Observations/Commentary

A Fresh Look: Gate 39’s Stiles Brings New Tear Sheets and CTA Database To Managed Futures
JohnLothianNews.com

Shane Stiles, founder of Gate 39 Media, hasn’t seen much he likes about the managed futures and hedge funds investor reports, so he built out a new tearsheet design application. Now he wants to help investors and fund managers find each other with a new database.

Watch the video »

To see the full layout and design: click HERE.

Is Pro Rata an Accident Waiting to Happen?
Special Report by Ginger Szala – Advantage Futures
The New Year surprise happened fast: the Swiss National Bank announced on January 15 that the Swiss Franc would no longer be capped by the Euro and it jumped 41% in minutes. This black swan event happened just before a U.S. holiday when traders were already winding down for a three-day weekend. Those left trading included a combination of retail players, banks and some prop firms. And the market went into a frenzy.
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***DA: It could be a major problem, but I would not call it an accident. Traders are playing with fire, and we may see a big burn.

Bund of a Lifetime? Is Bill Gross Full of it?
Attain Capital, via ValueWalk
We’re not obsessed with the Bond market, we swear. Well, ok, maybe a little. The blog’s chief ‘nonsense spouter’ did cut his teeth in the 30 year bond futures pit, after all, many moons ago. We may have talked about economists and Wall Street sucking at predicting interest rates, then we talked about how the average investor might not equate the market with how they hear about it on a daily basis. But that’s nothing compared to what the Bond King is calling for the “short of a lifetime” – The Bund. And, no, we’re not talking about the disappearance of cummerbunds at weddings. We’re talking about the German Bund (the European equivalent of the US 10 year note).
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***DA: Once a country gets snared in the ZIRP trap, timing the exit is an exercise in frustration. Exhibit one is Japan.

Where has all the alpha gone?
Pensions & Investments
These days, many investors seem to be paraphrasing a 1960s protest song: Where has all the alpha gone? That, of course, depends on what you think “alpha” means. The standard definition says alpha is the ability to consistently outperform a well-defined benchmark. It is notoriously hard to measure, in part because most managers do not have track records long enough to meet the “consistently” test.
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***DA: There is also no standard, agreed-upon criteria for determining what qualifies as alpha, beta, smart beta and, while we’re at it, epsilon. And, no, we won’t always know it when we see it.

Does Volatility Targeting In Managed Futures Add Value For Fund Managers, Investors?
FINalternatives
Managed futures strategy benchmarks like the Newedge CTA Index rose sharply in late 2014. As in 2008, these strategies that ply global markets for buying and selling opportunities pieced together gains from a mosaic of turmoil. This exemplifies managed futures funds’ ability to gain despite little or no correlation to any particular market, a quality attractive to investors concerned about lofty market levels.
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***DA: Interesting concept.

Lead Stories

eVestment: Hedge Funds Up 0.35% in May, Remain Ahead of S&P 500 YTD
FINalternatives
Hedge funds continued to post positive returns in May, gaining an aggregate 0.35% during the month, according to eVestment’s latest Hedge Fund Performance Report. The performance was led by long/short equity, China-focused and activist funds, tempered by continued weakness in managed futures/CTA funds. Overall, hedge funds are now up 3.36% year to date, eVestment’s data shows, marginally ahead of the S&P 500’s YTD return of 3.24%.
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Wealth Adviser: The Rise of the Virtual Adviser
by Patrick Graham, WSJ
In addition to robo advisers, a second front has opened in the war on traditional wealth management: virtual advisers, who are actual human beings. And unlike their machine counterparts, they offer personalized services.
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***DA: Can I pay the commission in bitcoin?

Should You Invest in Managed Futures?
US News
Investors who understand the benefits of diversification know that different asset classes often move in opposite directions. The very point of a diversified portfolio is to avoid making bets on a particular type of investment, like large-cap U.S. stocks, to the exclusion of others. Instead, the idea is to own different types of stocks, as well as bonds and alternative investments.
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Risk & Return QIF 2015: Managed futures death greatly exaggerated
Automated Trader
Since 2011, investors and industry have been declaring the death of managed futures, an alternative investment category that involves long and short derivatives positions across asset classes. But players in the space beg to differ, and can demonstrate performance drivers to show they’re alive and kicking. Thomas Pasturel gives us his first-hand account of the Risks & Returns Quantitative Investment Forum and talks to Pierre Thauvette, head of Quantitative Research at Claret.
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Rothschild terminates plans for commodities fund
Financial News
Rothschild HDF Investments, an asset management arm of the Anglo-French banking house, hired three staff in 2013 to help launch the fund. However, in its 2014 accounts for its U.K. arm, filed at Companies House, filed in late May, it revealed that the board had decided to “terminate” the fund.
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***DA: Add the Rothchilds to the list of things that are not what they used to be.

Are CTAs mumbo jumbo or additive for a diversified hedge fund portfolio?
Don Steinbrugge – AllAboutAlpha
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. Advocates of CTAs have helped propel the strategy to a 12% market share of the hedge fund industry at approximately a quarter trillion dollars in assets. The strategy also boasts many of the largest hedge funds in the world.
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***DA: Sometimes yes.

Managed Futures/Managed Funds

Hedge funds and Draghi blamed for bond volatility
The Trade
Traders are bracing themselves for continued increased volatility in the bond markets, following warnings from numerous buy-siders in recent weeks.
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***DA: Not necessarily in that order.

How a Carried Interest Tax Could Raise $180 Billion
By VICTOR FLEISCHER, NY Times
When Hillary Rodham Clinton opened her campaign for the Democratic presidential nomination in Iowa, the first substantive issue she raised was a safe one: carried interest. “There’s something wrong when hedge fund managers pay lower tax rates than nurses or the truckers that I saw on I-80 as I was driving here,” she said.
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***DA: The tax rate on a foundation is even lower.

John Paulson Gives $400 Million to Harvard for Engineering School
By TAMAR LEWIN, NY Times
Harvard announced Wednesday that the billionaire hedge fund manager John A. Paulson had given a $400 million endowment to support the School of Engineering and Applied Sciences — the largest gift in the university’s history.
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***DA: Probably about the excess he made by earning carried interest rather than ordinary income. The difference is how much the person controls how the money is spent.

BlackRock takes another swipe at Pimco
Chris Newlands and David Ricketts, FT
BlackRock, the world’s largest fund company, has taken a potshot at rival investment house Pimco as part of its plea to regulators that funds should not be classified as “too big to fail”.
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Seeking More Clarity on Derivatives in Mutual Funds
WSJ
Financial advisers say they would welcome more information on mutual funds’ use of derivatives, something a recent proposal by regulators would require. But some asset managers say they must tread a fine line. While advisers say they are for transparency, disclosing too much information about fund holdings could make it more difficult to generate strong returns, by allowing competitors to trade ahead of them, for example.
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Relevant trading-focused information authored by key players in the futures, options and forex industries
Inside Futures
When you trade the markets, you really don’t know the exact probability of winning or losing on a given trade. Additionally you won’t know exactly how much you will profit or lose. What a CTA does is extensive historical testing on his / her concepts, and trading strategies to get an idea of what to expect. They will also pull huge data samples of market prices from either a data vendor or from real-time trades, in order to get a clearer picture, and to really try and nail down the “expectancy” of their particular methodology and trading system. After investigating trade-by-trade and crystalizing the risk to reward ratio of each trade and its frequency of occurrence they have a far greater understanding of their trading system and what is to be expected with any given trade. This takes work and can be expensive but is critical to success and confidence in your trading methodology.
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Pensions & Institutions

BlackRock wins Underground pension mandate
FT.com
BlackRock, the world’s largest fund company, has won a mandate to manage more than half the assets of Transport for London’s $7.3bn pension fund, taking assets previously run by Legal and General Investment Management. The switch came down to costs, highlighting both the increasing concern among pensions funds to keep fees down and the intense competition among large fund managers to win new business.
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Bond Swings So Extreme Even BlackRock Rewrites Risk Measures
by Eshe Nelson, Bloomberg
With $4.8 trillion in assets — or about the size of Japan’s economy — no one manages more money than BlackRock Inc. So, it’s worth paying attention when the firm says it’s time to cast aside its trusted models for assessing risk in bonds.
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Rhode Island’s $2 Billion in ‘Preventable Losses’ in Alternative Assets
by Timothy W. Martin, WSJ
California isn’t the only state where outside money managers are under scrutiny.
Rhode Island’s public-employee pension has incurred $2 billion in “total preventable losses,” partly because of investments in external real estate, private equity and hedge funds, according to an 81-page report from Benchmark Financial Services Inc., which does “forensic investigations” of money managers and pensions.
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Apple Is the New Pimco, and Tim Cook Is the New King of Bonds
by Nabila Ahmed and Mary Childs, Bloomberg
There’s a new whale in the corporate-bond market. Apple Inc., Oracle Corp. and the other tech giants hoarding half a trillion dollars in cash have joined the ranks of the biggest buyers of the debt, often snapping up as much as half of some bond issues, according to five people with knowledge of the transactions.
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Pioneers taking different paths on risk factor-based investing
Pensions & Investments
When it comes to implementing risk factor-based investing, no two early adopters are using the same approach. What pension funds share is the need to generate returns to meet funding requirements in the face of an extended low-return environment, said sources.
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Transport for London pension fund drops LGIM for BlackRock
IPE
The Transport for London (TfL) Pension Fund has moved the majority of its assets from Legal & General Investment Management (LGIM) to BlackRock as it takes on equities and liability management mandates.
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What You Can Learn From a Pension Giant
WSJ
This past week, the biggest public pension fund in the U.S., the California Public Employees’ Retirement System, or Calpers, said it plans to cut the number of outside money managers it uses to approximately 100 from 212.
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UN Pension Considering Funds Of Funds Investment
ValueWalk
The United Nations pension fund is considering branching out into more alternative assets according to a request for expressions of interest that was posted on Friday, asking for bids from investment banks that are interested in providing the UN University Endowment Fund (UNUEF) Global Custody and Master Record Keeping services. This could be related to accusations of fraud, undisclosed conflicts of interest, and avoiding oversight made against the United Nations Joint Staff Pension Fund (UNJSPF) earlier this year.
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Lead Stories

Markets urge regulators to fix data confusion
Philip Stafford, FT
In a rare display of unity, banks, futures brokers, hedge funds and asset managers have joined together to urge global regulators to resolve the growing chaos around reporting requirements for trades.
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Review to seek new laws banning manipulation of markets
Patrick Jenkins, Financial Editor, FT
New laws banning manipulation of markets such as foreign exchange and the creation of a market standards body to oversee conduct are expected to figure in a big review of UK financial regulation to be published on Wednesday.
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European pension funds win 2-year derivatives exemption
Philip Stafford, FT.com
Pension funds in Europe will be granted a further two-year exemption from the mandatory clearing of derivatives, giving the industry more time to adapt to comprehensive new trading rules. The pushback extends a deadline that was due to come into effect this summer.
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CFTC Issues Relief From IB and CTA Registration to Foreign Persons Dealing in Swaps for International Financial Institutions
The National Law Review
On June 4, the Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight (DSIO) issued no-action relief from introducing broker (IB) and commodity trading advisor (CTA) registration to persons located outside the United States engaged in swaps activities for specified supranational banks and development organizations, such as the International Monetary Fund and the International Bank for Reconstruction and Development (World Bank), that have offices in the United States (international financial institutions or IFIs).
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