Observations/Commentary

Long run: Jack Schwager talks traders, old and new
JohnLothianNews.com

Jack Schwager’s career runs from pre-financial futures markets to author of the Markets Wizard books to an online start-up today. As the recipient of the CTA Expo’s 2015 Lifetime Achievement Award in New York in April, he spoke with Jim Kharouf, editor-in-chief of John Lothian News about what he knows about about top traders and his new venture, Fundseeder, an online platform for the next generation of market wizards.

For Schwager, top traders don’t just post profits, but have great risk management as well.

“It doesn’t have to be complicated at all,” Schwager said of risk management systems. “Most risk management can be achieved with some very, very simple rules.”
Watch the video »
Reschedule: Emerging Manager Forum
Because of scheduling conflicts we and our conference partners in Mexico City have decided to delay the EMERGING MANAGER FORUM that was scheduled for June 18, 2015. As soon as a new date is determined we will let you know. We apologize for any inconvenience this has caused.
Any questions please call Frank Pusateri 1- 518-656-9348 or Bucky Isaacson 1-650-851-8507.

It Ain’t Broke, but We Fixed it Anyway: A Letter to the Editor of John Lothian News
Carl Gilmore, Co-head of Futures, Wedbush Futures
Dear Sirs,
Last week in this column, Jim Kharouf, one of my friends in the industry, referred to the “broken” FCM model. Having had a front row seat to the travails of operating an FCM over the past 10 years, I take exception to the word “broken.” While the FCM model has been bent, twisted, shaken and turned on its ear, Mark Twain said it best: “Reports of my death have been greatly exaggerated.”
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Why Hedge Funds Love To Go Offshore
By Trang Ho, Forbes
Hedge fund titan George Soros reportedly amassed $13.3 billion in deferred hedge fund fees and investment gains on those fees by moving his assets to Ireland and then to the Cayman Islands. Hedge funds love to set up shop offshore. And it’s not because of the weather. Setting up a fund offshore has many advantages and is not as hard as you may think, says Gordon Casey. He is the managing director of Front Shore, a hedge fund consulting firm in the Cayman Islands, and author of The Cayman Edge: How to Set Up a Cayman Fund.
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Lead Stories

After big 2014, trend-chasing mutual funds drop
Investment News
Clifford Asness’s trend-following mutual fund was on a hot streak until a rally in European bonds and the U.S. dollar took a turn last month. The $8.3 billion managed futures fund run by Mr. Asness’ AQR Capital Management, the largest of its kind, had rallied 8.6% in the first quarter, benefiting from stable trends in the bond, commodity and currency markets. Then, in mid-April, markets turned and the AQR Managed Futures Strategy Fund slumped 6% in less than one month.
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***DA: This is not just an AQR story. Other notable names appear in the article as well. Have a look.

April proves a challenging month for CTAs
Hedgeweek
The challenging conditions experienced during April, particularly the last week of the month, saw all of the managed futures indices calculated by Societe Generale Prime Services post negative performance, ending a strong run of performance enjoyed so far during 2015.
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Hedge Funds Outperform Market in April
HedgeCo.Net
After taking flack from investors as well as the press for a lackluster performance in 2014, the hedge fund industry seems intent on reversing that in 2015. So far in 2015, hedge funds are turning the tables on the indices and the passive management strategy. The latest Hedge Fund Performance Report from eVestment just came out and it shows that hedge funds produced a gain of 1.22% in the month of April, putting the index up 2.92% year to-date. Contrarily, the S&P 500 was up 0.96% during the month of April and was up 1.93% YTD through the end of April.
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***DA: Managed futures non-correlated against other alternatives last month.

Are we set for the rise of the non-bank FCMs?
Futures & Options World
Decreased trading volumes, low interest rates, increased regulation and higher transaction costs have all but suffocated business models that have worked for years, even decades. Furthermore, higher operational costs and client pressure for new services at lower prices have intensified impending challenges. In 2014, we saw a number of banks either reduce their client list or quietly back away from the clearing business completely as they felt the squeeze of leverage ratio and capital requirements. Banks have to reevaluate their technology investment and determine ways to deliver unique value to their clients.
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Billionaire Paulson Said to Score Hedge Fund Wins in April
by Kelly Bit, Bloomberg
Billionaire John Paulson’s hedge funds gained in April after successful wagers on energy, mergers and Greek banks.
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Fund managers scramble to track market reversal
FT.com
Everything has changed. Since mid-April, asset prices across a number of markets have dramatically altered. Broadly, everything that was going up now seems to be going down — and vice versa. The shifting sands between bonds, equities, currencies and commodities has prompted some fund managers to reverse strategy and investment tactics.
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Ex-MF Global trader to settle manipulation claims by U.S. regulator
By Joseph Ax, Reuters
A former trader at the broker-dealer unit of MF Global Holdings Ltd’s [MGHL.UL] has agreed in principle to settle a U.S. regulator’s claims that he tried to manipulate palladium and platinum futures prices, according to a court filing.
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***DA: While we applaud the effort. This is not the MF Global person we would most like to see pinched by the Feds.

Managed Futures/Managed Funds

What’s Your Market Correction Playbook?
Barron’s
After three years of weak performance, managed futures funds have been making a comeback. And for those worried about an equity correction, there may be good reason to consider an allocation.
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Computer-Driven Hedge Funds Behind Bund Fall
MoneyBeat – WSJ
While the European Central Bank has gobbled up eurozone bonds, another group of investors has dumped them at a much faster clip, hastening the recent selloff in the region’s bond market.
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Man Group remains cautious despite restructuring on track
David Oakley, Investment Correspondent, FT
Man Group enjoyed strong investment performance in the first quarter as the world’s biggest listed hedge fund underlined it is no longer the laggard in the sector.
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Buffett Feels Hedge Fund Managers’ Chill After Warmth in Omaha
Bloomberg Business
Warren Buffett had plenty of admirers Saturday at the annual meeting of his Berkshire Hathaway Inc. in Omaha, Nebraska. Some hedge-fund managers in Las Vegas this week seem more inclined to throw stones at the investing legend.
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PIMCO White Paper Says “The Trend Is Still Your Friend”
Mark Melin, ValueWalk
A research paper from PIMCO confirms deeply held beliefs among professional investors, pointing to what might be considered two significant keys to investment and trading success.
The research paper, “Carry and Trend in Lots of Places,” conducted empirical analysis from 1960 to 2014 covered twenty major markets, determined that sometimes old school market wisdom is just that: Wisdom. They showed that investors are successful when they “Don’t fight the trend” and “Don’t pay too much to hold an investment.”
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Commodity markets wary of false alarm as El Niño blows back
Emiko Terazono, FT
After a five-year absence, El Niño is back. The last time the weather event emerged in 2009-10, droughts damaged crops in Southeast Asia and Australia sending agricultural commodity prices soaring.
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Big banks flag dangers of financial bubble in oil and commodities; Barclays warns that the latest commodity boomlet has charged ahead of economic reality across the world: ‘Watch out: this rally may not last’
By Ambrose Evans-Pritchard, The Telegraph
The big global banks have begun to warn clients that the blistering rally in oil and industrial commodities in recent weeks has run far ahead of economic reality, raising the risk of a fresh slump in prices over the summer.
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Hedge fund pay down as top 25 managers bank total of $11.6bn
Miles Johnson, FT.com
The world’s 25 best paid hedge fund managers earned a combined $11.62bn last year even as the industry suffered from largely mediocre performance and growing criticism from some of its largest investors. Hedge fund pay, however, almost halved from a $21.5bn total in 2013 when surging equity markets helped the industry’s 25 highest earners rake in earnings roughly equivalent to the gross domestic product of Jamaica.
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Pensions & Institutions

Bogle vs. Grant in the Great Fund Debate
Jason Zweig, WSJ
Have index funds, the autopilot portfolios that dispense with stock-picking entirely, made fund managers obsolete? That question was the subject of a debate that I watched in New York last month between two respected investing experts: John Bogle, founder of Vanguard Group and father of the retail index fund, and James Grant, editor of Grant’s Interest Rate Observer, a twice-a-month publication widely read by professional portfolio managers.
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Wealth Managers Abandon Active Strategies for Passive Investments
Institutional Investor
Poor returns on hedge funds and other actively managed vehicles have helped drive a shift away from pursuing alpha.
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Moody’s downgrades Chicago to junk
Robin Wigglesworth, Neil Munshi and Eric Platt in New York, FT
Moody’s has stripped Chicago of its investment grade rating over its yawning pension plan deficit, potentially triggering up to $2.2bn of claims and setting back mayor Rahm Emanuel’s efforts to turn around the finances of America’s third-biggest city.
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***DA: We occasionally feature pension underfunding stories. This one is a little too close to home.

AIF segregation rules to hit pension funds’ collateral management
The Trade News
Proposed sub-custody segregation rules for AIF (alternative investment fund) assets could have a significant impact on pension funds’ and insurance companies’ collateral management and securities lending, according to BNY Mellon’s Ross Whitehill.
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Audit Says Alternatives Hurt Utah Retirement System
Plan Sponsor
An audit report notes the Utah Retirement System has shifted substantially to alternative investments, with mixed results.
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Swiss Re Sees New Rules, Capital Fueling More Insurance Mergers
SWI swissinfo.ch
New regulations and an influx of alternative capital will spur more mergers and acquisitions in the insurance industry, Swiss Re AG said.
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Regulation

Trading firms squeezed for time after Mifid II delay
By James Rundle and Tim Cave, Financial News
Europe’s trading community fears having even less time to get to grips with new rules underpinning trading in the region, after the European Commission pushed back an important deadline for finalising Mifid II.
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Finra Strengthens Broker Penalty Guidelines; Brokers can now be permanently disbarred in cases of ‘aggravated’ circumstances
By MATTHIAS RIEKER, WSJ
Wall Street’s self-regulator has stiffened some of its penalties and issued more aggressive guidelines for dealing with brokers and firms that violate securities rules or commit fraud.
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Financial Transaction Tax: A relentless pursuit?
The Trade News
Many thought the dreaded European Financial Transaction Tax (FTT) had gone away, but in January, French and Austrian finance ministers wrote a letter to counterparts in the 11 supporting countries (ECP 11)— Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovenia, Slovakia and Spain—suggesting a revival of the tax, with a proposed arrangement date of January 2016. Following that initial flurry, things have since quietened down, but, across Europe, opinions differ as to whether the tax will ever come in at all.
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Futures Watchdog Can’t Afford Routine Inspections, Massad Says
Bloomberg Business
The top U.S. derivatives regulator said his agency lacks resources to conduct even routine inspections of the exchanges and other companies it polices. “We simply can’t get into these entities on a regular basis,” Commodity Futures Trading Commission Chairman Timothy Massad told lawmakers in Washington on Tuesday, speaking two weeks after the arrest of a trader accused of manipulating a futures market over five years.
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Experts see trouble ahead from MiFID II
Pensions & Investments
European market regulators’ efforts to apply equity templates to trading in other asset classes will be felt by U.S. money managers and asset owners through higher trading costs, reduced investment performance and a potential move to more in-house management by asset owners, industry analysts said.
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To be 4.7 Exempt or Not To Be, That is the Question CTAs
Attain Capital, via ValueWalk
Despite the having the odds stacked against them, we hear from new CTAs and hedge fund managers every day. This isn’t to say that we discourage new CTAs, our 108 Tools to Help grow your CTA Business can speak to that, and we recently discussed how these emerging managers are typically better performers.
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