FinTech Chicago Gets Democratic

Today’s financial technology dialog is often about a word you don’t usually associate with it – democracy – bringing software, data, reporting, testing and trading to the masses. And it’s not just one size for everyone – its customizable too. At the FinTech Exchange 2015 Chicago event, 13 firm executives spoke during its lightning round. So John Lothian News took the best of two hours of presentations and condensed into 3 minutes. Here’s how some of those firms are democratizing and customizing technology for all of us.
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Are CTAs Good For A Diversified Hedge Fund Portfolio?
Donald A. Steinbrugge, Agecroft Partners – FINalternatives
Commodity trading advisors’ (CTAs) perception among investors is more divergent than any other major hedge fund strategy. A large percentage of investors view the strategy as smoke and mirrors using black box models that they cannot understand or properly evaluate. Other investors view CTAs as one of the purest hedge fund strategies that is uncorrelated to long only equity and fixed income indices, as well as other hedge fund strategies; thus providing valuable diversification benefits.

***DA: Neither view is compelling during a raging bull market in equities.

Voices: Jerry Chafkin, on the Dangers of Overdiversifying
In an attempt to simplify investment models, we often talk about the average correlation between different asset classes. But what advisers and clients should really be focusing on is the behavior of correlated assets during the worst of times. It’s during those periods, not during average markets, when clients need the power of diversification the most.

**JK – No mention of managed futures, but I suspect one that would be worth noting Mr. Chafkin.

The $10 Hedge Fund Supercomputer That’s Sweeping Wall Street
Bloomberg Business
It sounds like the mother of all spreadsheets: 1 million rows, 1 million columns — 1 trillion entries in all. Fortunately, Braxton McKee isn’t using Excel. Instead, he’s tapping into the cloud to crunch all that market data on the cheap with software he built that learns as it goes.

***DA: The answer it came up with is 42

Lead Stories

Commodity inflows fizzle after strong start in first quarter
Enthusiasm for commodities has fizzled following a strong first quarter, as investors started to liquidate their positions after the rally in crude prices stalled.

Top US fund managers attack regulators
US fund managers have launched a new attack on global regulators as they fight a rearguard action against possible rules that would treat groups such as Fidelity and BlackRock as threats to the financial system.

Barclay CTA Index down 1.27% in April
All eight of Barclay’s CTA indices had losses in April. The Diversified Traders Index was down 2.07 per cent, Systematic Traders lost 1.58 per cent, Discretionary Traders were down 0.26 per cent, and Currency Traders gave up 0.23 per cent.

The Top 10 Managed Futures Performers of April
Attain Capital Management, via ValueWalk
While one month’s performance is no way to judge an investment that has 3 to 5 year cycles, a glance at who’s doing well in the different environments month to month can be a useful data point at times. Here’s the top managed futures performers (by return only) for the month gone by

Is It Time To Add A Managed Futures Fund?
John Peter – Seeking Alpha
This article will discuss some other strategies that are usually not equity related. Namely the managed futures strategies and their associated exchange traded products. These products seek to exploit trends (either long or short) primarily in the futures markets for commodities, currencies, fixed income and in some cases stock indexes. They can be useful for diversifying an overall portfolio because they are not usually correlated with either the stock or the bond markets.

Volatility and the benefits of downside protection strategies
Despite the devastation of the 2008 global financial crash, institutional investors are soaking up more of the upside in global equity markets, despite not necessarily having a clear strategy on how to protect their portfolios against downside volatility.

Gross Calls Bet Against Bund Well-Timed, Poorly Executed
by Charles Stein, Bloomberg
Bill Gross acknowledges doing a poor job of implementing his recommendation to bet against German government bonds.

***DA: I used to say that a lot, “I was not wrong, just early.” Well, too bad. You need both direction and timing in order to make money.

Managed Futures/Managed Funds

Hedge Funds Close Doors, Facing Low Returns and Investor Scrutiny
For decades, nearly everything that the billionaire Julian Robertson touched turned to gold. Mr. Robertson, founder of the hedge fund Tiger Management, seeded a network of hugely successful “Tiger Cubs” — companies that in turn seeded more talent. It became the closest thing the hedge fund industry had to a dynasty.

***DA: Those pesky investors – they keep wanting good returns and low risk.

Eurekahedge On Funds Of Hedge Funds: A Downward Spiral
The latest Eurekahedge report says that in April, Asia ex-Japan funds delivered the best returns in the hedge fund industry, up 8.26%. This success was driven by the Greater China mandated funds, which benefit from optimism about “aggressive stimulus measures by the Chinese central bank.”

Hedge Funds Have Taken a Shine to Silver
Silver prices have remained stuck at historical lows for the past three years, but hedge funds have decided now is the time to pile in. Last week, hedge funds snapped up silver at the fastest pace since 1997, increasing their net long position to a three-month high according to data from Bank of America Merrill Lynch.

***DA: If I had a dollar for every time this cliche was used in a headline, I could invest in a silver hedge fund.

Aberdeen agrees deal for $6bn alternatives firm
Investment Week
Aberdeen Asset Management is to acquire FLAG Capital Management in a bid to strengthen its alternatives platform and US offering.

Hedge funds loom large in oil price moves
Forget the interplay between supply and demand. When it comes to oil prices, hedge funds and speculators are exerting an uncommonly large influence, say many in one of the world’s most important markets.

***DA: As a CFTC commissioner during the original position limits fight, Bart Chilton warned of the danger of “massive passives.” I am interested in his position these days.

Time to hold or fold commodity beta?
Peter Sleep, a Citywire + rated manager at Seven Investment Management, is more interested in a different type of commodity beta. ‘We are bearish on commodities as a whole, but we are keener on the idea of momentum in the commodity markets and futures markets generally,’ he said. ‘We would like to find a cheap route into a sort of commodity trading advisor (CTA) type strategy, without paying two and 20. It strikes me that it is an obvious thing for an ETP provider to do.’

***DA: In other words, we would like all the benefits of professional management, but without having to pay a professional to manage it.

Pensions & Institutions

Borrowing to Replenish Depleted Pensions
Facing a shortfall of more than $50 billion in his state’s pensions, and with no simple solution at hand, Gov. Tom Wolf of Pennsylvania is proposing to issue $3 billion in bonds, despite the role that such bonds have already played in the fiscal woes of other places. And he is not alone. Several states and municipalities are considering similar action as they struggle with ballooning pension costs.

***DA: Paul needs a check, so we will get one from Peter.

Chicago bond sale attracts $6bn in demand
Robin Wigglesworth in New York, FT
Chicago has pulled off a successful $674m bond sale after being downgraded to junk by Moody’s, attracting over $6bn of investor orders despite concerns over how the third-biggest US city will fill its gaping pension deficit.

***DA: A big batch of 2042 bonds went through at 5.84 percent, 16 bpd below guidance of 6 percent. That is a bold be that the city will be able to ram through a massive tax hike to pay for upcoming mandatory pension contributions.

Pensions Drop Annual Targets After Financial Crisis
MoneyBeat – WSJ
More pensions are aiming lower with their annual returns. Nearly two-thirds, or 79, of 126 public pension plans have lowered their return assumption in the years following the 2008 financial crisis, according to a recent report by the National Association of State Retirement Administrators.

***DA: I am guessing many of them are still not low enough.

Calstrs, Calprs Go Their Separate Ways on Activists
MoneyBeat – WSJ
California’s two pension giants have taken very different stances on hedge-fund activism. The state’s teacher fund, known as Calstrs, has staked billions of dollars on activists like Nelson Peltz’s Trian Fund Management LP and Jeff Smith’s Starboard Value LP, and at times has joined them on public campaigns to shake up companies. The California Public Employees’ Retirement System, or Calprs, which was an early adopter of shareholder activism in the 1990s, has stepped back.

Pension funds change investment focus
The Citizen
Regulatory changes and lower expected returns from traditional asset classes could prompt local pension funds to chase alternative assets in their search for yield.

PensionsEurope urges EC to protect flexibility
PensionsEurope has urged the EU commission to work with pension providers to avoid imposing further costs and restrictions, as the EC reviews its European Market Infrastructure Regulation.

Large US endowments cut allocations to private equity
Large US endowments have cut their allocations to private equity by a fifth as a mountain of money already committed to the asset class threatens to drive up already high deal prices. US endowments with more than $1bn in assets cut their allocation to 12 per cent in 2014, from 15 per cent a year earlier, according to the annual Commonfund report on endowments.


Exchanges to police position limits – CFTC
Futures & Options World
Exchanges could grant exemptions under the Commodity Futures Trading Commission’s (CFTC) new federal position limits regime, according to the US regulator’s chairman Timothy Massad. Speaking at a roundtable in Washington DC on Tuesday, Massad said the regulator was “taking a closer look” at the possibility of giving exchanges responsibility for granting exemptions for certain hedges.

***DA: What will be the reaction from those who criticize the exchanges’ monitoring of HFT activity?

NFA’s Board approves Fiscal Year 2016 budget
On May 21, NFA’s Board of Directors approved a budget of $85 million for Fiscal Year 2016. The FY 2016 budget reflects a 7.7 percent increase over projected FY 2015 operating expenses. A major influence that accounts for more than 60 percent of the increase is the continued expansion of NFA’s swaps regulatory programs ($2.5 million) and the growth in NFA’s technology staffing ($1.2 million). NFA’s fiscal year runs from July 1 through June 30.

Regulation alone will not restore faith in markets
Few mechanisms underpin modern life to quite the same extent as the wholesale markets that lie at the heart of the financial system. What may seem like arcane bits of financial plumbing, these determine the borrowing costs of households and companies, the prices at which currencies are exchanged and influence the cost of basic necessities such as food and raw materials.

***DA: Enforcement? Guilty pleas? Public hangings? Political egalitarianism? What am I missing?

Former U.S. CFTC chair criticizes Volcker call to merge agency with SEC
A former head of the Commodity Futures Trading Commission has questioned Paul Volcker’s call to merge U.S. regulatory agencies under the leadership of the Federal Reserve.
Brooksley Born was a staunch advocate of regulating derivatives when she headed the CFTC between 1996 and 1999. But she was sidelined by then Federal Reserve chairman Alan Greenspan and Treasury Secretary Lawrence Summers. She was later recognized as prescient when Lehman Brothers collapsed during the financial crisis.

**JK – Yes, its still a great idea to be the only major country to have separate regulators for different asset classes.

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