Observations/Commentary

Infographic: 7 Traditional vs 7 Alternative Assets in 5 Bear Markets
Attain Capital Managed Futures Blog
We tried our hardest to find an easy to read article (or graph) of the major asset classes and how they performed over the various crisis periods in the last 20 or so something, and couldn’t… so we decided to do it ourselves.
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***DA: Read it and (don’t) weep.

Alt Allocations — How High Should You Go?
Financial Advisor
How much should advisors allocate to alternative investments? More than they have now, according to panelists at the Inside Alternatives conference Monday in Denver, an event sponsored by Financial Advisor and Private Wealth magazines. “We recommend a 25 percent allocation” in model portfolios, said Ryan Tagal, director of product management at Envestnet. But many advisors are starting from a traditional 60/40 mix of stocks and bonds and have a long way to go to boost their alternatives exposure, he said.
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***DA: Baby steps, guys. Baby steps.

An Honest Update On The CTA Trend Following Landscape
ValueWalk
Trend following is the most prevalent strategy utilized throughout the managed futures industry. Over 22 months ago, during the toughest recession our industry has ever experienced, we published the original version of this paper to offer a transparent and intellectually honest update on the track records of many of the most well-known trend followers. At that time, all twenty managers included in our analysis, including our Systematic Global Macro (systematic trend following) program and all of the major CTA indexes, were in a drawdown off their all-time high water marks.
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***DA: Good read. Honestly.

(CTA) Call To Action: Bryan Johnson Calls For Strategic, Practical Marketing For Managed Futures
JohnLothianNews.com

Marketing is one of the toughest parts of running a managed futures firm. It takes time, money and is often outside the skill set of most CTAs. Bryan Johnson of Johnson & Co. has spent the past five years helping and teaching fund managers about its importance and how to do it. He said CTAs may in the perfect spot right now to offer managed futures and expand their businesses.

“Marketing has become more critical than it been ever before,” said Johnson, who sat down with John Lothian News at CTA Expo New York. “There’s more noise and there are more people who are misinformed than are appropriately informed. And that’s all that marketing really is – communicating, educating and informing other people about not only your space but who you are, what your processes are and what your performance is like.”
Watch the video »

Soldier turned math wonk shaking up world of commodity trading
Energy Voice
A former U.S. special-operations soldier turned math wonk is shaking up the world of commodity trading. Since leading a management takeover at Castleton Commodities International LLC almost three years ago, Chief Executive Officer William Reed has been on a buying spree backed by hedge funds and billionaires. Two months after acquiring Morgan Stanley’s oil business, Reed has made Castleton among the world’s biggest independent energy traders.
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MarketsWiki Education Intern Series 2015

Lead Stories

Newedge: Managed futures endure mixed first half of 2015
Automated Trader
Societe Generale Prime Services has announced the June performance data for its Newedge CTA indices. Following the strongest first quarter since 2008, managed futures endured a challenging second quarter of 2015. June saw CTA managers experience losses at both the beginning and at the end of the month, resulting in all indices ending the month in negative territory.
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***DA: Newedge CTA Index down 4.2 percent in June and 2.28 percent for the year. Strong start fizzling.

PIMCO Launches UCITS Version of Quant Managed Futures Fund
FINalternatives
PIMCO has launched a UCITS-compliant version Vineer Bhansali’s managed futures strategy. The PIMCO TRENDS Managed Futures Strategy was reportedly launched as a Dublin-domiciled fund in early July. The fund will replicate the existing onshore vehicle launched by Bhansali at the end of 2013.
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Cash holdings soar as managers run out of options
Fundweb
Fund manager holdings in cash have soared to levels seen during the financial crisis in 2008, as they back away from the equity bull market and are devoid of other options. Research from Bank of America Merrill Lynch of fund managers shows that cash levels are at their highest since the 2008 crisis, standing at an average of 5.5 per cent.
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***DA: Also has to do with lowering duration risk in fixed income portfolios. Holding cash is one way to do it.

A performance-linked model for fund fees
John Authers, FT
How should we pay fund managers? At present, we pay them too much, to do the wrong things. But even the least charitable observers must accept that it is difficult to move them to a more rational system.
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***DA: Fund managers could say the same thing about journalists.

Where Are the Female Fund Managers? For one thing, fewer women than men seek out and earn the necessary credentials
By DAISY MAXEY, WSJ
If your mutual fund is run by a woman, it is a rarity. Among 7,410 portfolio managers of U.S. open-end mutual funds, just over 9% were women as of March 31, a study by investment researcher Morningstar Inc. found. Women manage less than 3% of mutual funds exclusively and less than 2% of the $12.6 trillion in assets.
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Corzine, others settle MF Global lawsuit for $64.5 mln
By Jonathan Stempel, Reuters
Jon Corzine and other former MF Global Holdings Ltd officials have reached a $64.5 million settlement of litigation brought by investors seeking to hold them liable for the now-defunct futures brokerage’s 2011 bankruptcy.
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**JK – So, how’s that CFTC case coming? It’s dated June 27, 2013 – http://jlne.ws/15JSOI6

Managed Futures/Managed Funds

Brevan Howard abandons Geneva and returns to London
Miles Johnson, Hedge Fund Correspondent, FT
Brevan Howard is moving some of its most senior traders back to London from Geneva, reversing a high-profile decision by the $27bn hedge fund to leave the UK and bucking concerns that the City’s status as Europe’s leading hub for the industry was under threat.
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***DA: From the article:”They think it will be fine leaving London, and that they can come back and visit all the time and that the family will adjust,” said one big investor in hedge funds. “A lot of these traders have just got quite bored.”

Fund managers make record-equalling profit despite fee pressure -study
Reuters
Assets managed by fund firms globally hit a new high last year, helping the industry to record-equalling profits in spite of margins that were squeezed by investor pressure on fees, a study showed on Tuesday.
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Alternative Funds: Down but Not Out
Barron’s
The trajectory of alternative funds has been decidedly mainstream. Interest in these hedge fund-like mutual funds peaked in 2013, taking in a record $95 billion in new money. Predictably, 2014 saw a record number of new fund launches. Yet, inflows dropped by more than half, to $39 billion. So is this the end of the multiyear love affair with alternatives?
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UBS, Morgan Stanley Lead Wealth Managers With Record $2 Trillion
by Mark Bentley, Bloomberg
UBS Group AG and Morgan Stanley increased the assets they manage for the world’s wealthiest people to more than $2 trillion for the first time, according to a study.
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Skewing Your Portfolio With Managed Futures
ValueWalk
The active/passive management debate usually centers on whether managers earn their fees by outperforming an index like the S&P 500, but there is another argument for allocating some of your portfolio to alternative assets. If they are uncorrelated to stocks and bonds then the diversification can help you more than the fees will hurt you, up to a point at least.
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The Cycles of Financial Markets | David Gurwitz, Charles Nenner Research Center
Top Traders Unplugged
David Gurwitz does not trade in the financial markets, but provides predictions and research to many firms, including some we have interviewed. He looks at the cycles in financial markets. Keep an open mind during this episode and see what you can learn about Charles Nenner’s research methods, the start of their research business, and what predictions they have been correct on and which ones they missed.
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**Part 2 is here – Predictions on Crude Oil, Copper, War, Plus More on Cycles – http://jlne.ws/1LmpkIs

Pensions & Institutions

OECD warns pension funds over ‘excessive search for yield’
Chris Flood, FT
Pension fund managers and life insurance companies are increasing their chances of going bust if they undertake aggressive shifts into alternative assets to meet their promises to savers, warns the OECD.
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***DA: I’ve been warning them for years. Maybe they will listen to the OECD.

Low tax and high fees consume Future Fund
FT.com
Although the Future Fund, which was set up in 2006 to provide pensions for public servants, does have sovereign immunity in most countries, not all jurisdictions recognise it. The leaked documents suggest the sovereign wealth fund was using a complex corporate structure involving interest-free loans and subsidiaries to lower its taxes in foreign countries.
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Pension Funds Account For A Third Of Large Alt Asset Managers’ AUM
ValueWalk
The issue of pension fund allocations to alternative asset classes is a bit fraught as they try to figure out how to reach ambitious target returns while bringing fees under control. But that doesn’t mean pension funds have turned their back on alternatives as an industry. In fact, according to a recent Towers Watson report, of the $3.5 trillion in AUM that the 100 largest alt asset managers control, a third of it was invested by pension funds.
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Appetite for hedge funds remains strong
Chris Newlands,FT
When Calpers, the largest US public pension fund, talks, everyone with an interest in institutional asset management stops to listen.
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The Man Who Must Fund the Retirement of the Oldest Wealthy Nation; Hiromichi Mizuno runs Japan’s $1.1 trillion public pension fund
By ELEANOR WARNOCK, WSJ
Hiromichi Mizuno arrived at Japan’s $1.1 trillion public pension fund this January with orders to shake up one of the world’s most-conservative financial institutions.
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Bad Math and a Coming Public Pension Crisis
By MARY WILLIAMS WALSH, NY Times
When Jim Palermo was serving as a trustee of the village of La Grange, Ill., he noticed something peculiar about the local police officers and firefighters. They were not going to live as long as might be expected, at least according to pension tables.
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Advisers should shift to ‘outcome-focused’ retirement investing
Professional Adviser IFAonline
The advent of pensions freedom and auto-enrolment means it is time for advisers to rethink traditional retirement investment strategies and look toward “cradle to grave” investing, according to Birthstar.
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Lead Stories

Banking regulators heighten financial market risk
Commissioners Michael Piwowar (SEC) and J. Christopher Giancarlo(CFTC) in Reuters
The 2008 financial crisis had a devastating impact on nearly all aspects of our economy but one, the regulatory machine. In the aftermath of the crisis, policymakers seeking a simple narrative for how these events transpired claimed that financial markets, and the participants overseen by the capital and derivatives markets regulators, were the primary cause of the financial crisis. This ill-informed assertion led to a misconceived solution: a massive increase in financial regulation.
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***DA: A regulatory mea culpa from two outspoken commissioners.

I.R.S. Cracks Down on Hedge Fund Tax Strategy
By ALEXANDRA STEVENSON, NY Times
Hedge funds that used a strategy to claim billions of dollars in tax savings will face new scrutiny from the government, according to guidance issued by the Internal Revenue Service on Wednesday.
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Boutiques face existential threat as time runs out on MiFID II
Investment Week
Smaller fund firms have been left in limbo as delays in finalising dealing commission regulations leave them unsure of the future of their businesses.
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National Futures Association Revises CPO Form PQR and CTA Form PR
The National Law Review
The National Futures Association (NFA) has made enhancements to the CPO Form PQR and CTA Form PR (CPR) effective for the quarter ending June 30. In the PQR, commodity pool operators may no longer list themselves as trading managers for pools that they operate. PQRs also include footing validations in the Schedule of Investments, which will ensure that the sum of the sub-categories is not greater than the sum for the applicable category.
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