLP – JDSupra
Investment managers — including those of private funds (i.e., funds relying on 3(c)(1) or 3(c)(7) for exemption from registration as an investment company under the Investment Company Act) — that transact in derivatives should already be familiar with the general scheme of the CFTC’s registration requirements and exemptions for CPOs and CTAs and aware of their own CPO and/or CTA status. Certain other key derivatives rulemakings are, however, on the horizon, which will likely have further practical implications for investment advisers and the funds that they manage.
jlne.ws/1TiSzxD

UK fund managers braced for hit to business model
Madison Marriage and Chris Newlands – FT
Fund managers have been sitting nervously ever since the UK regulator first announced it would launch a review of the asset management industry in 2015.
on.ft.com/1j9jW0N

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