As chairman and CEO of one of the largest FCMs in the world, Gerry Corcoran of RJ O’Brien has diversified its services from futures execution and a clearing member firm to a host of other markets and businesses including managed futures.
To him, the managed futures space has a lot of room to grow. JLN editor-in-chief Jim Kharouf sat down with Corcoran last week at the FIA Boca Conference to talk a bit about his views of the managed futures space.
Q: What do you see in the managed futures space?
A: I’ve personally been invested in managed futures for more than 20 years. I believe in managed futures. I think it’s an important part of my portfolio. I think it plays a role in any type of high net worth, or institutional portfolio.
We looked at it and decided it was one of the new products, for us, that we wanted to invest in. When [[AlphaMetrix]] exited, we felt there was a need to serve a certain segment and we’ve been working hard on it. We have a platform business with 10 really good CTAs on it. So we’ve developed the sell side of the business. Now we need to get the buy side of the business on the platform. It’s a natural vertical to us, in the sense that we can be great at identifying CTAs, getting the right buyside platform. Most of that business can be executed and cleared through RJ O’Brien. So we capture a fee-based revenue there.
We’re working hard at it and committed to being successful.
Q: Managed futures is often a tough product to sell. It often seems mismatched to the market. When things are bullish many investors don’t think about managed futures because the markets are going up. And when markets are going down, it is often too late to get into managed futures. How do you solve this chicken and egg issue?
A: There’s always been a challenge in educating the community. Our efforts have been focused on the institutions that already believe in managed futures. There are pensions funds already in it, endowments.
But everyone is trying to find an emerging CTA or post-emerging CTAs, that provide a risk-based return and can do it themselves. Those institutions don’t want to dedicate a team of analysts to the managed futures space, and I think that’s the role we play for them. Anyone on our platform has been vetted out by us. We monitor them day to day to make sure they are following their programs. If they say they are a long-term trader in the ags, we don’t want to see them day trading in interest rates. When their style deviates from their disclosure document, we step right in. So we’ve built very robust risk management systems to identify traders straight from style. And we add value because we have an intuitiveness about the CTAs, and look at them holistically.
Q: As you look at the CTA space, what is the potential for it?
A: I think managed futures will continue to grow. It’s been a slow evolution but I’ve been around the business a long time. I was around the industry when treasurers of companies didn’t believe in hedging because it was considered risky. Now that they’ve been teaching hedging in college for 25 years, it’s risky for treasurers who don’t hedge.
I think the same thing for managed futures. The asset managers for large institutions with large sums of money realize the benefits of a sliver of managed futures in their portfolio, we’re going to get more people into it.
The problem will be finding enough CTAs that will handle that. Can the markets handle it?