Better Late than Never

JLN Managed futures apologizes for being a day late in the delivery of the mid-month edition.

Today’s issue brings you a bit of everything from lousy performances from hedge funds and John Paulson in January (but a 2009-esque surge for managed futures), to an informative video interview with Allison Yacker, of Katten Muchin Rosenman, on the keys to seed investor deals for emerging managers. If you don’t know much about seed money deals, here’s a great starter.

Germination And Emergence: Allison Yacker on Emerging Manager Seeding Arrangements

In the trading space, much like the rest of the world, some of the best ideas and strategies come from emerging managers, or the “new kids on the block.” The trick is finding the right right win-win partnership to help get them on their way.

Today, it is the large managed funds that control most of the assets. A recent study from hedge fund research firm Preqin shows that big funds – those with over a billion under management, manage more than 90 percent of the assets. That concentration of assets creates a problem for small or new funds, looking to get seed money that will propel the firm forward. According to Allison Yacker, partner at Katten Muchin Rosenman, part of the solution lies in “seeding arrangements,” whereby a larger, established firm provides the working capital and other elements that allow an emerging manager to focus on trading. The challenging trading environment since the 2008 financial crisis, coupled with more regulations and compliance costs, has created a more competitive environment for firms looking to attract capital.
Watch the video »

Hedge Fund Manager Puts Profile on Social Media, Lures $20 Million
Selina Wang – Bloomberg
Joshua Young started his hedge fund less than a year ago. Last month, he caught a break when a university endowment handed him $20 million, quintupling his assets under management.How did an obscure Houston fund called Bison Interests land such a big fish?

***JK: More connections from the guy, who sued the guy, who brought you Facebook.

Lead Stories

Worst Year Since Crisis Is Great News for These Funds
Managed futures mutual funds — investment pools that use computers to follow trends across asset classes — returned an average of 6.4 percent this year through Feb. 11, according to data compiled by Bloomberg for 22 U.S. funds with at least $100 million in assets. Investors poured $1.5 billion into the strategy in January, the most ever in a single month, data from Chicago-based Morningstar Inc. show.

***DA: January was a good month for managed futures, according to Bloomberg…

Managed Futures & Macro Hedge Funds Find Conditions Favorable To Begin 2016
Managed futures’ +1.89% return in January is the best monthly aggregate return since January of last year when the universe returned +2.52%. Large managed futures funds, those with greater than $1 billion in AUM, were +2.52% in January. This group of funds, which received virtually all of the strategy’s nearly $15 billion in new allocations on a net aggregate basis in 2015, was also positive last year, returning +2.12% and outperforming most segments of the hedge fund industry.

***DA: …eVestment…

Strong start to 2016 for CTAs
All managed futures indices posted positive returns in the first month of the year, with Societe Generale’s headline SG CTA Index leading performance. At 4.21 per cent this is the highest monthly return for the index since 2015’s opening month. Short-term traders also made significant gains, ending up 3.73 per cent.

***DA: …as well as SocGen.

Liquidation of MF Global Comes to an End
Marking the conclusion of MF Global Inc.’s bankruptcy case, a judge Tuesday officially closed the estate of the defunct brokerage firm and discharged the federally appointed trustee, James Giddens, who clawed back a 95% recovery for the commodity broker’s unsecured creditors and repaid its customers in full.

***DA: One of the worst chapters in market history ends with a whimper and a CEO who is still roaming scot-free.

Hedge funds down in January
Global Investor Magazine
Hedge funds struggled in the first month of 2016 with only a handful of fund types and strategies posting positive returns.

Goldman Sachs Abandons Five of Six ‘Top Trade’ Calls for 2016
Rachel Evans, Andrea Wong – Bloomberg
New York bank closes bet on dollar strength versus euro, yen
Divergent-rates policy still favors greenback, Himmelberg says
Goldman Sachs to clients: whoops. Just six weeks into 2016, the New York-based bank has abandoned five of six recommended top trades for the year.

**JK: Always another trade.

The Rich Are Already Using Robo-Advisers, and That Scares Banks
Hugh Son, Margaret Collins – Bloomberg
About 15% of Schwab’s robo-clients have at least $1 million; Morgan Stanley, Wells Fargo, BofA planning automated services
Banks are watching wealthy clients flirt with robo-advisers, and that’s one reason the lenders are racing to release their own versions of the automated investing technology this year, according to a consultant.

**JK: Who’s gonna buy Betterment?

John Paulson’s Bad Timing and Other Highlights From 13F Filings
Bloomberg Business
Forty-five days after the end of every quarter, investors scour the quarterly filings of hedge fund managers to glean trading ideas, suss out trends or simply seek a little Schadenfreude over other people’s missteps. Here are some highlights from the latest round of 13F filings, which list the U.S. holdings of money managers as of Dec. 31

**JK: Interesting streak for Paulson’s crew, no?

Alt investment managers called to task for managerial and structural shortcomings that handicap asset growth
Because a fund’s Chief Investment Officer (CIO) typically serves as that organisation’s CEO or managing partner, many funds are ill-equipped to organise or manage operational functions that are as important, or even more important to investors, than investment performance. Most CIOs are trained and hard-wired to focus on their fund’s track record, but very few have the managerial skills or the time to run a successful organisation.

**JK: Funds are so much more than performance these days.

Managed Futures/Managed Funds

Hedge Fund Managers Spot an Opportunity Amid Market Volatility
Dealbook – NY Times
Stock markets are plunging. The price of oil is in turmoil. And hedge funds just came off their worst year since the peak of the financial crisis in 2008. But Adam Sender, a well-known collector of contemporary art who shuttered his hedge fund two years ago, just got back into the game.

****JK: Somewhere Baron Rothschild is smiling.

Market turmoil causes sharp losses at US hedge funds
Mary Childs in New York and Miles Johnson in London – FT
Some of the largest and well known US hedge funds have suffered further sharp losses from this year’s rout in equities and commodities, raising the prospect that investors pull more money from the industry.

Fund managers pile into cash
Global Investor Magazine
Portfolio cash holdings among global asset allocators have jumped to an average of 5.6%, the highest level since 2001.

Location Independence with Systems Trading – Bill Dreiss, Dreiss Research Corporation
Top Traders Unplugged

Diversified growth funds pass their January health test
Financial News
January’s market falls were a testing month for diversified growth and multi-asset managers. Their claim is that they can deliver equity-like returns – but with lesser falls when markets turn sour. This time most delivered on their pledge.

Bill Miller’s a Hedge-Fund Guy Now With a Funky Model to Try Out
Miles Weiss – Bloomberg
Long-time Legg Mason money manager using earthquake algorithm; Doesn’t have `diddly’ to do with calling markets, says critic
When pitching investors, you normally don’t want “hedge fund” and “earthquake” in the same sentence. But Bill Miller, already known for quirky investing methods, is starting a hedge fund that will make bets based in part on a computer model designed to predict natural disasters.

Why Smart Beta is big business
Financial Times
Good investing should be about trying to cut through noise, simplifying decision making and cutting costs. For fans of exchange traded funds (ETFs) that means investing in low fee trackers and following big, broad, liquid markets. For proponents of actively managed funds, it means letting a manager control risk by only buying the stocks that make sense.
Yet there’s always been a third way between these two hostile camps — quantitative investing.

John Paulson Readies New Fund
The distressed debt market is not the place for the faint of heart. Last year saw some of the world’s largest macro hedge funds lose money due to distressed debt investments that didn’t work out. Despite the troubles distressed debt has caused hedge funds, John Paulson is readying a new fund that will focus on distressed debt investing. The new fund has been dubbed the Paulson Strategic Partners Fund.

Pensions & Institutions

Fund managers doubt collateral transformation services
The Trade News
Fund managers are growing increasingly suspicious of the cost of “collateral transformation” services provided by banks, according to a new white paper from the DTCC. In order to meet new margin requirements, fund managers are required to hold more cash to guarantee their OTC derivatives trades. However, they are not natural holders of cash, and are therefore being encouraged to use the triparty repo or new collateral transformation services in order to raise cash.

Expect Low Returns Even If This Bull Market Survives
No one knows how much lower stocks will go, but many money managers agree on one thing. This bull market is old and tired. Even if it survives, its best days are probably behind it.

***DA: Uh oh. With fixed income yields underperforming, and a stagnant stock market, how will pensions meet future obligations?

Asset manager bosses extremely confident on growth prospects – PwC
The TRade News
A recent survey by PwC has found 95% of asset management CEOs are confident of revenue growth in the next three years, but do not anticipate improvements to global economy in 2016. The survey queried 189 asset managements CEOs in 39 countries about what they expect in future from technology, data and analytics, growth and the global economy in 2016. Global asset management CEOs have expressed a widely unanimous view that revenue will grow in 2016, with 90% saying they were either confident or very confident. An overwhelming majority of 95% of asset manager CEOs expected revenue growth in the next three years.

U.K. pension funding deficit soars in January
Pensions & Investments
Falling gilt and equity markets in January contributed to a 37.1% increase in deficits for the defined benefit funds covered by the Pension Protection Fund’s 7800 index, leaping to £304.9 billion ($442 billion).

Bill Gross rivalry with Pimco hinges on US economic performance
Stephen Foley in New York – FT
The rivalry between Bill Gross and his former company Pimco looks set to hinge on the performance of the US economy this year, as the two take diverging views on the outlook for interest rates.

Global pension funds prioritizing governance, risk management
Pensions & Investments
Global pension fund executives over the next three years will be upgrading their governance structures and board education, increasing internal staff overseeing risk and investments, and adding to investments in ESG, hedge funds of funds and real estate, said a State Street Corp. (STT) survey.

2 clear choices to fix N.J.’s pension crisis
Opinion -NJ.com
I’m watching the state pension fund melt as the stock market drops. The fund is well-diversified but domestic equities are still the largest single exposure. Ironically, the alternative investments which have produced good net results for beneficiaries are unpopular with many labor leaders because we are paying fees to outside experts rather than managing complex investments internally. But that is another story.
Bottom line — if I’m a public employee, I’m worried about my retirement and hopeful that politicians come up with realistic solutions before it’s too late.

Lead Stories

The Morning Risk Report: SEC Provides Warning on “Accredited” Investors
Individual investors have freer access to private offerings of securities thanks to the 2012 Jumpstart Our Business Startups Act but that doesn’t mean regulators are turning a blind eye to who is being admitted to such investments. ThinkAdvisor reported last week on comments by Securities and Exchange Commission Chair Mary Jo White that there are investigations underway into whether issuers are doing enough to make sure they’re limiting access to only “accredited investors” or those meeting income and wealth thresholds.

***DA: All managers subject to accredited investor rules, not just the JOBS newbies, should be on high alert.

Traders Fear Intrusion into Personal Data
Regulators face a stark problem in the fast-paced world of modern financial markets: How can you track who is trading what, and more important, how can you ensure that markets are not being abused?

CFTC Staff Provides No-Action Relief from Registration to Certain Intermediaries Located Outside of the U.S.
The U.S. Commodity Futures Trading Commission’s (CFTC) Division of Swap Dealer and Intermediary Oversight today issued no-action relief from registration for persons located outside the United States who act as Introducing Brokers, Commodity Trading Advisors, or Commodity Pool Operators in connection with swaps that are not subject to a CFTC clearing requirement on behalf of persons located outside of the United States

MiFID II one-year delay announced
As widely expected, the European Commission has today officially announced a one-year extension to the entry into application of MiFID II. The proposal “amending Directive 2014/65/EU on markets in financial instruments as regards certain dates” will now have to be formally endorsed by both the Council and the European Parliament, most probably in a simplified procedure.

CFTC’s Bowen wants ‘bad actors’ database to end ‘whack-a-mole’
Anjelica Tan, MLex
Regulators should consider forming a global disciplinary database and other ways to prevent financial professionals who have violated rules or laws from moving easily to other industry jobs, said US Commodity Futures Trading Commissioner Sharon Bowen.

CFTC Can’t Give Whistleblower Money Away
It turns out that setting aside hundreds of millions of dollars for whistleblowers isn’t enough to lure tipsters in the multitrillion-dollar futures and swaps markets. Since its Whistleblower Program was launched in 2011, the Commodity Futures Trading Commission has spent more on administrative costs than it has paid out in bounties, according to a Wall Street Journal analysis of the agency’s data.

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