Lead Stories

CME data fee increase more onerous than originally thought
Dan Collins, Futures Magazine
I ran into an old friend at the Chicago Board of Trade yesterday and he told me the following joke: “What does Obamacare and CME Group’s new data fees have in common? One is 28,000 pages the other is 18 pages and both were voted on without anyone reading them.”
***DA: In case you missed Les Rosenthal’s letter, Dan posted it to his blog here:

NIBA reports on fees meeting with CME Group
Dan Collins, Futures Magazine
When the National Introducing Brokers Association saw the potential impact of these fees, it sought comments from its members and a meeting with the CME to discuss their concerns. NIBA met with the CME Group market data team on Dec. 2. Here is their report to members on that meeting.
***DA: Kudos to Dan for staying on top of this issue.

The Overall Buzz about Managed Futures from The Top Managers Themselves
Attain Capital Management
Kudos to HFR and CTA Intelligence Magazine for putting on a different event in Westchester Mon/Tues… if nothing else, they know how to pick a hotel – the Ritz was as ritzy as you would expect. But this wasn’t the usual “promise” of matching up managers with potential investors, which more often than not fails to materialize (on the investor front…the managers always show up). This event was more of a brainstorming session on how to raise assets rather than a place to find assets… as well as an opportunity for small and midsize CTAs to mingle and question billion dollar managers, pension consultants, and multifamily office reps on how to crack into their slice of high society.

Equinox Announces Consolidation Under the “Equinox Funds” Brand, Along With Launch of New Website and Alternative Investment Education Program
Globe Newswire
Equinox Financial Group is pleased to announce the consolidation of multiple brand names under one corporate brand mark, “Equinox Funds”, along with the launch of a new website platform and alternative investment education program, effective December 9th, 2013. The new program reflects Equinox Funds’ goal of “Building Better Alternatives” and providing exceptional customer service and sales support for investors.
***DA: Of particular note, “Equinox Funds will sponsor a separate CTAperformance.com web site showcasing in-depth information on managed futures trading strategies. An investment education portal for advisors and investors named OnAlternatives.com is also scheduled to launch in January 2014.”

Fund Investors Still Glum on Commodities
It’s the same old story in the commodity market: Index and fund investors are retreating. From Citigroup’s commodity research team this morning, “[Y]ear-to-date trading flow data suggest more than $38Bn of aggregate net outflows for passive index swap and listed commodity-linked ETFs.”

Commodity trackers flee for surging stocks
Financial Times
Index-tracking commodity investors are fleeing the strategy at a record pace as surging stock markets leave raw materials in the dust. New estimates from Citi show $36bn was redeemed from passive commodities investments in the year to November, a “massive retrenchment” from net inflows of $27.5bn in all of 2012.

Managed Futures / Managed Funds

Hedge funds rise but trail equities
Financial News
Hedge funds are coming to the end of a fifth consecutive year of underperforming the S&P 500 index. The Federal Reserve’s stimulus programme pushed the index up 29.1% this year through November, leaving the average hedge fund, which is up 8.31% this year, trailing. In an environment of rising equity markets, shorting stocks proved difficult and short-biased hedge funds dropped 15.87% in the first 11 months of this year, according to data provider HFR.
***DA: Good read, but another reminder that managed futures as an asset class is headed for its third straight year of icky returns, despite a decent showing last month.

Get Smart About Alpha and Beta
“Smart beta” exchange-traded funds and mutual funds are everywhere these days. Morningstar has found at least 165 of these products, which attempt to gain broad asset-class exposure using non-market-capitalization-weighted schemes, often using factors such as value, momentum, and quality. Collectively, they have raised $113.3 billion in total net assets, up from $73.4 billion a year ago. This is surprising, considering the utterly confusing marketing efforts surrounding these products. Is smart beta a form of active investing, or better passive benchmarking? Are they traditional investments, or alternative?
***DA: Sounds gimmicky to me.

Hedge funds post third consecutive positive month
Hedge funds delivered their third consecutive month of positive returns as global markets maintained their upward momentum. The Eurekahedge Hedge Fund Index was up 1.37 per cent during the month, edging past the MSCI World Index, which gained 1.27 per cent in the month of November 2013.
***DA: An alternative investment that tracks with equity markets is no alternative in my book.

Pensions & Institutions

Companies turning again to stock buybacks to reward shareholders
Washington Post
This is what U.S. multinationals do now with their cash. Rather than tout big new investments, raise worker wages or hire more employees, companies are more likely to set aside funds to reward shareholders — a trend that took a dip during the recession but has roared back during the recovery.
***DA: This is what we in the alternatives space are up against when competing for allocation dollars.

Global banks go light on commodities
Gulf News
Deutsche Bank’s decision to quit trading in most commodity markets is another sign of the excess capacity across the commodity-trading sector and likely foreshadows further consolidation over the next two to three years. Deutsche, rated one of the top five commodity banks globally, will cease trading in energy, agriculture, base metals, coal and iron ore, while retaining its precious metals business and popular index funds.
***DA: The Volcker Rule, which is driving the banks out of commodities, is not helping. See the regulatory section below for more.

Pension funds grapple with bonds’ negative returns
Financial Post
So what have funds been doing to minimize the effects of negative returns for a key part of their portfolio? For starters, one consultant said they’ve never been busier. “A tsunami of bond searches is underway,” added the consultant, all designed to ensure fixed income investments record positive returns.
***DA: In other words, we take more risk.

The Pension-Busters’ Playbook
In July 2013, Detroit Emergency Manager Kevyn Orr filed what could be, at $18 billion, the largest municipal bankruptcy in U.S. history. Now that a federal judge, Steven Rhodes, has ruled that the bankruptcy can proceed, a central issue will be whether the city can jettison up to $3.5 billion in accrued pension benefits owed city workers (which Orr claims are unfunded). With accrued state and municipal pension benefits protected by the Michigan constitution, Judge Rhodes’ ruling sets a chilling precedent for future municipal bankruptcies.
***DA: To make ends meet, you either need to raise revenue or cut expenses. The “activist playbook,” if you will, is to just stop paying debtholders. That, and try to raise taxes on anyone left in Detroit who still has something to tax.


PFG Update: Customers (finally) Getting More Money
Attain Capital Management
Just in time for the holidays, former customers of Peregrine Financial are getting a long awaited stocking stuffer. The PFG trustee announced today that they had filed a motion to return more money to former PFG Customers. All around, this is welcoming news, as any money getting back to its rightful owners is a definite step in the right direction; but did Mr. Bodenstein have to shoot so low?

AlphaMetrix woes could cost fund managers
Crain’s Chicago Business
The decline of AlphaMetrix Group LLC could mean as much as $10 million in losses for fund managers who worked with the Chicago-based company, according to a federal court monitor.
The monitor said in an updated report filed Dec. 2 that hedge fund managers, also known as commodity trading advisers, are owed $7 million to $10 million in fees by AlphaMetrix while their investor clients are owed $3 million in rebates.

NFA Puts PAMMs into Focus with New Proposals
Forex Magnates
In a ruling that would affect primarily the US managed account market, the National Futures Association (NFA) has proposed a new amendment to the Commodities Futures Trading Commission (CFTC). The amendment is in regards to NFA Compliance Rule 2-10: The Allocation of Bunched Orders for Multiple Accounts.

Volcker Rule – Joint Agencies Final Rule, December 2013
On December 10, 2013, the U.S. Securities and Exchange Commission (SEC), the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board, the Office of the Comptroller of the Currency and the Commodity Futures Trading Commission (CFTC) released its final rules to implement Section 619 of the Dodd-Frank Act, the so-called “Volcker Rule,” which will prohibit banking entities from engaging in proprietary trading of derivatives and limit the ownership or sponsorship of hedge funds and other private funds to three percent of Tier 1 capital.

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