Observations/Commentary

Bucky Isaacson Interview with Michael Covel on Trend Following Radio
Michael Covel
Synopsis: Michael Covel speaks with Bucky Isaacson on today’s podcast. Isaacson is one of the early pioneers of managed futures. In 1969, he helped to develop one of the first computerized trading systems. He’s been involved in the managed futures industry ever since, particularly in Asia and the US. Covel and Isaacson talk about the fractured state of conferences these days; what it was like to be involved with a group developing a computerized trading system in 1969; being with one of the earliest incarnations of a managed futures firm; trading attitudes; marketing and doing business in Asia.
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**JK – If you want to hear the interesting career story of Bucky Isaacson, this is really a cool walk through his experience and how one of the pioneers in managed futures space got started with guys like Keith Campbell.

**Nice chat about marketing around the 18 minute mark; how small firms can get started at 29 minutes.
And a couple tidbits from Brian Johnson’s, marketing CTA research:
* 61% of new CTAs have no marketing plan
* 76% cap out their network of potential investors in 12 months
* 89% fail to reach $100 million of assets under management

Mark Your Calendar: CTA Expo Chicago
September 23, 2014
UBS Tower Conference Center
ctaexpo.com/chicago/

Pinnacle Award Winner Video
CME Group
CME Group has put together a short video compilation with its Pinnacle Award Winners. Shot and edited by John Lothian Productions, the video features Jean Beach of Tlaloc Capital, Ken Stein, of Kottke Commodity Capital, Marty Bergin of Dunn Capital, Peter Kambolin of Systematic Alpha, Matt Peluse of Esulep, John Bartholdson of Newton Capital and Hanming Rao of Global Sigma.
bcove.me/nhy8tnz8

Lead Stories

Managed Futures Funds’ Uncertain Future – Focus on Funds
Brendan Conway – Barron’s
Colleague Lawrence C. Strauss reviews one of the last few years’ least attractive fund-investing niches: Managed futures, where the average fund suffers a multi-year losing streak.
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**JK – Fees still in the forefront for managed futures and 40 Act Funds.

Managed-Futures Funds’ Misery Continues
Lawrence C. Strauss – Barron’s
Many hedge funds specializing in managed futures have struggled with poor performance, to put it mildly.
After shining during the financial meltdown of 2008 — the HFR index tracking these funds returned an impressive 18.06%, versus a 37% loss for the Standard & Poor’s 500 that year — these funds have fallen on hard times. On average, they lost 3.54% in 2011, followed by negative performances of 2.51% and 0.87% in 2012 and 2013,…
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**JK – Performance too.

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Imagine if your assets under management went from $721 million to $50 million….
Top Traders Unplugged
Would you have the courage to stick with your system?
Our next guest was able to weather that storm and come out even stronger. In fact, he gives credit to the fall in asets because it was an important component to improving their processes and efficiency today.
We’re excited to share with you, the second part of my interview with CEO of Systematic Alpha Management, Peter Kambolin.
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**JK – Kambolin’s firm Systematic Alpha was a Pinnacle Award winner.

A look back and a look forward with Richard Sandor: Computers and Commodity Trading
Daniel P. Collins – Futures Magazine
Next week Futures will go live with our July/August issue, the 500th issue of Futures dating back to when we launched as Commodities magazine. As part of the 500th issues we take a look back at some of the stories that made Futures the go to source for traders and Futures industry professionals.
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***DA” An oldie but a goodie from 1972.

No Bonds, No Problem as Pimco Increases Bets Using Swaps
Lisa Abramowicz – Bloomberg
If corporate bonds don’t trade frequently enough for you, one solution is to turn elsewhere. More and more investors are betting on whether the notes will go up or down in value without owning the securities, using derivatives. This has been attractive for asset managers looking to be nimble in markets or make big bets, especially as corporate-debt trading volumes wane.
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***DA: Because swaps are known for their deep liquidity?

Man Group first-half funds under management up 7 percent
By Nishant Kumar – Reuters
Man Group’s (EMG.L) funds under management (FuM) rose 7 percent to $57.7 billion (34.18 billion pounds) in the first half helped by net inflows of $2.8 billion, the London-listed hedge fund firm said on Friday.
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**JK – Not a ringing endorsement of good times ahead from it CEO, Manny Roman.

Trend Following Isn’t the Only Managed Futures Strategy
ThinkAdvisor
The managed futures corner of the alternative investment space is one of the first places astute investors turn for diversification from traditional asset classes. Spurred by the research of a Harvard academic in the early 1980s who showed that managed futures funds have low to negative correlations to equities and fixed income products, hedge funds and institutional investors have been utilizing managed futures strategies for years. Traditionally, managed futures strategies have been associated with commodity trading advisors using trend-following systems to trade commodity futures contracts. However, there is also a niche of managed futures funds employing counter-trend trading models to trade a broad range of futures markets.
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The Key To Understanding Alternative ETFs
NASDAQ
An alternative ETF is one that implements a non-traditional asset class or investment approach that can include currencies, commodities, equities, bonds, futures, or cash. Most often a combination of these asset classes is implemented with strict rules on how the underlying index responds to changes in market conditions.
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Watch out when markets become unbalanced
Financial News
Why are markets so calm? Low volatility has been a result of central bank activity, which has considerably reduced investment risk. Equity markets are reassured by their continued commitment to provide cheap funding for risk-taking. Bond markets are reassured by the promise of limited and very gradual rises in short-term rates and a commitment to keep interest rates barely above zero after accounting for inflation for years to come.
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***DA: This article is a couple days old. The markets have become a little less balanced since then.

Managed Futures/Managed Funds

Ex-Citi FX trading head Prasad readies macro hedge fund- sources
Nishant Kumar and Simon Jessop – Reuters
Former global head of foreign exchange at Citigroup, Anil Prasad, is preparing to launch his own hedge fund in the first quarter of 2015, three sources familiar with the matter said.
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Ramius and State Street Global Advisors Plan Managed Futures Fund Relationship
MarketWatch
Fund to be Renamed State Street/Ramius Managed Futures Strategy FundRamius Files Proxy Statement Seeking Shareholder Approval for Sub-Advisory Agreement
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Man Group funds under management rise by seven per cent
HedgeWeek
Man Group has reported a positive first half to the year with funds under management, gross sales and net inflows all showing increases during the period.
Funds under management (FUM) are up seven per cent to USD57.7 billion (31 December 2013: USD54.1 billion), gross sales are up 91 per cent to USD12.4 billion (H1 2013: USD6.5 billion) and net inflows are USD2.8 billion (H1 2013: net outflows -USD5.0 billion).
jlne.ws/UFKhYe

Multi-Strategy Funds Win Big At The Hedge Funds Review Americas Awards 2014
HedgeCo.Net
Hedge Funds Review and partner BarclayHedge have announced the winners of this years “Hedge Funds Review Americas Awards 2014.”
Multi-strategy hedge funds were the big winners at the Hedge Funds Review Americas Awards, with Whitebox Advisors named ‘Best overall hedge fund group’ and Millennium Management winning ‘Hedge fund of the year’.
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5 Hedge Fund Managers Poised to Deliver Alpha
Institutional Investor
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Most hedge funds fail
Dan McCrum – Financial Times
That conclusion, and its consequence — picking good hedge funds that will survive is beyond the ability of big investors like pension funds — has been the central point of this series about hedge fund zombies.
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***DA: Survivorship bias.

Alternative UCITS AUM reaches record levels in H1 2014, says Alceda
Hedgeweek
The first half of 2014 saw a new milestone reached in the alternative UCITS sector with assets under management (AUM) growing by 15.6 per cent to EUR184.2 billion, according to the Alceda Half Yearly UCITS Review.
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Funds of hedge funds reverse asset slide
Risk.net
Commingled fund of hedge fund assets under management reached $932 billion in Q1 2014, with investor flows accounting for two-thirds of a $21 billion increase
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Commodity hedge funds continue building momentum in 2014
Hedgeweek
Commodity funds, as represented by the Newedge Commodity Trading Index, were the best performers in the firm’s suite of hedge fund indices in June, finishing the month up 0.63 per cent.
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Pensions & Institutions

California Retirement System To Pull 40% Of Its Hedge Fund Investments
HedgeCo.Net
The California Pension Fund (Calpers) has announced that it is cutting back on its investments into the hedge fund arena by 40%, the WSJ reports.
A Calpers spokesman told the paper that the investment staff will make a formal recommendation to the board in the fall.
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Winton’s low-cost equities fund tops $1bn for first time
FT
The Winton Global Equities fund, which rose 29.8 per cent in 2013 and is up 7.5 per cent so far this year, has won a number of large investments from US public sector pension funds in the past three months, including $200m from the state of Colorado’s police and firefighter pension fund.
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Inflation protection — better to be safe, not sorry
Pensions&Investments
What we’re looking at is a classic non-consensual picture: the vivid contrast between reaction to economic signals and the prospects for inflation as driven by crisis. For investors, that’s an opportunity. The case could be made that this is the best time to take out “insurance” against inflation through real-return strategies, in fixed income and elsewhere. The strong market-implied consensus for very low inflation makes such insurance inexpensive. For investors looking to reduce risk after the runup of equities in their portfolios, considering such inflation insurance could well be an attractive proposition.
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Why Endowment Funds Like Yale’s Are Doing Just Fine
ThinkAdvisor
The Ivory Tower geniuses atop the country’s most respected endowments have recently received a firestorm of criticism for failing to produce outsized returns during the current bull market. But investors must accept that all investment strategies experience periods of underperformance and it’s hardly a reason for endowments to hang their heads.
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Private Foundation Investments Returned 15.6% in 2013
ThinkAdvisor
Private foundations’ investment returns rose to an average of 15.6% in 2013, according to a survey released Wednesday by the Council on Foundations and Commonfund Institute.
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Pension Reform in Providence: Part Two, The Hedge Funds
Institutional Investor
The blog lampooned the decision by the state pension fund to invest in taking public office, for her ties to hedge funds and the alternative-investment industry.
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Chris Christie Pension Cuts Could Damage Economy: Report
International Business Times
When it comes to the politics of public employee pensions, New Jersey is a political microcosm. Republican Gov. Chris Christie has portrayed pension benefits as devastating burdens that must be addressed through big cuts to benefits. At the same time, he has depicted a record $4 billion of new tax breaks and subsidies to corporations as a positive investment in economic development.
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Regulation

Latest NFA actions
The NFA has taken enforcement and registration actions against several members including Pan Asia Investment Group, Institutional Liquidity (ILQ) and, just yesterday, and emergency action against Nord Capital.
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Hedge funds, banks come under fire for basket options
Pensions&Investments
According to a report issued by the U.S. Senate Permanent Subcommittee on Investigations, the two banks sold financial products known as basket options to Renaissance, George Weiss Associates and nearly a dozen other hedge funds. The proprietary trading accounts were in the names of the banks but were controlled by the hedge funds, which reaped trading profits but paid taxes at a lower long-term capital gains rate. The banks profited mainly by lending as much as 90% of the investment to the hedge funds, despite banking regulations limiting lending for stock trading.
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***DA: I guess the 60/40 capital gains split is not good enough for some people

Transparency Is Good for Markets: Chilton: Video
Bloomberg
Lloyds Banking Group Plc agreed to pay $370 million to U.K. and U.S. authorities for manipulating benchmark interest rates such as Libor. Former CFTC Commissioner Bart Chilton speaks on “In The Loop.”
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Rules for Money Market Funds Arrive, Finally
Neil Irwin – NY Times
Six years ago, a huge chunk of the financial system nearly imploded, and it took an enormous federal bailout to prevent it from bringing down the whole system. That would be money market mutual funds, which millions of American individuals and businesses use to park $2.6 trillion in savings.
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***DA: Beware the floating NAV and redemption gate. All they have done is to make a run on the bank happen sooner.

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