Observations / Statistics / Commentary
Old School/New School: Mark de Souza says County Cork blends experience with technology
The managed futures space is always producing new managers with new takes on the market.
County Cork LLC, a managed futures firm, is looking to bring experience to its clients with traders in the agriculture and equity markets who’ve seen it all. John Lothian News sat down with Mark de Souza, president of County Cork to talk about what sets the firm apart from other funds at the Emerging Manager Forum in Miami in December. “The uniqueness of what County Cork has brought to the marketplace in terms of those discretionary programs is our managers don’t come from trading backgrounds,” de Souza said. “The come from production backgrounds, hedging backgrounds. They are true industry experts whether its in production, supply chain management, even procurement. They bring a real understanding of supply and demand.”
Eurekahedge: Hedge Funds Shed 0.44% In January
FINalternatives Hedge funds were down 0.44% in January, according to Eurekahedge data, but still outperformed underlying markets as the MSCI World Index declined 3.74% over the same period.
***DA: Managed futures were down 0.84 percent. U.S. equities got hit pretty hard over the period. So much for non-correlation.
Hedge funds enjoy January performance boost -SS&C
Hedge fund returns grew 1.39 percent in January, recovering from December’s four-month low and outperforming many leading developed market stock indexes, the SS&C Hedge Fund Performance Index showed.
***DA: A different reading of the tea leaves.
TMF takes remaining stake in Custom House
Sarah Krouse and Joe McGrath
TMF Group, the business services firm owned by Doughty Hanson, has agreed to acquire the remaining 49% stake in hedge fund administrator Custom House Global Fund Services.
George Soros picks up $5.5bn as Quantum Endowment fund soars
James Mackintosh – FT
George Soros’s Quantum Endowment fund had its second-best year ever in dollar terms in 2013, adding $5.5bn to the billionaire’s fortune and putting Quantum back in top place among the most successful hedge funds of all time. http://jlne.ws/NZfVNM
**JK – Nice going George. Interesting factoid from the FT saying the top 20 hedge funds have garnered 43 percent of all profits made by investors, out of 7,000 hedge funds. Here’s to the needle in the haystack and the top 10 list in the story.
Deloitte to Hedge Funds: Emulate the Agility of a Skier
Deloitte has issued its 2014 Alternative Investment Outlook. Presumably inspired by the Sochi Olympics, the document is illustrated with a lot of photos of skiers. These skiers aren’t supposed to represent an asset’s value as it heads quickly downhill, or the financial equivalent of the “agony of defeat” in certain old television promos. Rather, these skiers are clearly intended to represent agility, which is what alternative investments have on offer.
Alternative Investments To See Continued Growth In 2014
Institutional investors are piling into alternatives despite their recent uneven performance. These investors are attracted to the industry’s long-term track record for producing non-correlated, superior risk-adjusted returns. At the same time, they are looking at alternatives through a new lens.”
***DA: A good summary/commentary on the Deloitte study above.
Hedge Funds Multiply in Asia, Pursuing Flood of Cash
Mia Lamar – WSJ
Hedge funds are setting up in Asia at a breakneck pace, seeking to capture a flood of cash from large global money managers turning to the region after two years of strong returns for the industry.
More than 50 funds have started trading or are setting up in Asia so far in 2014, 20% more than at this point last year, according to Bank of America BAC -0.30% Merrill Lynch estimates. This year is distinguished by the number of high-profile launches, including one planned by a veteran Goldman Sachs Group Inc. GS -0.21% trader and an Asia spinout from Millennium Management LLC, the $21.1 billion U.S. hedge-fund manager.
China: Funds on the edge
Paul J Davies and Simon Rabinovitch – FT
As a group, greater China hedge funds saw some of the best returns in the world last year – averaging gains of more than 19 per cent, according to Eurekahedge, the research firm.
That was in a year when the Shanghai stock market lost almost 7 per cent of its value, having dropped by more than 65 per cent since its peak in 2008.
With this kind of performance, it is little wonder that international pension and sovereign wealth funds are interested in finding Chinese managers to back.
**JK – A look at one of the biggest hedge funds in China, which leaves some wondering about the word Madoff.
Managed Futures / Managed Funds
Two Troubled Strategies by the Numbers
Managed futures are performing quite poorly. They also have a higher standard deviation than the HF industry aggregate, so it seems that if you’re invested there your losses are at least buying you greater risk. [Wait. That can’t be right.]
***DA: Managed futures’ standard deviation as a stand-alone entity is irrelevant; it is about what the addition of managed futures to one’s portfolio does to the aggregate return and standard deviation.
Pimco’s new chief executive aims for diversification to ‘any market’
Mike Foster – Financial News
Pimco’s new chief executive Douglas Hodge has pledged to make the firm a global provider of a broad range of investment solutions in the next 10 years.
***DA: When a firm the size of Pimco starts diversifying, the investment world will need to pay attention.
Opportunities Seen in Select Commodities
Murray Coleman – WSJ
The average commodity-focused mutual fund and exchange-traded fund in the U.S. has gained more than 1.2% so far in 2014, according to Chicago-based investment researcher Morningstar. Meanwhile, the blue chip stock market as represented by the SPDR S&P 500 ETF SPY +0.55% is down by 2.5% on the year, as of Monday. http://jlne.ws/1gMWEZi
Liquid Alternatives Catch the Attention of Retail and Institutional Investors
Funds offer transparency, lower fees, upside growth and liquidity. Is this the start of a $2 trillion product?
GLG: coaching corrects behavioural biases
Simon Savage – Risk.net
Flaws in fund manager investment decision-making caused by behavioural biases can be corrected by coaching to achieve repeatable success.
***DA: I said to the doctor “It hurts when I do that.” He said, “Don’t do that.”
Basel III to ‘indirectly impact’ hedge funds
Managers must be aware of how the new capital rules will shape the hedge fund/prime broker relationship, says JPMorgan
The impact of the Basel III leverage ratio will be felt far beyond the banking community, according to a new report by JPMorgan on the future relationship between prime brokers and their hedge fund clients.
Evaluating the Dearth of Female Hedge Fund Managers
WHITNEY TILSON – NYTimes.com
If women are, in general, better suited to be successful investors, then this is a strange market inefficiency. It would be like discovering that tall people were vastly underrepresented in the N.B.A. What could possibly explain this?
***DA: Paul Tudor Jones ignited a firestorm when he hamhandedly explained his view on this topic a while back.
Commodities investing down but not out, Masters says
Alexander Osipovich – Risk.net
Despite the current lack of enthusiasm for commodity investing, veteran oil trader Daniel Masters sees light at the end of the tunnel. Masters, co-founder and portfolio manager at Global Advisors, a Jersey-based hedge fund focusing on commodities, acknowledges that commodity funds have fallen on hard times recently, but argues that the market will soon hit bottom and savvy investors will return.
Arden Asset Targets Main Street for New Hedge Fund
Arden Asset Management is launching its second fund aimed to give retail investors access to hedge funds.
Reuters reported that New York-based Arden Asset, which has been offering retail clients at Fidelity the option to invest in hedge funds, started a new mutual fund this week. Through the new offering, investors will be able to gain access to hedge fund industry giants such as D.E. Shaw Investment Management, CQS and nine other firms.
**JK – More evidence of hedge funds moving into the retail space.
Pensions & Institutions
What asset management could look like in 2020
It’s the year 2020. A young woman boards a train in Beijing, the capital of the world’s largest economy. She reads a message on her smartphone from a technology-based financial adviser that has analysed her financial strategy and automatically matched her dating style – tracked by its sister company, an international online dating service – with the funds and fund companies most likely to meet her future needs.
***DA: A smartphone? Smartphones are so 2012. By 2020 it will be a geniusphone.
Placement Agent Fee Millions Scrutinized at NC Pension
An investigation into the third largest US public pension fund has allegedly revealed an excess of $100 million paid to placement agents in the past five years.
***DA: Rumor has it the treasurer is stonewalling attempts at answers.
Scottish independence: Pension fund admits avoiding investments due to uncertainty
A multi-billion pound pension fund has turned down opportunities to investment in Scotland because of the uncertainty created by independence, it was revealed yesterday. Pension Insurance Corporation (PIC), which handles close to £10bn for almost 100,000 members, was put off by question marks over an independent Scotland’s currency and regulation arrangements.
One watchdog circles another in UK pensions review
Joe McGrath and Mark Cobley – Financial News
The Financial Conduct Authority has launched a study of the future of UK pensions regulation in which it will review the role of its fellow watchdog, the Pensions Regulator.
Member Obligations under NFA Bylaw 1101 and Compliance Rule 2-36(d) with Respect to CPOs/CTAs Exempt from Registration
National Futures Association
CFTC rules require any person that currently claims an exemption from CPO registration under CFTC 4.13(a)(1), 4.13(a)(2), 4.13(a)(3), or 4.13(a)(5), an exclusion from CPO registration under Regulation 4.5, or an exemption from CTA registration under 4.14(a)(8) to annually affirm the applicable notice of exemption within 60 days of each calendar year end. Pursuant to the CFTC’s rules, persons that fail to file the affirmation notice by March 3, 2014 will be deemed to have requested a withdrawal of the exemption and, therefore, may be required to be registered.
Since exempt CPOs/CTAs have until March 3, 2014 to complete the affirmation process, NFA recognizes that it may be difficult for a Member to conclusively determine prior to March 3, 2014 if a previously exempt CPO/CTA continues to be eligible for a current exemption.
***DA: You have until March 31 to take “reasonable steps” toward a registration determination if you are currently exempt.
AdvisorShares: Commodity Fund Taxation
As markets, investment products and the manner in which clients access information have all evolved, advisors are answering more and more questions about how to invest in commodities which means advisors have to learn about the various taxation structures of the many different types of commodity exchange traded products
SEC staff offers roadmap for alternative investment due diligence processes
The SEC believes that investment advisers, including pension consultants, are increasingly recommending that their clients invest a portion of their portfolios in private alternative investment funds. In light of that trend, the SEC’s OCIE National Exam Program (NEP) staff recently published a Risk Alert addressing due diligence processes related to selecting alternative investments and their managers.
Rhode Island unions settle pension reform battle
Paul Merrion – Crain’s Chicago Business
To end legal challenges similar to those being raised in Illinois, Rhode Island’s precedent-setting pension reforms would be rolled back slightly under a settlement agreement reached today with its unions.
***DA: It will work so long as the unions do not file a legal challenge. Oops; too late.
ICE warns of trading flight away from Europe
Neil Munshi in Chicago, Gregory Meyer in New York and Philip Stafford in London – FT.com
IntercontinentalExchange, facing uncertain rules in Europe, has warned it could steer business elsewhere if regulators make radical changes to the structure of the futures market.