In this issue, we see some of the aftermath of lagging performance from the managed futures and other alternatives sectors.Some municipal pensions have been keeping the long-term solvency dream alive via expected returns outside fixed income portfolios. One in California is headed to bankruptcy court, while another in South Carolina has pitted the state treasurer against the pension board. A Reuters analyst is questioning the notion that commodities are a distinct asset class. All this comes during a multi-session meltdown in the precious metals market. An Ontario pension fund manager, though, understands the role of managed futures in a portfolio – volatility management and non-correlation. Up first, though, is a retrospective on the original Turtles, compliments of Attain Capital.

Quote of the Day:  “There will be scenarios where we underperform. But our real objective is to have assets outperform liabilities.”

-James Keohane, president and CEO Toronto-based Healthcare of Ontario Pension Plan on the fund’s objectives, which include the use of managed futures and other alternatives as part of a portfolio volatility management system.

Observations – Statistics – Commentary

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Pinnacle Awards nominees

Richard Dennis, Bill Eckhardt and the Turtle Traders
Attain Capital Management
We have been thinking about the Turtles quite a bit lately due to the sudden passing of one of their most successful and charismatic members. We were certainly not the only ones saddened to learn of the passing of Liz Cheval – and the outpouring of condolences from across the industry demonstrated the impact that she had on the people who knew her. Ms. Cheval was the head of trading firm EMC Capital, and seeing the impact that she had made us wonder – where are the Turtles now? And what have they done with the knowledge and skills imparted to them in that famous experiment?
**DA: A trip down memory lane, followed by a “Where are they now?” Fun read.

Paulson Loses More Than $300 Million as Gold Declines
Billionaire John Paulson lost more than $300 million of his personal wealth on his gold bet, as the precious metal fell to its lowest price in almost two years. Paulson has roughly $9.5 billion invested across his hedge funds, of which about 85 percent is invested in gold share classes. Gold dropped 4.1 percent yesterday, shaving about $328 million from his net worth on this bet alone.
**DA: This article includes Friday’s $60 drop, but not Monday’s drop of $130 and counting. Ouch.

John Paulson to Start New Hedge Fund
Wall Street Journal
On Thursday, Mr. Paulson, who is trying to turn around his hedge-fund firm after a period of difficult trading, sent an invitation to clients and potential clients, announcing the launch of the Paulson Partners Premium L.P. Fund. The invitation said the fund is for investors “looking to mitigate income taxes.”
**JK – So who do you know wants to buy into JP’s new fund?

Will This Be the Year of the Actively Managed ETF?
Institutional Investor
**JK – Good piece on the actively managed ETF space and how ending the ban on using derivatives may help this sector.

Trading Technologies to Provide Connectivity to MexDer
Press Release
Trading Technologies International, Inc. (TT) and The Mexican Derivatives Exchange (MexDer) today announced that TT has linked its X_TRADER(R) derivatives trading platform to MexDer, the leading marketplace for trading derivatives on Mexican benchmarks, via the CME Group’s Globex(R) platform. TT’s connection launched concurrently with CME’s iLink enhancements for MexDer via Globex, which were released on April 14.


Lead Stories

Andy Kessler: The Pension Rate-of-Return Fantasy
Wall Street Journal
It has been said that an actuary is someone who really wanted to be an accountant but didn’t have the personality for it. See who’s laughing now. Things are starting to get very interesting, actuarially-speaking. Federal bankruptcy judge Christopher Klein ruled on April 1 that Stockton, Calif., can file for bankruptcy via Chapter 9 (Chapter 11’s ugly cousin). The ruling may start the actuarial dominoes falling across the country, because Stockton’s predicament stems from financial assumptions that are hardly restricted to one improvident California municipality.
**DA: Kessler does a nice job going over the pension numbers and showing that they do not add up.

Hedge fund spotlight: Credit, global macro and managed futures
Financial News
All of the four main strategies as defined by HFR – equity hedge; event-driven; macro, which comprises global macro and managed futures; and fixed-income relative value, which comprises credit – posted gains, led by equity strategies. Gains from macro funds were tempered by commodity declines, currency reversals and falling equity volatility.
**DA: The study sees managed futures as having eked out a 1.2 percent gain. Didn’t really knock it out of the park, but better than last year.

As Hedge Funds Thrive on Mortgages, the House Party Is Far from Over
Institutional Investor
Story focuses on the residential mortgage backed securities space – and the major growth stories in it.

Ex-Soros Adviser Says BOJ’s Massive Easing to Backfire
The Bank of Japan (8301)’s “huge bet” by boosting quantitative easing won’t turn the economy around and is instead sending the nation toward default, said Takeshi Fujimaki, former adviser to billionaire investor George Soros.

Man Group in New Drive to Turn Around Flagship Fund
Harriet Agnew – Bloomberg News
Man Group, based in London, wants to make AHL the best place in Europe for quantitative analysts to work, according to its new chief executive Sandy Rattray
Man Group EMG.LN +1.72%, the largest listed hedge fund manager in Europe, has created a new corporate structure for AHL – its $17 billion flagship computer-driven business and main profit driver – as its new management team looks to turn around the division’s fortunes.

Commodity Traders’ $250 Billion Harvest
The world’s top commodities traders have pocketed nearly $250 billion over the last decade, making the individuals and families that control the largely privately-owned sector big beneficiaries of the rise of China and other emerging countries.
**DA: He that liveth by the sword…


Managed Futures/Managed Funds

COLUMN-Commodities as hedge funds not an asset class
by John Kemp, Reuters
The status of commodities as a distinct asset class is under threat following another lousy start to the year for investors.
**DA: Not sure I buy into his argument, which is, essentially, that commodities are not an asset class because they have been rallying along with the stock market over the last few years. By his rationale, Beanie Babies were a distinct asset class 10-15 years ago because prices rose and fell concurrently with the stock market.

How A Hedge Fund Could Get Into The Bitcoin Game
Business Insider  
Part of being a hedge fund is having flexibility in what you invest in as long as it’s disclosed in the operating documents. For instance, there are funds that buy houses, farmland and timber, so why not snap up a stake in Bitcoins?
**DA: One could argue that Bernie Madoff was the first. Now you see it; now you don’t.


Pensions & Institutions

Investors keep a watchful eye on the horizon for risk
Institutional investors increasingly are embracing myriad volatility management strategies in an effort to control downside portfolio risk and still meet long-term return goals. Sophisticated investors that implemented portfoliowide volatility management over the past few years — such as the C$47.4 billion (US$46.8 billion) Healthcare of Ontario Pension Plan, Toronto, and the $3.4 billion Fairfax County (Va.) Employees’ Retirement System — have racked up strong track records of impressive returns that outperformed their benchmarks and their peers while keeping risk at bay.
**DA: Today’s “Quote of the Day” features a healthcare pension fund manager who employs a volatility management system to aid in liability matching.

UK pension shake-up squeezes fees
Global Investor
Automatic enrolment into UK pension schemes will have profound implications for the asset management and asset servicing industries, finds Andrew Sheen
As of October 2012, the UK pensions and asset management industry has embarked on a once in a generation project that will transform the shape of the retirement landscape.
Automatic enrolment will see up to 10 million UK workers brought into saving for a pension over the next five years, compared with a total current membership of around 3.6 million. Many of these new members will be saving for the first time, or resuming saving after period of belt tightening.

Calpers Commodity Holdings Dropped 4.1% in February to $1.279B
The California Public Employees’ Retirement System, the largest U.S. pension fund, reported the value of its commodity holdings slipped 4.1 percent in February from the previous month.

SC pension fund sues SC treasurer as power struggle explodes
The State  
The S.C. Retirement Investment Commission, which manages the state’s pension fund for public-sector workers, sued state Treasurer Curtis Loftis on Thursday. Technically, the lawsuit is about Loftis’ refusal to authorize a $50 million investment. But the real goal is to settle a year-long power struggle between Loftis and the commission that has included two attempted coups, a pair of SLED investigations and a public censure.
**DA: JLN Managed Futures has been following this story, as it looks to be a test case for what happens when an alternatives gambit goes wrong. Heads we win; tails taxpayers lose. And don’t forget my 2-and-20.

Financial instability shifting from banks to pensions – IMF
Investment & Pensions in Europe
Financial sector risk may be shifting to pension funds and other institutions as a result of global central banks’ exceptionally easy monetary policy – including bond-buying programmes – according to a new report from the International Monetary Fund (IMF).



One in three hedge fund workers admits to knowing about rule-breaking, says US survey
The Telegraph
A confidential survey of hedge fund workers conducted by Labaton Sucharow, an American law firm, found that 30pc said they had either witnessed or had “first-hand knowledge” of wrongdoing in the workplace. Even more, 35pc, reported “feeling pressured by their compensation or bonus plan to violate the law or engage in unethical conduct”. A quarter of respondents said they felt “other pressures that might lead to unethical or illegal conduct.”

Republicans blast SEC over JOBS Act delays
Ronald D. Orol –  MarketWatch
Rep. Blaine Luetkemeyer, Republican of Missouri, raised concerns about delays for another JOBS Act provision that would relax rules that have kept hedge funds, private-equity firms and small companies from soliciting to the general public for decades when seeking to raise capital.
The proposal for this measure was introduced in August. Luis Aguilar, a Democrat commissioner at the SEC, previously argued that the proposal, if approved, would result in an increase in fraud. The JOBS Act set a deadline for approving the rule by July.

Stop the Presses: IOSCO Calls for Balancing and Monitoring
The International Organization of Securities Commissions has produced a consultation report on “Regulatory Issues Raised by Changes in Market Structure,” drafted by its Committee on Secondary Markets (C2), that says a number of rather predictable things. Regulators, it says, must balance the need to promote competition (which suggests there ought to be lots of trading methods and intermediaries) against the need to minimize the inefficiencies and opaqueness that can come with fragmentation.
**DA: Uh…yeah.

M&A in the USA
Lawyers Weekly
In addition to the looming tax changes, private equity is faced with burgeoning new regulations imposed as a result of the 2008 financial crash and the US Treasury’s showdown with UBS over secret bank accounts. The costs of compliance with the Dodd-Frank Act and the Foreign Account Tax Compliance Act (FATCA) may add to the economic burdens of the private equity industry and shave its profit margins.
**DA: Scroll down to section 3 for a primer on FATCA and Dodd-Frank compliance for CPOs and CTAs. Then come to MarketsReformWiki for the full story.


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