Observations/Commentary

Emerging Manager Forum Miami, December 10, 2015
Emerging Manager Forum is a unique forum for money raisers and asset allocators to meet and discover fund managers and promote alternative investing. From dedicated presentations to opportunities for networking, Emerging Manager Forum provides a forum for allocators and fund managers to do business.

***DA: Have a look at the video we shot last month, and consider a trip to Miami next month.

Katie Burgoon, Trading Technologies – Gone But Not Forgotten: How The Floor Trader Mentality Can Prepare Everyone For Success
JohnLothianNews.com

“You would never have met a floor trader who did not live and breathe the markets every day. They literally could not wait for the alarm clock to go off every morning.”

Though the open outcry system of order execution has been relegated to the history books, the trading floor mentality lives on in the hearts and minds of the thousands of former floor participants. And any one of them would say that the things that defined a floor trader – passion, a strong voice and even a confident swagger – can prepare anyone for a successful career. Katie Burgoon, who spent many years on the Chicago Board of Trade floor, now sits on the other side of the hiring line in her role as VP of global human resources at Trading Technologies. She says that, regardless of gender, years of service or role within a company, one should aim to channel the inner floor trader to find success.

Watch the video at MarketsWikiEducation.com »
Paul Lewis: Hammer hits value of alternative assets – FT.com
If you are tempted to invest in alternative assets rather than more traditional items such as shares or bonds — beware. If you think financial advisers’ charges of 5 per cent upfront and 2 per cent a year are expensive, wait until you see the eye-watering amounts snaffled by firms who buy and sell art, wine, stamps, or antiques.
jlne.ws/1SjiSUo

**JK: I’m starting a new fund that trades VHS tapes. Big market for the Lion King and Dumbo (The anniversary edition). Five percent up front, 2 and 20 thereafter.)

Lead Stories

The Top 10 Managed Futures Performers of September
Attain Alternative Blog, via ValueWalk
While one month’s performance is no way to judge an investment that has 3 to 5 year cycles, a glance at who’s doing well in the different environments month to month can be a useful data point at times. Here’s the top managed futures performers (by return only) for the month gone by.
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**JK: Interesting list with even more interesting draw downs.

Carlyle-Owned Hedge-Fund Firm Hands Investors a Big IOU
By JULIET CHUNG and ROB COPELAND – WSJ
A struggling hedge-fund firm owned by Carlyle Group LP won’t immediately pay back about two thirds of the nearly $2 billion that investors recently asked to withdraw, according to people familiar with the matter.
on.wsj.com/1GwVimb

***DA: I thought possession was nine tenths. Apparently it is two thirds.

How Changing Global Demographics Could Destroy One of the Most Popular Ideas in Portfolio Management
Bloomberg Business
Portfolio managers who adhere to a method of asset allocation that has served them well for more than three decades may be in need of a wake-up call.
jlne.ws/1MtdrgM

George Soros’s Firm Pulls $500 Million Investment With Bill Gross
WSJ
George Soros’s firm has pulled its roughly $500 million investment with Bill Gross, less than a year after the billionaire investor gave the former bond king his stamp of approval, according to a person familiar with the matter and industry data.
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**JK: I’m so confident in Bill Gross, I’ll put $500 million behind him, or my name ain’t George…

The time is now to consider alts ahead of Fed rate hike
Investment News
With the Federal Reserve getting closer to raising interest rates, perhaps as soon as year-end, advisers should consider allocating to liquid alternative strategies to buffer clients’ portfolios, according to a panel of investment executives on Wednesday.
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**JK – We’ve been waiting for this for a very, very, very long time.

Alternative funds are taking center stage
CNBC
With the stock market careening wildly of late, it’s no surprise that investors are looking for alternatives. Nearly $4 billion flowed into alternative investment funds — often called liquid alt funds — in July, August and September, according to data from research firm Morningstar, and they have had nearly $10 billion in net inflows since the beginning of the year.
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Managed Futures/Managed Funds

Starbreeze prepares to launch as a CTA
CTA Intelligence
New York-based Starbreeze Capital Management is preparing to launch itself as a CTA. The quantitative firm, founded by RG Niederhoffer Capital Management former senior trader Erick Epelboim, has filed a CTA registration with the CFTC.
jlne.ws/1P6i8np

The Dangers of Investing Complacency
ThinkAdvisor
Ten of the 12 categories experienced meaningful outflows over the past year. Clearly some of those outflows were redeployed into multi-alternative and managed futures funds, which have had strong inflows. This is likely the result of some investors opting for the one-stop shopping that multi-alternatives can offer (despite the potential pitfalls, which we’ll leave for another day). And while I’d like to think that managed futures have gained traction due to their undeniable diversification benefits, the truth is probably simpler: It’s been the best-performing category among the group, and investors chase returns.
jlne.ws/1MteDR4

As China’s Stock Market Crashed, These Hedge Funds Rose 70%
Bloomberg News
Chasing gains was like `sucking blood from the tip’ of a knife
Best performers sold before the selloff, some bought on dips
China’s summer market selloff wasn’t a total rout if you were one of the country’s top-performing hedge funds that gained an average 70 percent as almost 1,300 other funds were wiped out. The country’s top 10 performers, run by Ze Quan Investment, Sunrise Investment, Zexi Investment and Yingyang Asset Management, found gains in the June-August period by heeding a famous maxim: Markets are ruled by fear and greed.
bloom.bg/1OcEjb8

Citi Found Itself Briefly Exposed to $400 Million Hit Through Small London Hedge Fund’s Trades; Executives discovered a giant potential loss; money is recovered
By JENNY STRASBURG – WSJ
A small London hedge-fund firm and a lapse in bank-risk controls caused a panic inside Citigroup Inc. in July, after its executives discovered a series of trades they estimated could cost the bank as much as $400 million, people familiar with internal discussions at the time said.
jlne.ws/1H4jyXh

Pimco promises ‘no entitlements’ under new incentive scheme
Stephen Foley in New York – FT
Pimco is overhauling a compensation system for senior staff which lies at the heart of co-founder Bill Gross’s $200m-plus lawsuit against the asset management group.
jlne.ws/1PNVH6m

Getting past the hedge fund gatekeeper
Financial News
When investment consultants begin their hedge fund selection processes, they often start with the assumption that the funds are not worth the fees they charge. They hold hundreds of meetings with hedge fund managers every year, looking at anything from the performance to the personality traits of individuals, and spend up to 200 hours evaluating a single hedge fund, but they endorse less than a handful.
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***DA: Sounds like a job for the keymaster.

Pensions & Institutions

Pimco Loss Is Prudential Fund’s Gain as Investors Add $7 Billion
Bloomberg
The Prudential Total Return Bond Fund has outperformed most of its peers, including the flagship fund at Pimco, over three, five and 10 years. Investors have finally noticed.
bloom.bg/1XBgsnd

Investors flock to specialty investments
Pensions & Investments
Asset owners increasingly are turning to global macro and managed futures strategies in their efforts to diversify their portfolios. Institutional investors have invested at least $2.6 billion in 2015 in the two approaches, with global macro bringing in $1.5 billion and managed futures, $1.1 billion, according to Pensions & Investments’ reporting.
jlne.ws/1Mteq0j

Concern mounts over rush to ‘British Wealth Funds’
Financial News
Concern is mounting in town halls across England and Wales that the government is pushing ahead too fast with plans to merge their £214 billion of pension assets into regional “British wealth funds”.
jlne.ws/1P6fsGd

Finance Department Urges CalPERS to Reduce Risk
PublicCEO
The California Public Employees’ Retirement System is considering reducing its investment risk with a plan that would be so ineffectual it could lead to a “rate shock” when the pension bills come due, according to the California Department of Finance. CalPERS’ proposed Funding Risk Mitigation Policy would slightly lower its expected investment return, also known as the discount rate, in good investment years.
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***DA: Of course, the biggest risk is underperformance to the degree that outlays cannot be met. Let us hope we never go there.

Harvard’s New-Normal Financial Results
Harvard Magazine
The University’s fiscal year 2015, concluded last June 30 and detailed in the annual financial report released today, in many ways mirrors the outcome of the prior year: Harvard again operated modestly in the black, following a couple of years of modest deficits. In their introductory letter, Harvard’s new senior financial-management team—Thomas J. Hollister, vice president for finance and chief financial officer, appointed last spring, and Corporation member Paul J. Finnegan, who became treasurer in July 2014—wrote that “[T]he results of this past fiscal year follow a recent trend of modest, but continued improvement in the University’s overall financial health.”
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Regulation

Bank-Analyst Ranks May Thin on EU Research Rules, Deloitte Says
John Glover – Bloomberg
Report says some independent researchers may quit the market
Deloitte sees EU commission publishing rules in November
European investment banks may reduce the number of analysts they employ and some independent research providers may quit the market if draft European Union rules on how investment managers pay for research are enacted, according to Deloitte LLP.
bloom.bg/1kJJtz1

CFTC to finish position limits rule in 2016, Massad says
Risk.net (Subscription Required)
Controversial rule on commodity derivatives set to miss year-end target A long-awaited rule from the US Commodity Futures Trading Commission (CFTC) that would impose speculative position limits on commodity derivatives will not be ready this year. “I wouldn’t expect it to get done this year,” said CFTC chairman Timothy Massad in response to questions at the Risk USA conference in New York.
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