Observations / Statistics / Commentary

James Koutoulas: A Man of Many Hats
James Koutoulas wears a number of hats these days. He is CEO of Typhon Capital Management, a CTA/CPO that manages several programs. In 2011, in the wake of the MF Global bankruptcy, Koutoulas and John Roe founded the Commodity Customer Coalition, a grassroots effort that went viral and now boasts over 10,000 members. Then, last year, he was elected to the board of directors of the National Futures Association, where we hear he has been, um, “outspoken.”

Today Mr. Koutoulas puts on another hat, that of guest editor. Please enjoy his comments. (He is also identified in under the listed stories as JLK, not to be confused with JK for Jim Kharouf.)

Saving the Industry One Move At A Time
By James Koutoulas
Thanks for having me guys, it’s a honor to help out. 2013 was another tough year for the industry, but I’m happy to say that we slugged it out and managed to put up positive returns for our clients in all of our programs- Grain, Livestock, Volatility, and Diversified.

Also, after the revelations of yet another [alleged] fraud, this time, at AlphaMetrix, I had the dubious honor of taking an active role via the NFA executive committee of helping to ensure that no funds were stolen in the final days of that firm. Afterwards, I decided that helping clean up fraud after fraud for free was a less-than-stellar business model and teamed up with Jon Stein and John Roe to help apply our expertise in managing the operations of several managers and programs to a full-blown managed account platform that actually protects both customers and managers from fraud. The new service, called the Hydra Platform, is in the process of launching now and we’re excited about 2014.

Through the CCC and NFA, I’ve continued to fight for reforms to make customers safer through surgical rule tweaks coupled with tighter enforcement, but there’s still a long way to go. The CCC has been working with Rep. Grimm from Staten Island, NY, who has draft legislation that would tighten up protections for customers in a FCM bankruptcy considerably. You can view the proposed text of the bill at www.commoditycustomercoalition.org/bill. We are also working on a private insurance plan, which was shown in a recent insurance study as viable by Chris Culp, of the University of Chicago. John Roe and I have spent a lot of time meeting with Congress and testifying about the need for this bill, but the CCC has had to litigate MF Global, provide representation in PFG, and advocate on behalf of customers on a total of $233,000 in donations (compared to ~$250 million in fees charged by adverse trustees, and annual budgets of roughly $20 million and $13 million at MFA and FIA, respectively). I think we’ve been incredibly efficient and effective in those pursuits, but we need help in the form of donations and feedback to your representatives telling them to support this bill.

At the NFA, I feel the five board members who were elected via the petition process are finally starting to make some progress changing the status quo. While I think the world of Adam Cooper, and Brandon Kalb looks to be a very qualified guy, it’s critical that the CTA/CPO membership re-elect Doug Bry and Ernest Jaffarian. I think it’s a real shame that NFA chose to target the first incumbent pair of popularly elected board representatives in a contested election. And by re-electing them, we send the message that we demand independent thought and reform at NFA, which is sorely needed. Along those lines, this Thursday’s executive committee could shape the way the industry is regulated for years to come. I think there’s a pressing need for fresh faces on the public director side of the NFA board and for CTAs, CPOs, and IB’s relative representation to grow, or at the very least stay constant. Both issues are contrary to consensus. Contact information for all executive committee members can be found here: http://www.nfa.futures.org/NFA-about-nfa/board-of-directors.HTML please make your voices heard before Thursday.

I’m happy to discuss any of these issues at length, feel free to email me at info@typhoncap.com.

Mike Dubin

Emerging Opportunity: Silvercrest’s Mike Dubin on Matching Small Funds with Large Investors
The managed futures space continued to struggle to post enticing returns in 2013, but Silvercrest Asset Management’s managing director Mike Dubin says that has not kept his firm from looking for emerging manager talent in the space. Dubin, who spoke at the Emerging Manager Forum in Miami in December, says the research shows that smaller emerging managers have continued to outpace larger funds by 2 percent to 4 percent per annum. There have been a number of studies that conclude that smaller funds that produce nice returns tend to perform poorly going forward when they have large pools of capital to manage and invest. Here’s how Silvercrest is matching small funds with large investors.

Watch the video »

***JLK- The empirical evidence for emerging managers is undeniable. Under-funded pensions and underperforming investors need to shake the “safety in a herd” mindset and focus on actual return-generating talent if they want any chance of closing their funding gaps.

CTA Expo Lineup (With a New Addition!)
The 2014 CTA Expo schedule has been announced, and registration is officially open for the first event, New York, April 30, at a new venue – the NYSE Building (under new ownership in case you have not been paying attention). Here is the full 2014 schedule:
CTA Expo New York, April 30
Emerging Manager Conference Zurich (*NEW this year*), June 17
Emerging Manager Forum London, June 19
CTA Expo Chicago, September 23
Emerging Manager Forum Miami, December 19
Hope to see you there.

***JLK- Where do I sign up for the Bucky & Frank World Tour?

Lead Stories

Hedge Funds, Industry Assets Rise In December
Hedge funds were up 0.99% in December, according to the Eurekahedge Hedge Fund Index, ending the year on an optimistic note. For the full-year, all strategies except CTA/managed futures—down 0.35%—were in positive territory.

Reversion of the Mean
As we enter 2014, the Federal Reserve is about to embark upon a policy shift and begin to reduce the amount of asset purchases it bought each month in 2013. This policy shift alone speaks to the need for investors to consider further diversification into alternative asset classes such as commodities and Managed Futures.

Danger: Stock market predictions ahead
Paul Merriman, MarketWatch
As another calendar year gets under way, the country’s airwaves, websites, TV screens and mailboxes are filled with prognostications about what we can expect for stocks in 2014.

***DA: A spotlight on the worst calls of 2013, from some of the biggest names – Jimmy Rogers, Doug Kass, Ray Dalio and more.

Want Better Hedge Fund Returns? Try One Led by a Woman
In the world of hedge funds, a relative few have a woman at the helm. And yet, these funds may be the standouts from the bunch, a new report argues. In the years since the financial crisis, hedge funds managed by women performed better than a broader index that reflects the performance of the industry, according to a report released on Wednesday by the professional services firm Rothstein Kass. The report seeks to show that this “alpha” – superior returns, in Wall Street speak – is no mere fluke.

CalPERS posts 16.19% return in 2013
California Public Employees’ Retirement System, Sacramento, returned 16.19% on investments for the year ended Dec. 31, its best performance in 11 years. The results beat CalPERS’ custom benchmark of 14.82%.

Foundations Aim to Save Pensions in Detroit Crisis
New York Times
National and local philanthropic foundations have committed $330 million toward a deal to avoid cuts to Detroit retirees’ pensions and to save the Detroit Institute of Arts’ renowned collection, federal mediators involved in the city’s bankruptcy proceedings announced on Monday.

Hedge fund stars suffer sharp losses
Brevan Howard, Cantab Capital and Bluecrest were among the worst-performing hedge fund managers of 2013 as uncertainty around the US Federal Reserve’s monetary policy triggered sharp losses for commodity and emerging market managers.

Investors exit hedge funds at fastest rate in four years
Investors pulled out money from hedge funds at the fastest rate for more than four years in December, following a year in which many managers’ performance disappointed, new data showed on Monday.

***JLK- Doesn’t look like Reuters and Finalternatives agree on this one…

Managed Futures / Managed Funds

Waiting to Exhale: 2014 Global Hedge Fund Investor Trends and Allocation Outlook
Barclays’ Strategic Consulting team decided to assess the prospects of the HF industry in 2014 through a data-driven analysis of the global HF investor landscape and a view of what the asset-raising landscape might look like.
http://jlne.ws/1aoVVLK (PDF)

Our Nominees for Alternatives Fund Manager of the Year
Last year’s market rally defied gravity. Investors, looking to diversify, have been on the prowl for strategies that offer lower correlation to traditional asset classes, like stocks and bonds. It’s not surprising, then, that investors are turning to alternative mutual funds in droves.

***DA: Shout-out to the team at AQR Capital, whose managed futures strategy fund made the nominee list.

Meritage Launches Maiden Alternative Mutual Fund
The Insignia Macro Fund targets long-term risk-adjusted returns by employing global macro-managed futures investment strategies. The firm said its offering differs from other liquid alternative macro vehicles because of its allocation to discretionary-focused managers.

Exclusive: Apollo seeks to exit fund manager Lighthouse – sources
Apollo Global Management LLC is looking to cash out on its investment in the owner of Lighthouse Investment Partners LLC, three years it after it backed the fund-of-hedge-funds manager, according to people familiar with the matter.

Causality in Commodity Prices: The Debate Gets Personal
Christopher Faille, AllAboutAlpha
’ve written before of the issue of causality in commodity prices. One of the most hotly contested questions in finance today, especially with regard to commodities, is this: do the physical prices drive the futures, or do the futures drive the physicals, or does the arrow of causation face both ways?

Carlyle unveils its first mutual funds
Carlyle Group LP is preparing to launch its first two publicly listed mutual funds, according to a regulatory filing by the latest alternative asset manager seeking to offer its investment platform to retail investors in this way. Carlyle Enhanced Commodity Real Return Fund will mainly invest in commodity sectors including energy and metals, while Carlyle Global Core Allocation Fund will invest across equities, debt, real estate, commodities and currencies using primarily exchange-traded funds, according to the filing published this week by the U.S. Securities and Exchange Commission.

Pensions & Institutions

Commonfund issues ‘alternatives’ white paper
The paper explains why alternative strategies, especially private equity, venture capital and hedge funds, have been successful in increasing institutions’ portfolio returns and reducing risk over the past 20 years. The paper also concludes that the fundamental principles that have contributed to historically higher returns among alternative investment strategies remain largely unchanged today.

Canadian pension plans post dramatic rebound
The Globe and Mail
Canadian pension plans posted a major turnaround last year as strong returns made all their “dreams come true,” and are looking forward to another positive year in 2014 that could push many into unaccustomed surplus status.

Shadow Accounting Steps into the Spotlight
Ron Kashden – Wall Street & Technology
Investors have put pressure on hedge funds to ensure that accounting reports from independent administrators have been validated, leading firms to invest in shadow accounting environments, writes Ron Kashdon of Ingenious Initiatives.

Dutch pension funds pay managers EUR 4.5 billion in 2012
The DNB said in a news release that private equity and hedge fund investments were the most expensive investments in 2012 for the 278 pension funds it analyzed, charging total fees — covering both management and performance fees — of 3.43% of invested assets for private equity and 3.38% for hedge funds.

The zombies have representation, and would like to respond
Dan McCrum | FT Alphaville
When we pointed out that the hedge fund industry has been trounced over the last five years by the simplest combination of stock and bond index funds, we asked institutional investors a question: why are you invested in hedge funds? AIMA thought it had better provide an answer and so a letter from the hedgie trade body appeared in the FT on Friday.

No bonanza yet for big funds from new rules to cut risk
If pension funds, insurers and sovereign wealth funds were hoping to cash in on lending “high quality” assets to those scrambling to meet tougher collateral requirements in 2014, they are likely to be disappointed.

PAAMCO Names Four New Partners
Press Release
Pacific Alternative Asset Management Company, the US$15.6 billion fund of hedge funds investment firm, announced that Ronan Cosgrave, Putri Pascualy, Anne-Gaelle Pouille and Jeffrey Willardson have been promoted to Partners. All four are based in PAAMCO’s Irvine, California office. These promotions highlight the firm’s focus on developing its employee-ownership and ongoing succession plan. PAAMCO is a leading manager of alternative investment assets for global pension funds, sovereign wealth funds and other institutions.


Fed to seek comments on restricting banks’ commodities trading
Gina Chon in Washington and Tom Braithwaite in New York – FT.com
Federal Reserve officials will ask for comments on whether it should restrict the trading of physical commodities by banks, according to people familiar with the matter.

Funds With $100 Billion May Be Too Big to Fail, FSB Says
Ben Moshinsky – Bloomberg
Investment funds that manage more than $100 billion in assets may be labeled too big to fail, global regulators said, as they seek to expand financial safeguards beyond banks and insurers.


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