BlackRock Capital Market Assumptions
BlackRock Institutional
The BlackRock Investment Institute publishes capital market assumptions every quarter. We cover two time horizons: long-term equilibrium capital markets assumptions that can be used as key inputs for strategic asset allocation, and five-year assumptions that take into account how we think current economic and market conditions will play out in the medium term.

© 2016 BlackRock, Inc. All Rights Reserved. BLACKROCK is a registered trademark of BlackRock, Inc. https://www.blackrock.com/institutions/en-us/insights/portfolio-design/capital-market-assumptions Note:  The term "Long-term" is defined as a ten-year plus time horizon and is meant to reflect "equilibrium" or "valuation neutral" market conditions that one would expect in the long
***DA: This graph was sent along to us last week. Given the tepid forecast for traditional assets, perhaps alternatives deserve a greater look.

180 Years of Market Drawdowns
by Ben Carlson – A Wealth of Common Sense
“We tend to be inadequate historians.” – Robert Frey
A couple weeks ago I covered a little discussed topic involving the the use of historical market data. Namely that you have to take market returns that go back to the turn of the 20th century with a grain of salt because of the fact that costs were much higher in those days so no one was really receiving those gross returns on a net basis.

***DA: Short term charts do nothing for me. I much prefer this kind.

Announcement from CTA EXPO
Emerging Manager Forum/CTA Expo Update
Frank and Bucky would like to thank the sponsors and the over 400 that registered including 210 capital for sources for making Emerging Manager Forum/CTA Expo in New York a success. We would also like to congratulate Sol Waksman, of BarclayHedge, for winning the 2016 Lifetime Achievement Award. Sol is an innovator in our industry and helped countless people become successful in alternatives. We are now focused on CTA Expo Chicago on September 15, 1016. Click the link below for more information and to register.

***DA: See you in September.

Lead Stories

Hedge Funds: Redemptions Continued In March, Q1 Flows Negative
2015 performance continues to weigh heavily on investor sentiment toward the hedge fund industry. Despite many funds receiving new allocations in 2016, redemptions from within macro and event driven universes have resulted in the industry’s second consecutive quarter where more money exited than entered. Not since the onset of the European financial crisis have hedge funds faced this level of negative investor sentiment. All is not bad within the industry, however. Hedge funds able to successfully navigate the volatile environment in 2015 have seen large inflows. Despite many reports to the contrary, new allocations in 2016 have been rewarded with positive returns for some, but not all.

***DA: A flight to quality, as it should be.

4 cyber security keys for CTAs
Dana Comolli, DMAX
Today, cyber security is a necessary worry and cost of doing business for everyone in the trading community, especially commodity trading advisors. The NFA’s new requirement that every member must have a cyber security plan in place is merely a formality for what a CTA should already have as part of its business set up. And today’s cyber security is not only a mechanism for dealing with viruses, phishing, and other forms of computer system intrusion. In reality, the concept of cyber security is something much broader; something that addresses how you ensure that your computing and information resources are protected from failure or compromise, and if that happens, how you plan to recover from that event.

***DA: The return on capital vs. return of capital tradeoff has new variables in the cyber-connected world.

Daniel Loeb warns of hedge fund ‘killing field’
Mary Childs and Stephen Foley in New York – FT
One of the most powerful US hedge fund managers believes that the industry is in “first innings of a washout” after a string of disastrous market calls inflicted steep losses on many funds.

***DA: Don’t sugar-coat it, Dan. Tell us how you REALLY feel.

Commodity Hedge Funds Are Hot Again
MoneyBeat – WSJ
The market investors couldn’t wait to get out of a year ago is the one they’re rushing into in 2016. Commodity hedge funds netted more investor cash in the first quarter than any other type of hedge fund, and their $4 billion of inflows was their largest for any quarter in more than six years. The group has brought in more money that it has had to redeem for seven straight months, the longest winning streak ever tracked by eVestment

***DA: Was that a bottom in the crude market? If not, it has still been one heck of a retracement from the mid-20s to the mid-40s.

Systematic Macro Investing – Made Simple Guide
Pensions and Lifetime Savings Association, via ValueWalk
The central problem any pension scheme faces is how to ensure it has the funds to pay its liabilities as and when they are due. A key aspect of this is ensuring the assets the scheme is investing are generating the necessary returns. There are many ways to approach this. If the behaviour of the underlying financial markets were more predictable then the job would be an easy one, and much less ink would have been spent on finding the ‘optimal solution’.
Accepted practice, though, is for pension schemes to divide the investment management problem down the middle, by separating decisions on how to allocate to a range of assets, such as shares, bonds and property, from those on how best to invest in each type of asset

***DA: As I look upon the future of pension schemes amid longer life spans, shrinking demographics and tepid returns, I don’t think anything is “made simple.”

Jacob Wohl: Nex Capital may already be under regulatory review
Self-proclaimed “hedge fund guru” Jacob Wohl has apparently caught the eye of regulators. A regulatory complaint confirmation letter reviewed by ValueWalk, as well as apparent promotional materials and statements from a former employee, could point to a troubled road ahead. This all comes as Wohl might become an industry legend one way or another. On March 19 ValueWalk had highlighted the adventures of Jacob Wohl, who had received significant media attention, and we then asked “is regulatory trouble ahead.” The 18-year old wunderkind might now be headed for a direct confrontation.

***DA: Notoriety is a double-edged sword.

Managed Futures/Managed Funds

A (Diversification) Dream Come True
Red Rock Capital, via Value Walk
Recently Red Rock Capital has received a lot of questions about how our two strategies may combine together. This is a topic about which we are very fond. Our newer Commodity Long-Short strategy was designed to be systematically different than our original Systematic Global Macro strategy. It is not a surprise to us that our happiest investors seem to be those that have exposure to both of our two programs. In this paper we will examine how the two strategies hypothetically combine together – and how they may benefit portfolios of stocks and bonds – and portfolios of stocks, bonds, and CTAs.

Buffett Hits Hedge Funds While They’re Down, Faulting Fees
Noah Buhayar, Margaret Collins – Bloomberg
Billionaire intensifies critique of Wall Street, consultants; Meeting also included comments on derivatives, AmEx, Coca-Cola
Warren Buffett’s biggest investment tip: Be wary of fees.
At the annual meeting of his Berkshire Hathaway Inc., the billionaire warned about the enduring risk of derivatives, defended stocks in his portfolio and signaled that some of the company’s biggest subsidiaries are hitting speed bumps. But he saved a prime portion of the weekend event to argue again why investors would be better off ditching expensive money managers and consultants.

***DA: How much is your fund return diluted by fees?

Hedge fund pioneer Aurora shuts down
By LYNNE MAREK – Crain’s Chicago Business
Aurora Investment Management, a pioneer in the business of managing investments in hedge funds, is shutting down and returning $5 billion to its clients.

***DA: And that question goes double for funds of funds.

Ex-Merrill’s Wittlin to Shut WCG Hedge Fund After Nine Years
Saijel Kishan – Bloomberg
Fund managed $3.4 billion in regulatory assets as of Dec. 31; Most of the money was in a fund run for Brevan Howard
Barry Wittlin, a former top proprietary trader at Merrill Lynch & Co. who manages money for billionaire Alan Howard’s hedge fund, is closing his firm after almost a decade.

Millennium Trust Expands Access to Alternative Investments for Advisors and Individuals; Adds Five Online Investment Platforms to Growing Network
IT Business Net
Alternative assets are expected to grow to as much as $15.3 trillion by 2020, according to PricewaterhouseCoopers. MAIN provides access to an ever-expanding network of online investment platforms offering a range of alternative investment options. And once investors make a decision to invest, they can use Millennium Trust’s simple, secure, online process to set up and manage their custody accounts.

Pensions & Institutions

Pension funds cut FX costs
By: Paul Golden – Euromoney
Execution management systems (EMSs) are playing a key role in enabling pension funds to lower their FX costs. Print Order Pension fund clients have unique challenges in ensuring they are engaging the FX markets in the most effective ways to minimize their costs.

Investors are fleeing hedge funds in droves
Wolf Richter – Business Insider
Big public pension funds are slow-moving apparatuses. So dramatic shifts in investment decisions take a long time to be discussed and decided, and even longer before they’re felt by the investment community. But now they’re being felt – painfully.

For Bill Gross, Besting Pimco Is the Best Revenge
Sitting in the conference room of his empty office suite, with its floor-to-ceiling wall of windows, William H. Gross cannot help noticing the sleek office tower that the bond giant Pimco moved into in early 2014.

***DA: And it is a dish best served cold.

Investors not following New York City’s lead
Pensions & Investments
NYCERS’ actions notwithstanding, few institutions are dumping hedge funds. If the pace of hedge fund searches and hires in the first four months of the year remains steady, 2016 could be a bumper year for institutional investment in hedge funds, even if terminations and allocation cuts continue at the current level.

Lead Stories

Wall Street watchdog has unfinished business with bad brokers
The head of a brokerage industry watchdog says he will leave behind at least one piece of unfinished business when he retires this year: improving access to data so that regulators can more quickly halt problem brokers, and investors can avoid them.

Regulators Don’t Want Bankers to Be Paid for Taking Risk
By Matt Levine -Bloomberg View
There are basically two ways for a big bank to do bad things:

    • It can do bad things to itself.
    • It can do bad things to someone else.

There is some blurring of the boundaries. The U.S. legal system being what it is, No. 2 quickly turns into No. 1 as well: If you, say, manipulate Libor, or sell someone a mortgage-backed security that is designed to fail, or whatever, then eventually you will get in trouble and have to pay big fines and generally end up regretting whatever bad thing you did. And, the banking system being what it is, No. 1 can become No. 2 as well: If you do enough harm to a bank, or more particularly to the banking system, it can blow up the economy for everyone else.

China warns off commodities market punters
Lucy Hornby and Yuan Yang in Beijing – FT
China’s army of retail investors has been warned off speculative trading in commodity futures as officials attempt to quash what looks to be the country’s latest market bubble.

BlackRock’s Novick calls for two-tier ETF regulation; Vanilla and exotic products should be treated differently, BlackRock co-founder argues
Louie Woodall – Risk.net
A co-founder of BlackRock has called for a two-tier regulatory regime for exchange-traded funds (ETFs) that discriminates between simple and complex varieties. Barbara Novick, a vice-chairman at BlackRock, said a custom-made package of rules for ETFs should allow for the speedy approval of plain vanilla products, while a more rigorous approach is reserved for more exotic products. “The vanilla category could have a ‘speed pass’ and we could take everyone’s resources and focus them on the riskier…

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