Observations / Statistics / Commentary

Another Year, Another Conference Slate for CTA Expo
Doug Ashburn, John Lothian News

CTA Expo begins its calendar year on April 30 in New York. There is a change of venue this year, as the conference moves to the historic New York Stock Exchange. If that isn’t enough to entice you, let me say that I will be participating in a panel, “Public Relations & Marketing for the Emerging Manager.”  The keynote will be delivered by futures industry legend Peter Borish. The New York event will sell out again, and already has welcomed 250 registrants including over 100 capital sources.

New this year is a conference app, available soon to registrants. According to CTA Expo co-founder Bucky Isaacson, the app will feature pre-conference exposure for delegates, sponsors and exhibitors, as well as functionality for booking meetings and connecting with fellow attendees.

After the New York event, the expo heads to London June 19 for the Emerging Manager Forum, then stops in Chicago September 23, and finishes the 2014 conference year in Miami on December 9.

For more information, and to register for the New York event, click below.

Chicago losing its Global Financial Center Mojo
By Jim Kharouf

The latest Global Financial Centres Index has been released with the headline-grabbing ranking that puts New York in the top spot for the first time ahead of London.

But even the rather obscure London-based research group Z/Yen Group says the separation between New York and London is “statistically insignificant” in the GFCI and that other centers are closing the gap substantially among the top cities.

Lead Stories

Carlyle, Louis Bacon to Buy Commodities Firm Traxys
MoneyBeat – WSJ
Carlyle Group and star trader Louis Bacon have agreed to acquire a controlling stake in commodities trading firm Traxys Group in a move that highlights the growing allure of commodities middlemen as banks exit the business.

Billionaire Paul Tudor Jones Off To A Bad Start In 2014
Nathan Vardi – Forbes
Paul Tudor Jones II, one of the most successful traders ever, will often spend an entire day watching a projection of his hedge fund’s positions blinking as they change. But these days the billionaire philanthropist probably doesn’t like what he is seeing.

The Credit Suisse Hedge Fund Index Finished up 1.72% in February
Performance for the Broad Index and its 10 sub-strategies is calculated monthly. January, February and YTD 2014 performance numbers are listed below and are available at www.hedgeindex.com.
***DA: Managed futures finished up 0.94 percent for the month, after being down 3.42 percent in January.

Be Careful Of Style Drift In Bull Markets
Seeking Alpha
Managed futures industry has seen this style drift over the last couple of years as managers have become more correlated to the S&P 500.
***DA: Trend followers follow trends, period. When the S&P 500 is trending upward, there will certainly be correlation between traditional portfolios and S&P trend following strategies. Is that really a bad thing? At least the trend follower will have the good sense to bail and/or reverse when the trend turns negative.

Damage control at Pimco after Gross, El-Erian clash
In mid-February, a group of current and former Pimco employees were invited to a private farewell party for Mohamed El-Erian on March 10, to mark his impending departure as chief executive of the world’s largest bond fund. El-Erian soon realized it was not a good idea, according to three sources who had received the invitations and are in contact with him.
***DA: Neil Sedaka said it best – breaking up is hard to do.

Managed Futures / Managed Funds

Hedge fund managers face up to ‘Truman Show’ markets
Miles Johnson – FT.com
In the Truman Show, the late nineties Hollywood film, the eponymous character lives a seemingly charmed world, snuggled comfortably into an American suburbia of white picket fences and crisply cut lawns. But gradually Truman starts to notice something is not quite right.
***DA: The question, fittingly, paraphrases Lord Keynes – Can the markets stay mispriced longer than your fund can stay solvent?

Many active managers cannot justify fees
John Authers – FT.com
How active is your fund manager, and what chance do they really have of beating the market? These questions are linked. A crude measure of how much fund managers deviate from their benchmark can help predict which funds will outperform. That measure is “active share” – the percentage of a fund’s portfolio that differs from its benchmark.

Behind the $100 Billion Commodity Empire That Few Know
Andy Hoffman and Chanyaporn Chanjaroen – Bloomberg
In less than a decade, Marco Dunand and Daniel Jaeggi have turned a 10-person company supplying oil to a pair of Polish refineries into the world’s fourth-largest commodity trader with revenue topping $100 billion last year.

Incredible Shrinking Management Fee
Jason Zweig – MoneyBeat – WSJ
Professional portfolio management has long cost too much. If a new company has its way, it could be free. This past week, WiseBanyan, an online-only investment adviser, publicly launched a service that builds and manages diversified portfolios of exchange-traded funds for nothing.

VC firm installs one of its own, a Lehman Bros. legend, to get Altegris in gear
Drastic times call for drastic measures. Altegris has hired a superstar of an earlier era in an attempt to make this era’s impossible possible — to sell hedge-type investments through RIAs in a bull market.
***DA: The subtitle on this story about the 73-year Jack Rivkin’s new gig as chief investment officer of Altegris is “Whippersnappers Need Not Apply.” So much for trading being a young man’s game.

Get All of Your Commodities in One Basket
Coffee is up 80 percent this year. Lean hogs are up 28 percent. Corn is up 13 percent. Gold is up 12 percent. Most of these same commodities were down last year, and any of them could fall at the drop of a hat. So how do rational investors participate in the upside for unpredictable commodities without losing their all-cotton shirts?

Premium Sellers: Beware of widow makers
Futures Magazine
There are two different schools of thought on naked option selling programs. One view is that premium sellers are at an advantage as more than 80% of all options expire worthless. The other and perhaps more popular opinion is that one would have to be crazy to sell naked options, especially in the commodity markets.
***DA: It is a great strategy until it isn’t. Just ask Victor Niederhoffer.

Pensions & Institutions

Japan’s pension giant: Risk on
The Economist
When George Soros, a billionaire investor, met Shinzo Abe, the prime minister of Japan, at Davos in January, he hectored him about asset management. Japan’s massive public pension fund needed to take more risk, he reportedly told Mr Abe. With Y128.6 trillion ($1.25 trillion) of assets, the Government Pension Investment Fund (GPIF) is the world’s biggest public-sector investor, outgunning both foreign rivals and Arab sovereign-wealth funds. Yet its mountain of money is run by risk-averse bureaucrats using an investment strategy not much more adventurous than stuffing bundles of yen under a futon. It keeps around two-thirds of assets in bonds, mostly of the local variety. Like an investing novice, it mostly follows indices passively, and hardly ventures abroad.
***DA: A bold move toward diversification or the last act of a nation desperate for returns in order to pay its aging pensioners?

What’s good for Yale isn’t good for you
The Yale Endowment’s heavy emphasis on illiquid and alternative investments like hedge funds and private equity in its endowment is working like a charm. You, however, are not Yale and neither, likely, is your pension fund, university endowment or personal portfolio.
***DA: What’s good for Yale? Maybe basketball, where the Bulldogs take on the Quinnipac Bobcats in the first round of the CollegeInsider.com Tournament Wednesday.

Pimco in Orange County mandate review
Sarah Krouse – Financial News
A California state mandate to manage $430 million that Pimco has held since 1995 is to be put out for bids in the open market for the first time.

Is ‘Smart Beta’ an Improvement Over Standard Indexing?
Investors have been rushing to sink cash into a new option that’s intended to deliver a souped-up version of traditional index tracking. Are they making the right move?
***DA: Good question. I read the article and am no closer to an answer, except that some of these strategies may be good at racking up fees.

Boeing Pension Plan Part Of a Changing Retirement Landscape
Last week Boeing (BA) announced that they would be freezing their defined benefit pension plan for 69,000 nonunion employees. They will be shifting in 2016 to a defined contribution benefit plan where the company contributes a set amount to the pension plan and actual benefit payout are determined by the performance of the investment funds. The new plan is similar to the one agreed to by Boeing largest Union, International Association of Machinists and Aerospace Workers, last year after Boeing threatened to move 777 aircraft assemblies out of state.
***DA: Another one bites the dust.

Endowments Allocate More Than Half Their Assets To Alternatives
But those investments only beat the 60/40 portfolio with top tier managers

The US Public Pension Funding Crisis (Online Forum)
CFA Institute
Worldwide, the financial health of government pension systems is threatened by struggling economies, adverse demographics, fiscal woes, and, in some cases, lax accounting standards. The crisis is particularly acute in the United States, where state and local governments’ defined benefit pension plans are underfunded by more than $4 trillion, putting at risk the financial security of approximately 8 million retirees and 14 million workers. The state of Illinois remains the poster child for state pension plan mismanagement, but it is hardly alone.


SEC May Not Flex Dodd-Frank Muscle on Brokers
Sarah Krouse – MoneyBeat – WSJ
The SEC may not tighten the vise on brokers after all. Under the 2010 Dodd-Frank financial regulation, the U.S. Securities and Exchange Commission has the option–but not a mandate–to require broker dealers to meet the same fiduciary standards as investment advisers when dealing with retail clients. But comments from SEC Commissioner Daniel Gallagher show the SEC isn’t necessarily keen on enforcing these standards for brokers.

CFTC Staff to Host a Public Roundtable to Discuss Risk Management Practices by Commodity Pool Operators
The Commodity Futures Trading Commission (CFTC) today announced that staff will hold a public roundtable on Tuesday, March 18, 2014, from 9:30 a.m. to 3:00 p.m., to discuss risk management practices by Commodity Pool Operators.

Massad Pledges Support for CFTC Commodity Speculation Curbs
Silla Brush – Bloomberg
Timothy Massad, the Treasury Department official named to head the U.S. Commodity Futures Trading Commission, said he would work to approve speculation limits in oil, natural gas and other commodities that have been resisted by banks and parts of the energy industry.

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