Observations/Commentary

NFA Election, CTA/CPO Category – A Heated Race
Doug Ashburn – JLN

Though the election for U.S. President is still nearly a year away, most of us have grown tired of the daily dosages of Donald, Hillary, Bernie, Ted, Ben, et. al. Besides, for those of us involved in the commodity trading advisor space, there is a far more interesting race happening much closer to home – one that involves mischaracterizations, accusations of “heinous” acts, and at least one threatened lawsuit. Pretty heady stuff for the usually staid, genteel NFA.

On December 10, 2015, the National Futures Association sent out its ballots for the 2016 annual election. Due to a reduction in the size of the board, two sets of incumbents have been pitted against each other in the upcoming election, with Ernest Jaffarian facing Commodity Customer Coalition co-founder John Roe. and Doug Bry squaring off against CCC co-founder James Koutoulas.

John Lothian, publisher of this newsletter, weighed in early with an endorsement of Bry and Jaffarian. The article prompted rebuttals from both Roe (published on JohnLothianNews.com) and Koutoulas (published on the CCC web site). Koutoulas followed up on December 30 with a letter to CCC members, which summarized what he and Roe hope to bring to the board if elected.

On January 3, Jaffarian responded with his own letter, a reply to statements made by Koutoulas and Roe, and an appeal to members to support Bry and Jaffarian.

To view the ballot, click HERE. If you are a voting member of the NFA, be sure to send in your ballot by January 19, 2016.

Strength In Smaller Numbers
Jim Kharouf – John Lothian News President & Editor-in-Chief

Back in the mid- to late 1990s, I used to head up the most read edition of the year for Futures Magazine, called the Top 40 Brokers issue. We highlighted the Top 40 Futures Commission Merchants by assets held in customer accounts, also known as required segregated funds, along with other metrics reported to the CFTC

With the number of FCMs whittled down to 54 today, the former Futures, now Modern Trader, just published a Top 30 article Top 30 Brokers: Mean, lean and ready for what comes next, Futures Magazine, and it didn’t even get top billing on the magazine cover.

A search back to my days, for 1997’s raw data couldn’t be found on the CFTC’s website, as they only go as far back at 2002. In that year-end, 169 FCMs reported to the CFTC, with a total of $52.32 billion held by US FCMs in customer segregated accounts, and $10.2 billion in so-called Part 30 funds, which are held for customers trading outside the US.

Read the rest of the commentary at JohnLothianNews.com

Say What? A Client Asks About an Adviser’s Footwear; The adviser was taken aback, but the woman had a reason for asking about his choice of shoes
By VERONICA DAGHER – WSJ
Say What is an occasional feature in which a financial adviser shares a statement he or she heard from a client that is unforgettable for its wisdom or its wackiness or another reason.
on.wsj.com/1kisXoS

***DA: A good reminder to money managers that flashy dress and other ostentatious displays are a double-edged sword.

Mark your Calendars – CTA Expo 2016 Lineup
Though the CTA Expo web site has not been updated since before the holidays, Frank and Bucky have asked us to send out a “save the dates” announcement for the 2016 lineup. They will be hosting the New York conference on April 21, at the Roosevelt Hotel. The Chicago event will be held once again at the UBS Center on Wacker Dr., on September 15. They will close out the year in Miami December 8, at the hip and cool Eden Roc hotel. Details forthcoming.
jlne.ws/1PGi8bh

The Big Short – Enlightened & Frustrated
Attain Managed Futures Blog, via ValueWalk
One big winner left out of the movie – which profited from the financial crisis without any of the drama outlined in the book and movie – systematic Global Macro and Managed Futures strategies. When you see all that went into crafting the thesis that the housing market was about to crash, the research and insight needed to know the credit ratings were bogus and the mortgage approval process essentially fraudulent, a systematic approach sure seems a whole lot easier. Systematic alternative investments which don’t rely on a growing economy or rising stock market are dynamic strategies which react to the consequence of all of the mess outlined in the movie. They don’t need to know why it is happening – they just need to identify that it is happening, positioning their bets to profit from falling currency, bond, commodity, and stock index markets.
jlne.ws/1TA5uvG

***DA: Those were the days.

Amaranth investors still wait for money 10 years after collapse
Rob Copeland, The Wall Street Journal
Amaranth Advisors was one of the biggest hedge fund blowups in history. Now, the fallen fund is approaching a new milestone: a decade-long wait to give investors back what remains of their money.
jlne.ws/1TA9RXq

**JK: And there are many, many, many more days for others.

Lead Stories

Man GLG Hires Money Managers Hill, Lynch From Moore Capital
Bloomberg Business
Man Group Plc, the world’s largest publicly traded hedge fund, has hired former Moore Capital Management LP money managers Rory Hill and Ben Lynch as portfolio managers. Both had joined Louis Bacon’s Moore Capital in 2014 from Citigroup Inc., part of a trend that has seen traders move to manage money for hedge funds as regulatory changes since the 2008 financial crisis force banks to curtail risk-taking using their own capital
jlne.ws/1TA4wzj

***DA: Two good eggs, poached from Bacon, on a day when the market is toast.

Newedge CTA Index ekes out a slight gain for 2015
Doug Ashburn – JLN
A -1.36 percent drop in the final month of 2015 left the Newedge CTA Index clinging to a fractional gain of 0.02 percent for all of 2015. Its trend index also eked out a small gain for the year. Click over to the Newedge Indices home page to see the full slate of index performance, as well as a link to details of its soon-to-launch CTA Mutual Fund Index.
jlne.ws/1TA6yiU

Hedge Fund Flows Collapse in 2015
Chief Investment Officer
Hedge fund inflows declined by roughly 40% in 2015 compared to the previous year, as the under-fire sector continued to post poor performance. Data firm eVestment estimated a net $66.6 billion inflow for the industry in 2015 to the end of November. This compared to $111.4 billion for the same period in 2014.
jlne.ws/1TA5aNf

Alternative assets loom as best bet
John Authers – FT
At last, 2016 is here. It is now incumbent on this column to suggest what investors should do to position themselves for the next 12 months.
jlne.ws/1myTkby

Warren Buffett faces worst year on stock market since 2009
Stephen Foley in New York – FT
Investment guru Warren Buffett is headed for his worst year relative to the rest of the US stock market since 2009, with shares in his conglomerate Berkshire Hathaway down 11 per cent with two more trading days to go.
on.ft.com/1QXXvLa

***DA: I remember this happening in 1999 as well. Buffett was lampooned by some of his A-share investors and called a “dinosaur” for having missed the runup in tech shares. A year later he was the one laughing.

The Best Investment Alternative In A Down Market
EconoTimes
The demand for alternative investments has grown to the point at which we might have to leave the phrase ‘alternative investments’ in the buzz-phrase bin. We believe that in 2016, there is a tremendous opportunity to separate from generic phrases such as ‘alternative investments’ and ‘hedge funds’, and begin increasing wealth by understanding and investing in specific, promising and proven areas, such as managed futures.
jlne.ws/1TA4d7T

Managed Futures/Managed Funds

Wasted Opportunity: Hedge Funds Falter; The money managers who charge some of the highest fees on Wall Street had another down year in 2015
By ROB COPELAND – WSJ
Hedge funds start the New Year with something to prove—again.
jlne.ws/1VAob3u

***DA: Also in today’s news, more hedge fund liquidations and closures, including Lutetium, Seneca Capital and SAB Capital

Hedge fund closures hit highest level since Q1 ’14
FT
The pace of hedge fund liquidations climbed in the third quarter to the highest level since the first three months of 2014 amid volatility in equity, commodity and bond markets.
jlne.ws/1mASoU7

**JK – From this article – fund closures totaled 257 in Q3, up from 200 in Q2 2015. That was offset by 269 new funds launched in Q3.

Hedge Funds Enter 2016 Facing Same Scrutiny As One Year Ago
HedgeCo.Net
In a year when hardly any asset class experienced decent gains, the hedge fund industry lagged the overall stock market again and now the industry is once again facing scrutiny on whether they can produce the returns that would justify the fees charged.
Look at the different asset classes in 2015—the S&P, including dividends, gained 1.24%, oil fell over 30%, gold fell over 10% and even treasuries struggled as the Fed toyed with investors and kept them on edge about a rate hike that ended up not coming until December.
jlne.ws/1TA8TKY

Why Diversification is Key | Robert Carver, Author & Trader
Top Traders Unplugged
In the second part of our conversation with Robert Carver, we dive into the specifics of his trading strategy, why he doesn’t trade full time, and what he thinks about the trend-following space in general.
You’ll hear his thoughts on drawdowns, research teams, risk, and more. You won’t want to miss his insight and clear explanations of some of finance’s most complicated topics.
jlne.ws/1TA9BYx

Commodity exposure in 2016 requires care
Mohamed El-Erian – FT
Patient capital into distressed opportunities is ideal strategy
Having serially disappointed investors for a while, commodities could well offer investors one of the most compelling investment opportunities in 2016.
jlne.ws/1OuHk5J

Blackstone, Citadel, Lansdowne Gain as Rivals Falter in 2015
Bloomberg Business
Hedge fund managers have complained all year about a lack of liquidity and volatile markets in explaining some of the worst performance since the financial crisis. Yet a handful of multibillion-dollar firms including Blackstone Group LP, D.E. Shaw, Millennium Partners and Citadel have managed to side-step those problems and post double-digit returns.
jlne.ws/1Zp6Rkg

Hedge fund managers have reason to celebrate this holiday season
By Michelle Celarier – NY Post
Ira Rennert back in court over alleged $70M pension fraud
Yes, hedge fund managers, there really is a Santa Claus. Even though their performance has been bad this year, there’s no coal in their stockings. Indeed, pension fund investors might give them even more money in 2016.
nyp.st/1YGAFXu

L&J Capital Management Launches New Fund
HedgeCo.Net
L&J Capital Management is launching a new fund, the Galini Market Neutral Fund, on February 1st. The fund will be advised by Galini Capital Advisors (GCA), an investment boutique specialized in physical precious metal trading, based in Belgium and Colombia. GCA was co-founded by Jean-Sébastien Debusschere, who previously worked at Paribas, Deutsche Bank and Dexia in their asset management units. He founded FourWinds Capital Management, a USD 1.5 billion hedge fund and private equity group, in 2005.
jlne.ws/1TA8MyR

Pensions & Institutions

Pimco’s Main Fund Climbs Back Near Top in Year After Gross Exit
John Gittelsohn – Bloomberg
Clients pulled $52.7 billion as Total Return beat 89% of peers
Fund outperformed by dodging energy and emerging-market debt
Investors who pulled an estimated $52.7 billion from the Pimco Total Return Fund this year may feel like freeway drivers who changed lanes only to see themselves falling behind traffic.
bloom.bg/1UgggqS

Raising assets in Japan
Hedgeweek
Japan is host to some of the largest pools of institutional investment assets in the world. It ought to be a magnet for asset managers of all kinds, and especially for the alternative investment managers that are garnering substantial shares of institutional assets in North America and Europe. Yet Japan has proved an exceptionally challenging market to penetrate, for reasons which range from the cultural to the structural.
However, says SumiTrust, there are now signs that Japan’s institutional investors are opening their portfolios to foreign and alternative assets. How should alternative managers approach this opportunity?
jlne.ws/1TA9lZu

Commodity indices inflict more losses on pension funds
Reuters
Commodity indices have proved disastrous investments for pension funds and other institutions in the last decade and disappointed again in 2015. Back in 2005, Gary Gorton and Geert Rouwenhorst published a paper on “Facts and Fantasies about Commodity Futures” which helped popularize commodities as a new “asset class” for institutional investors.
jlne.ws/1TA6hg6

Hedge funds and institutional investors — one unhappy marriage
FT.com
Hedge funds may not have done so well for their external investors in recent years. But some have been doing rather better when it comes to managing money closer to home.
on.ft.com/1OhFOzi

BlackRock’s $32 Billion Hedge-Fund Business Has a Little Problem
Bloomberg Business
While hedge funds represent only a tiny fraction of BlackRock’s total assets under management, the stumble nonetheless underscores the upheaval convulsing the broader hedge-fund industry, as well as the particular challenges facing BlackRock as Fink tries to attract hedge-fund money — and the hefty fees that come with it.
jlne.ws/1IWhCGx

A New Investment ‘Alternative’ Means Less Stress for Anxious Americans
Digital Journal
Alternative investment pioneer David Swensen has come about as close as anyone to perfecting the strategy. As Yale University’s chief investment officer, Swenson oversees its $22 billion endowment (hence yet another name, “the endowment model”) as well as several hundreds of millions of dollars of other investment funds. The university reports that under his 28-year stewardship, its endowment generated returns of 13.8 percent year, a record that it rightly notes is unequalled among professional investors.
jlne.ws/1TA5jAl

Lead Stories

CFTC Approves Final Rule on Records of Commodity Interest and Related Cash or Forward Transactions
CFTC
These amendments to Regulation 1.35(a) decrease regulatory burdens on affected market participants by excluding certain types of those participants from aspects of the rule’s written and oral recordkeeping requirements. The final rule also clarifies the requirements governing the form and manner in which records must be kept. Lastly, the final rule reorganizes the rule text to provide affected market participants with greater clarity regarding their recordkeeping obligations under the rule.
1.usa.gov/1OcpIHf

***DA: Also see Commissioner Giancarlo’s statement HERE

Prepare for a Dodd-Frank Repeal Fight
Gabe Rubin – Morning Consult
The Republican quest to dismantle the 2010 Dodd-Frank financial regulation law during this Congress has been a tale of two chambers. The House focused its energies on incremental, implementable reforms. Senate Republicans laid out a major vision for overhauling financial regulation, with virtually no support from Democrats. This year will be different. The focus for both chambers will be about honing and touting a broader Republican vision. The target, not surprisingly, is Dodd-Frank.
jlne.ws/1Z0OgJm

Spoofing Went Mainstream in 2015
Matthew Leising – Bloomberg
High-frequency bait-and-switch schemes take years to detect
Tech available to regulators just now catching up to industry
Inside Ken Griffin’s $25 billion empire, Citadel LLC’s cyber investigators had isolated a new enemy: spoofers.
bloom.bg/1NAkQOV

Corzine, CFTC Duel Over MF Global Collapse
WSJ
Sued by the CFTC, Mr. Corzine says he is entitled to a pretrial ruling that the regulator has no case against him. According to Mr. Corzine’s lawyers, he never directed, authorized or encouraged the use of funds in segregated accounts, and wasn’t even aware of the transgression until Oct. 30, 2011. By the close of business on Oct. 28, according to the CFTC, nearly $1 billion in funds that were supposed to be held safely for customers were instead being used by the brokerage.
on.wsj.com/1OuDECS

***DA: C’mon, hasn’t the man suffered enough? Oh, wait. He has not suffered at all.

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