Observations/Commentary

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.

Read the rest of the commentary on JohnLothianNews.com

Managed Futures: 2014 Review & 2015 Outlook
Attain Capital Managed Futures Blog
We’ve said it before, and we’ll say it again… We’re not in the business of predicting where markets will go, or what Managed Futures performance will be like in 2015. However, that’s not to say there aren’t lessons to be learned and knowledge to be gleaned in looking back over the past year, analyzing market conditions, volatility, and other factors, and then discussing the outlook for those factors in the new year and beyond. Our 2014 review starts in the obvious place, rehashing Managed Futures comeback year, where it posted its best performance since 2008.
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Can Managed-Futures Hedge Funds Revive?
Barron’s
Managed-futures funds, which use computer algorithms and futures to make long or short bets on currencies, bonds, equities, and commodities, returned 11.1% last year, on average, according to HFR. That easily surpassed the disappointing 3.33% return that hedge funds averaged. But even with the improved performance, the funds had trouble getting new capital. Last year, managed-futures funds had estimated net outflows of $12 billion, seven times worse than the $1.7 billion that fled from them in 2013.
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**JK – What does mainstream business media use the word “bet” when talking about investments? Does that make investors, gamblers?

Lead Stories

Critic re-elected to U.S. futures-industry regulator’s board
By Tom Polansek, Reuters
A critic of the U.S. National Futures Association won re-election to its board, the industry regulator said on Friday, setting the stage for more tension over its practices.
James Koutoulas, chief executive of Typhon Capital Management, was re-elected as a director after accusing the NFA of breaking its own rules for nominating public representatives last year and of falsifying documents to cover up alleged wrongdoing.
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***DA: Fellow Commodity Customer Coalition co-founder John Roe also won re-election. Attain’s Jeff Malec, however, lost his re-election bid to HighGround’s Mike Burke. Full results here

CTA, global macro strategies to benefit from ECB’s quantitative easing
By Christine Williamson, Pensions & Investments
Hedge fund managers in aggregate suffered little damage in the previous two weeks from the removal of the euro cap on the Swiss franc by the Swiss National Bank, and some strategies “stand to win” from the European Central Bank’s monetary expansion program, Lyxor Asset Management research showed.
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Hedge Funds: Year-End Redemptions Push Q4 Flows Negative
ValueWalk
According to eVestment, redemptions hit previously favored strategies, managed futures see first inflow in 16 months. Total hedge fund assets fell 0.61% in December to end 2014 with total assets of $3.041 trillion. Redemptions were elevated during the month, a trend which has persisted in December of each of the last four years and is likely a seasonal factor, rather than one of overwhelmingly negative investor sentiment towards the industry.
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Commodities and currencies: the uneven link
Gregory Meyer in Miami, FT
Testing the Wall St maxim: When the dollar strengthens, commodity prices soften
It’s a common assertion on Wall Street: when the dollar strengthens, commodity prices soften.
The logic makes sense. Most internationally traded commodities are priced in US dollars, as are benchmark futures such as Brent crude oil. So, a rise in the dollar increases the value of the same number of tonnes, barrels or bushels, all else equal.
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Small-time traders drive Southeast Asia futures volumes
Jeremy Grant, FT
High in a building in central Kuala Lumpur, not far from the twin Petronas Towers that dominate the Malaysian capital’s skyline, staff at Oriental Pacific Futures are busy broking futures for some of the group’s roughly 1,000 clients.
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***DA: More evidence that the futures space is shifting eastward.

The Evolving World of Crowd Funding
Journal of Alternative Investments
Bruce Lipnick, of Asset Alliance Corporation, discusses recent developments in crowd funding and hedge fund seeding.
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**JK – Not CTA focused but an interesting view fund seeding via new platforms, as well as how wide crowdfunding is becoming.

Managed Futures/Managed Funds

Typhon and Meritage Capital Enter Strategic Relationship to Launch Metis Momentum Macro Program
Press Release
Typhon Capital Management announced today that it has reached an agreement with Meritage
Capital . Under this agreement, Mark Aune will join Typhon as a Principal Trader and will solely
manage the Metis Momentum Macro Program, which he developed in conjunction with Meritage, for Typhon. All three parties will share Metis’s economics.
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Pacific Capital Advisors’ Managed Futures Program Terra Ag Returns 43% in 2014–Featured in Futures Magazine
Pacific Capital Advisors is a commodity trading advisor offering three managed futures programs all with positive returns for 2014. The agricultural focused Terra program made its debut in April 2014 and led the way reporting a 43.16% return in 2014 (April-December). PCA’s other programs, the Vanguard Program reported a 13.12% return and the Agilis Program a 2.87% return. Additionally, Pacific Capital Advisors’ president Rob Hartman is the featured Trader Profile in the January 2015 issue of Futures Magazine.
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Institutional Investors and CTAs: A Look Forward Aref Karim, Quality Capital Management
Top Traders Unplugged
Aref Karim has been on the institutional investing side and the fund manager side for many years, so he has some great insights into how each group thinks and ways they can understand each other better. In this episode, Aref reviews 2014 from the perspective of QCM and discusses the research upgrades that the firm started to their program, and how they dealt with the events of the year, including the recent Swiss Franc move.
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Brevan Howard Hedge Fund Hit by Outflows as Macro Funds Suffer; Investors Pulled $4.2 billion From Flagship Fund in Seven Months to December
By Laurence Fletcher, WSJ
Investors pulled more than $4 billion from Brevan Howard ‘s flagship hedge fund in the seven months to December, as poor returns pushed the portfolio to its first ever calendar year loss.
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Total Assets In Investment Alternative Approaches $7 Trillion
HedgeCo.Net
According to Preqin’s 2015 Global Alternatives Report, the global alternative assets industry is closing in on $7 Trillion in total assets. This total includes hedge funds, private equity, private debt, real estate and infrastructure funds, but it was the hedge fund industry that really drove the total up in 2014. – Hedge Fund News From HedgeCo.Net
The final tally at the end of 2014 was $6.91 trillion. The report showed inflows to the industry of $690 billion in 2014 and that was up from $648 billion in 2013. The hedge fund industry saw the biggest growth in assets with $360 billion in asset growth.
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**JK – News that drives managed futures firms crazy.

Discretionary managers urged to reveal charges
Financial Times
Discretionary fund managers are failing to disclose details of their fees and holdings which ought to be crucial to financial advisers’ decision-making, according to a new report.
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AIMA: Hedge funds earn $1.5 trillion in past 10 years
Pensions & Investments
Investors in hedge funds have earned a combined $1.5 trillion after fees in the last 10 years, despite $306 billion of performance losses related to the 2008 financial crisis.
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Human investment managers risk obsolescence
Miles Johnson, Hedge Fund Correspondent, FT
Human investment managers are at risk of being rendered obsolete by rapid advances in algorithmic trading technology, according to the brains behind one of the world’s leading computer-driven hedge funds.
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Hedge fund industry growth slows
Cayman Compass
The total assets under management of the hedge fund industry increased by US$125.9 billion in 2014, considerably less than in 2013 when industry assets grew by $240.4 billion, according to data provider Eurekahedge.
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***DA: Good read. A couple tidbits: Manager selection is important – the top 10, 50 and 100 best performing hedge funds gained 128.33 percent, 65.32 percent and 48.47 percent on average. CTAs had their best return in 6 years – no surprise there.

Pickens’ Hedge Fund to Trade on Oil Panic in Fundraise
Bloomberg Business
Boone Pickens’ BP Capital hedge fund said now is the time to capitalize on panicked sentiment in energy trading as oil’s drop is mostly finished.
“The price has largely done what it needs to do to solve the demand and supply issue,” senior money manager David Meaney said in a telephone interview. “We see lots of interesting opportunities from a volatility perspective and to take advantage of panic.”
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***DA: His energy managed futures strategy made 9.8 percent last year and 21 percent in 2013. Interesting; I thought it would be the other way around. Must have doubled down long before finally getting short on the break.

Pensions & Institutions

Passing Yale, University of Texas Endowment Tops $25 Billion
Bloomberg
They say everything’s bigger in Texas. Now, it’s true of its public university system’s endowment.
The University of Texas endowment surpassed Yale University’s as the second-wealthiest in U.S. higher education, according to an annual survey released Thursday by Commonfund and the National Association of College and University Business Officers.
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Biggest Private Fund in Finland Says QE Kills Price Signals
By Kati Pohjanpalo, Bloomberg
Finland’s biggest private investor with $45 billion under management said asset purchases by the European Central Bank are undermining investors’ ability to price bonds.
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AIMA: Helping Trustees Navigate The Hedge Fund Sector
HedgeCo.Net
The Alternative Investment Management Association (AIMA), the global hedge fund association, and the CAIA Association, the global leader in alternative investment education, have jointly published the first of a series of educational papers about hedge funds for pension fund trustees and other fiduciaries at institutional investors.
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**JK – The report: The Way Ahead – Helping Trustees Navigate The Hedge Fund Sector AIMA, CAIA – HERE

As College Endowments Gain 15.5%, Harvard Tops List Of 25 Biggest Endowment Funds
Forbes
Investments in venture capital and domestic equity fueled a 15.5% average gain in college endowments in 2014, according to a study released today. Data gathered from 832 U.S. colleges and universities for the 2014 NACUBO-Commonfund Study of Endowments show that these institutions’ endowments returned an average of 15.5 percent (net of fees) for the 2014 fiscal year compared with 11.7 percent for the 2013 fiscal year.
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ETFs to grow to $5trn by 2020
Global Investor Magazine
New regulation could help or hinder growth, says PwC
Exchange traded funds (ETFs) will pay a prominent role in the growth of professionally managed financial investments, which are predicted to grow at 6% per annum to reach $100trn by 2020, according to a new report by PwC.
In a survey of executives from 60 ETF sponsors, asset managers and service providers around the world, PwC revealed more than three out of four executives expect ETF assets to reach at least $5trn by 2020. 59% of ETF sponsors expect their business to become more profitable in 2015.
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Lead Stories

Money manager faces up to 20 years in prison for massive fraud
By Jason Meisner, Chicago Tribune
The onetime leader of a well-connected Northbrook money management firm is scheduled to be sentenced Friday for defrauding clients of more than $665 million in what prosecutors believe is the largest fraud case ever brought in federal court in Chicago. Prosecutors are asking for at least 20 years in prison for Eric Bloom, 49, who was convicted by a jury last March on 18 counts of wire fraud and one count of investment adviser fraud stemming from the spectacular collapse of Sentinel Management Group Inc. in 2007.
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**JK – Welcome back to the futures industry Chicago Tribune. It only took the largest fraud case in Chicago history.

CFTC aims to approve new position limits by year’s end: staffer
By Tom Polansek, Reuters
The U.S. Commodity Futures Trading Commission aims to approve by the end of this year proposed rules to crack down on speculation in energy, grain and metals markets, the agency’s chief of staff said on Tuesday.
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CFTC to allow foreign introducing brokers
Futures & Options World
The Commodity Futures Trading Commission has granted unlimited no-action relief to foreign introducing brokers (IBs) regarding net capital and financial reporting requirements.
The relief permits foreign domiciled IBs to file audited and unaudited accounts using local accounting standards in lieu of US accounting principles or international financial reporting standards.
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CFTC’s Division of Swap Dealer and Intermediary Oversight Issues No-Action Relief to Introducing Brokers for Certain Financial Reporting Requirements
CFTC
The U.S. Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight today issued no-action relief to certain introducing brokers (IBs) with respect to net capital and financial reporting requirements under Commission Regulations 1.10 and 1.17, respectively.
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U.S. regulator NFA says monitoring brokers over FX volatility
Reuters
The U.S. National Futures Association said on Friday it is monitoring the foreign exchange brokers it oversees after wild swings in the Swiss franc caused hefty losses for some of the firms across the globe.
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