First Impressions

Tough Nut: RCM Finds New Ways to Get Managed Futures to RIAs
By Jim Kharouf, JLN

Starting a new financial asset management company in the midst of a financial crisis does not seem like a great idea, particularly one focused on managed futures.

But Bobby Schwartz saw an opportunity to move into the space and created RCM Asset Management in 2010. The former CME floor trader also saw potential where others saw disaster when MF Global collapsed in October 2011.

“We started to look at the amount of money allocated to managed futures versus hedge funds, and thought there was an opportunity there,” said Schwartz, RCM’s CEO and managing partner.

Schwartz along with principal Ed Sweeney were able to bring the MF Global broker team that worked in the managed futures space after the firm collapsed in 2011. RCM also created a futures brokerage, RCM Futures and RCM Alternatives, to expand its menu of commodity trading advisors and commodity pool operators.

“Soon after MF Global happened, that really enabled us to grow pretty quick,” he said. “We knew it was going to be a challenge because it was going to shake a lot of people out of the space, and allow us to come in and build something,” Schwartz said.

Where some see a woeful disparity between managed futures and hedge fund investment flows, Schwartz sees growth potential. In the third quarter 2014, assets under management in the managed futures were $312 billion versus $2.25 trillion in hedge funds, according to BarclayHedge data. The managed futures space also posted dismal returns since it shined in 2009 posting returns of -3.09 percent in 2011, -1.70 percent in 2012 and -1.42 percent in 2013. Last year’s turnaround has helped, with a 7.7 percent return.

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Quote of the Day

“The market is bumping into its own boundaries and this has created a necessity for solutions.”

John McQuown in the story, “Meet the 80-Year-Old Whiz Kid Reinventing the Corporate Bond”.

Lead Stories

S&P Cuts European Banks on Rules Forcing Losses on Bondholders
Boris Groendahl – Bloomberg
Six European banks, including Credit Suisse Group AG and HSBC Holdings Plc, had their ratings cut by Standard & Poor’s on the prospect that governments are less likely to provide aid in a crisis.
Barclays Plc and Lloyds Banking Group Plc also had the long-term ratings on their non-operating holding companies reduced, the ratings company said in a statement Tuesday.

Ex-Sentinel CEO gets 14 years prison for $666 mln fraud
By Jonathan Stempel, Reuters
The former chief executive of Sentinel Management Group Inc in suburban Chicago was sentenced on Friday to 14 years in prison, after been convicted of running what federal prosecutors called a roughly $666 million fraud.

Blackstone’s CEO says this is the biggest mistake he sees people make in their Wall Street careers
By Stephanie Yang, Business Insider
According to Blackstone Group co-founder Steve Schwarzman, young Wall Streeters should not be following in his footsteps. Schwarzman co-founded his own firm in 1985 at age 37, which now has more than $290 billion under management. At the 21st Annual Venture Capital and Private Equity Conference, Schwarzman told Harvard Business School students that launching their own firms too early could ruin their careers, the New York Times reported Monday.

Bond Buyers Escape Wall Street to Computerized Shadows to Trade
Lisa Abramowicz – Bloomberg
Here’s a reason for optimism among credit investors tired of needing Wall Street to handle their transactions: Activity is picking up elsewhere.
Average daily volume in U.S. fixed-income exchange-traded funds, for instance, surged 45 percent last year, according to data compiled by Societe Generale SA. And investors are increasingly gravitating toward electronic platforms where they can trade among themselves, without dealers as middlemen.

New Singapore Activist Hedge Fund Seeks to Shake Up Companies
Klaus Wille – Bloomberg
Roland Thng is seeking to shake up Singapore’s staid corporate landscape, setting up a new hedge fund focused exclusively on influencing the way locally listed companies are run.
The 33-year-old has established EVA Capital SP with $5 million, and initially plans to take stakes in small-and medium-sized construction and engineering companies in order to pressure them to improve performance.

GFI Urges Shareholders to Wait on BGC Offer, Seeks Alternatives
by Steven Dickson, Bloomberg
GFI Group Inc. urged its shareholders to take no action on a bid by BGC Partners Inc. to acquire the company.

ETF giants bet on futures for flows
After another record year for asset gathering, ETF providers have set their sights on the global derivatives market.
The global exchange-listed futures market totals $30tn in exposures, while derivatives traded off-exchange have a total notional value of nearly $700tn, according to the Bank for International Settlements.

FINRA Investor Education Foundation and the American Library Association Announce $1.8 Million in Grants to Public Libraries to Support Financial Literacy
The Financial Industry Regulatory Authority (FINRA) Investor Education Foundation and the American Library Association (ALA) have announced $1.8 million in grants to 21 recipients as part of the Smart investing@your library initiative.

Rise and fall of a commodities powerhouse
Gregory Meyer in New York, FT
The trading house’s business will be wound down in the first quarter, owner Occidental Petroleum said last week. Occidental had bought the former Philipp Brothers in 2009 from Citigroup.

MBAs Are Shunning Industries That Create Jobs; Industries that treat American workers relatively well tend to get short shrift from MBAs, who seek higher salaries in sexier fields
By Natalie Kitroeff – Bloomberg
Manufacturing is like the boyfriend America will finally settle down with: It may not be the sexiest industry, but it sure is dependable.
The fattest paychecks were awarded to MBAs headed for hedge funds which on average paid $200,000 out of school, and those hired by private-equity or venture capital firms, which paid $160,000.

Meet the 80-Year-Old Whiz Kid Reinventing the Corporate Bond
by Edward Robinson, Bloomberg
John “Mac” McQuown yanks on a chain and hoists open a metal roll-up door with a clang. In a flowery aloha shirt, shorts and sandals, he looks like a retiree with little more on his mind than sipping a mai tai by the pool. But McQuown is actually one of the architects of the modern investing system, and he’s far from retiring, Bloomberg Markets magazine will report in its March issue.

Central Banks

Draghi’s Negative-Yield Vortex Draws in Corporate Bonds
By Alastair Marsh and Sally Bakewell – Bloomberg
Credit markets are being so distorted by the European Central Bank’s record stimulus that investors are poised to pay for the privilege of parking their cash with Nestle SA.

If anyone needs an audit, it’s the Federal Reserve
Mark Calabria – TheHill
Last week Sen. Rand Paul (R-Ky.) introduced S. 264, a bill to audit the Federal Reserve, while on day one of the new Congress Rep. Thomas Massie (R-Ky.) offered similar legislation, H.R. 24, in the House. With Sen. Mitch McConnell (R-ky.) as Majority Leader, the prospects of the bill going to the White House are pretty strong.
But auditing the Fed is a topic of bitter debate. Not along party lines, instead pitting government transparency advocates against proponents of Federal Reserve political “independence.” So what is “Audit the Fed” really about?

If Size Matters, the ECB Is Still Falling Short
Simon Kennedy – Bloomberg
The European Central Bank joined the quantitative easing party last month, six years after the U.S. Federal Reserve got it going.
It still may not have bought much in the way of cheer, even as investors praised it for being larger than anticipated at 1.1 trillion euros ($1.26 trillion). Stretching out forecasts, Nomura International Plc economists led by London-based Jacques Cailloux reckon the assets purchased by the ECB will total about 6 percent gross domestic product by the end of 2015.

New York Federal Reserve to revamp estimate of fed funds rate
The Federal Reserve Bank of New York plans to overhaul how it calculates the effective federal funds rate as part of a push to improve the information available on overnight bank lending.
In an announcement on Monday the New York Fed said the new system would rely less on reports from brokers and more on transaction data collected from banks.


Switzerland Rejoins Currency Wars
By Mark Gilbert – Bloomberg
Two weeks after Switzerland stunned currency traders by abandoning the franc’s peg to the euro, it seems that the central bank is quietly getting back in the market. With central banks from Denmark to Singapore to Canada easing monetary policy in recent weeks, the Swiss authorities face an even bigger battle trying to restrain their strengthening currency.

Wall St. Echo Chamber Yelling ‘Dollar, Dollar, Dollar’
Michael P Regan – Bloomberg
“Wall Street is an echo chamber,” Deutsche Bank chief U.S. equity strategist David Bianco told clients, “and sometimes it can give you a headache.”
No argument here (here… here… here…). But if you don’t agree, consider these snippets from various research reports over the past few days in the wake of a string of earnings reports that blamed a strong dollar for disappointing results and forecasts. Just be sure to pop an Advil first.

An Australian Front in the Currency War — Overheard
The Reserve Bank of Australia deserves marks for candor.
Other central banks have been loath to say their policies are designed to affect foreign-exchange rates. That is for fear of appearing to be in a race to the bottom or acknowledging a global currency war is under way. But the RBA, in cutting its cash rate Tuesday by 0.25 percentage point to 2.25%, was up front about its currency designs.

Indexes & Index Products

S&P Said to Settle Calpers Ratings Lawsuit for $125 Million
by Matthew Robinson, Joel Rosenblatt, Bloomberg
Standard & Poor’s reached a $125 million lawsuit settlement with the largest U.S. state pension fund over inflated ratings on residential-mortgage bond deals, two people familiar with the matter said.

The Danger of Indices
We’re surrounded by investment products that track indices. S&P 500 index funds seek to replicate the performance of the S&P 500 index – easily accomplished by simply buying the constituent stocks in designated weights. Other indices are more difficult to track – for example when the product invests in futures to approximate spot market returns (GSCI) or acquires only a subsample of index constituents (Barclays Ag).

S&P Dow Jones Indices Announces Changes to the S&P/TSX Canadian Indices
S&P Dow Jones Canadian Index Services will make the following change in the S&P/TSX Canadian Indices:

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