Observations / Statistics / Commentary

This week the Managed Funds Association converges on Chicago with its Forum 2014 conference. Plenty of meetings have been scheduled between and among the 400-odd asset allocators, CTAs, fund managers and service providers.  But no media. For more info, visit the Forum 2014 web site.

Media (including Mssrs. Lothian, Kharouf and Ashburn) will, however, be present at Tuesday’s Managed Futures Pinnacle Awards (see below for details).

We will also be busy on the production side of our business this week. With all the CTAs in town, we have scheduled a number of filming sessions for our CTA Profiles – short, regulatory-compliant marketing videos to be used as an interesting adjunct to one’s disclosure documents. For more on what we can do, visit www.johnlothianproductions.com

3rd Annual Managed Futures Pinnacle Awards, June 17th, Chicago
The Managed Futures Pinnacle Awards recognizes excellence exclusively in the managed futures space. Presented by CME Group and BarclayHedge, the Awards honor the top managers in the industry today, while providing networking opportunities for managers and investors. The awards are based on a set of quantitative data from BarclayHedge.

TrimTabs and BarclayHedge Report Hedge Funds Get $18.7 Billion in April but Underperform S&P 500. Year-to-Date Inflow of $56.4 Billion More Than Triple Inflow in Same Period Last Year
BarclayHedge and TrimTabs Investment Research reported today that the hedge fund industry took in $18.7 billion (0.8% of assets) in April, up from $10.6 billion (0.5% of assets) in March.
***DA: Increasing nervousness that the equity market has detached from reality?

Are tech firms about to encroach on fund managers’ lucrative territory?
Mike Foster – Financial News
It doesn’t amount to BlackRock vs. Google as yet. But asset managers are starting to fret over the potential threat they face from the world’s largest technology companies. After all, it has simply been too good for asset managers for too long. Fees for active managers have not fallen, even during periods of low returns.
***DA: Google, with its unparalleled commitment to customer service, is particularly well-suited to taking up the task.

MarketsWiki World of Opportunity Summer Intern Series Goes to London
John Lothian & Co. is pleased to announce the MarketsWiki World of Opportunity Summer Intern Education Series is coming to London on July 1st and 2nd, 2014 with the generous support of the [[CME Group]].

Lead Stories

Brokers Fight Rule to Favor Best Interests of Customers
Brokers are not necessarily required to act in their customers’ best interest, even if they are advising on their retirement money. While that would seem to be a basic consumer protection, in Washington and on Wall Street it has proved to be wildly contentious.
***DA: Fiduciary schmiduciary.

Exclusive: CME sees no wheat convergence issue despite widening spread concerns
CME Group has scrutinized trading in its wheat futures contract after receiving complaints that heavy last-minute spread trading could influence a hike in storage rates, but found no evidence that was the case, its top commodities researcher told Reuters.

Sound of silence sweeps across asset classes
Financial Times
“The Sound of Silence” is not just an old Simon & Garfunkel hit; it has become the theme tune of a global financial market devoid of volatility. Prices have become becalmed across asset classes – from currencies to bonds, equities and oil – a Financial Times analysis shows.
***DA: In the words of Hyman Minsky, “stability breeds instability.”

Proposed Amendments to NFA’s Articles of Incorporation to Increase CPO/CTA Representation on NFA’s Board of Directors
***DA: I’ll drink to that.

Hedge Funds for Everyone?
Financial Planning
“Many investors believe that hedge funds are designed to shoot the lights out, when, in fact, hedge funds are designed to hedge,” says Adam Patti, CEO of IndexIQ, a provider of exchange-traded funds and other products that replicate hedge fund performance.

ProShares plans alternative solution and dividend ETFs
Market Intelligence Center
Diversification, risk aversion and steady income are all hot topics in the stock market this year thanks to the elevation of risk-off trade sentiments in the investing world. Issuers are packaging their products in a risk-efficient way in order to offer investors higher risk-adjusted capital gains and steady income.
***DA: When are these topics not hot?

Managed Futures / Managed Funds

Hedge Funds Get Stung by Slow Markets
Some of the biggest investors on Wall Street are losing money with wrong-way bets in markets around the globe, a surprising black eye amid a rise in stock and bond prices.
***DA: They’re not wrong, just early. I have told myself that on numerous occasions.

Pimco hires hedge fund manager in Europe
Harriet Agnew in London and Stephen Foley in New York – Financial Times
Geraldine Sundstrom, one of the most high-profile women in the European hedge fund industry, is set to join Pimco, the world’s biggest bond fund manager.

Andy Hall’s fund up 16 pct through May even in lackluster oil market
Oil trader Andy Hall’s hedge fund firm is up for a fourth straight month for its longest winning streak in three years and in a turnaround from 2013 losses, performance data it released to investors and seen by Reuters showed on Monday.

How fund managers spend your money
Norma Cohen – Financial Times
In Turney Duff’s account of his drug-addled and alcohol-soaked days picking shares for a hedge fund, recounted with great relish in The Buy Side, a broker pitching for trade asks Mr Duff what he can do to get more of his business. “Well, you can start by taking me to Vegas,” he responds.
***DA: I often wonder if the regulators’ sudden attention to HFT is one big diversion from the real skimmers out there.

Hedge-Fund World’s One-Man Wealth Machine
In the Back Bay neighborhood of Boston, one man is building a moneymaking machine that rivals some of the hedge-fund industry’s biggest names. Calls to his office go unreturned even from those eager to fork over eight-figure sums, potential investors say. One industry veteran referred to him as “a unicorn,” as few people have ever seen him.
***DA: The Keyser Soze of the investment world.

CTAs should not be written off
COO Connect
“Investors have to be patient with CTAs. The situation today with CTAs has echoes of Black Monday back in 1987. CTAs after Black Monday traded sideways until 1994, and the moment the Federal Reserve increased interest rates, they made enormous returns, and this continued for a number of years. Sometimes, something unpredictable occurs in the market which leads to a return of trending. It is impossible to tell when or what that trigger might be, but oftentimes CTAs make money when it does. Investors should ensure they keep CTAs in their portfolios,” said one industry expert.

Madoff’s Revenge: The Rise Of Liquid Alternatives
O’Brien Greene & Co., in SeekingAlpha
The biggest new theme at investment advisory industry conferences and in trade journals these days is the rise of “Liquid Alternative” funds. According to the sales pitch, virtually everyone is already using this new asset class, and anyone who is not will be left behind. Liquid Alternatives, however, are a complex and opaque investment that requires caution.
***DA: I agree that investors should use caution with liquid alts, as with any investment. But Madoff? Really?

Pensions & Institutions

Jane Mendillo, Harvard And Big Shot Money Management Disappointment
Jane Mendillo, who has run Harvard University’s $33 billion endowment for six years, has announced that she will be leaving the position by the end of the year. Her run at Harvard has been tumultuous and in some ways exemplifies the disappointment of big shot and highly compensated money management in the years since the financial crisis.

San Fran. Pension Postpones Hedge Fund Decision
The $20 billion public pension fund’s board this week voted to table a planned 12% allocation to alternative investments plus a $3 billion allocation to hedge funds for 90 days, giving it more time to consider its first foray into the asset class. The board also put the brakes on plans to issue a request for proposals from hedge fund consultants.
***DA: Slow this mustang down.

Giant Japanese Fund Set to Invest More in Stocks, Foreign Bonds
WSJ.com Japan’s $1.26 trillion public pension fund will likely announce a boost to stock and foreign-bond investments in early autumn, the head of its investment committee said Tuesday, potentially sending tens of billions of dollars into new markets.
***DA: While this one speeds up.

Managers target insurers’ asset pool
Joe McGrath View Social links for Joe McGrath – Financial News
Europe’s asset management bosses have set their sights on winning insurance clients, investing in talent and infrastructure in the hope of attracting new revenue.

Lawmaker: Pension Advisers Need a Closer Look
A senior Democratic congressman is urging Labor Department Secretary Thomas Perez to examine possible conflicts in the growing number of U.S. pension-plan consultants that also manage investments, according to a document reviewed by The Wall Street Journal.

Hedge funds warned fee ratios still too high
Luke Smolinski – Risk.net
Institutional investors also put off hedge funds by negative media attention, complex structures and lack of transparency, London delegates at Hedge Funds Review briefing hear

Pension Funds, Dancing a Two-Step With Ratings Firms
NY Times
Pension fund investors lost billions of dollars trusting the rosy credit ratings stamped on troubled mortgage securities before the 2008 crisis. In its aftermath, they have spent years and many dollars suing Moody’s and Standard & Poor’s, the main purveyors of those dubious grades.

Institutional Investors Paying More for Services
Dan Strumpf – MoneyBeat – WSJ
For the first time in five years, big investors such as mutual funds and hedge funds are forking over more in stock trading commissions. In an annual survey, Greenwich Associates found that for the 12 months ending February 2014, U.S. cash stock trading commissions increased 10% to $10.34 billion, from $9.30 billion a year ago.

Number of asset managers to halve by 2030 – KPMG
Half of the firms in the global asset management industry will be gone by 2030 as new technology, demographic shifts and changing social habits transform the industry, consultants KPMG said in a report.

Pension schemes urged to hedge against tail risk before volatility returns
Peter Davy – Financial News
Pension funds should be taking advantage of low volatility and recent stock market gains to hedge against the risk of extreme events hitting their funding positions, according to leading investment advisers.

Funds and systemic risk: size is not the big issue
Sean Tuffy – Financial News
The popularity of regulated mutual funds as a retirement savings investment vehicle has helped make asset management a $90 trillion industry. These funds now represent close to 50% of all global retirement assets.


CFTC (Commodity Futures Trading Commission) and NFA (National Futures Association) Regulatory Updates
Nicole M. Kuchera, Joseph M. Mannon – Vedder Price
Vedder Price
Expedited no-action relief criteria, delay in oral recordkeeping requirements for CTAs, OCR for large traders, and CPO/CTA capital requirements update.
***DA: Good summary from our friends at Vedder Price.

CFTC moves to curb speculators face revision
Gregory Meyer in New York – Financial Times
A long-running effort to constrain speculation in commodities markets could face another round of revision. Almost five years after its first hearings on the issue, the US Commodity Futures Trading Commission has made the rare move of reopening public comment on position limits, or caps on the number of commodity trading contracts speculators may control.
***DA: Little questions still to be answered, such as Who is an end-user? What is excessive? What is a hedge?

UK regulator steps up scrutiny of precious metals derivatives
Xan Rice – Financial Times
The UK markets regulator is to increase scrutiny of derivatives contracts linked to precious metals and other financial benchmarks in a move that could change the way options are sold.

Contango/Kynetix Partnership Seeks To Ease Trade Reporting Woes With TRAMS
Kynetix, the specialist technology solutions provider for physical delivery of commodities and fixed income and Contango, one of the world’s leading independent derivatives and commodities consultancies, today announced the launch of TRAMS, a data matching tool designed to ease complex issues surrounding the EMIR Trade Reporting requirements in Europe introduced in February.

Exchanges’ Regulatory Disconnect
Steven M. Sears – Barron’s
The world is a global flow chart for capital, but its exchanges are increasingly concerned about becoming islands of regulatory complexity. This disconnect in an age of increasingly globalized bank operations and interconnected economies emerged as a key issue at the 31st International Options Market Association meeting held in Moscow in late May.

NFA: Important Notice to CPOs and CTAs regarding changes to the CPO Form PQR and CTA Form PR that will become effective for the period ending June 30, 2014.

NFA’s Board of Directors approves reduction in assessment fees


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