>CTA Expo New York, April 19, 2012, NYMEX Building
CTA EXPO was created to help professional capital raisers and allocators identify futures trading talent and to promote investing in managed futures. In just over three years CTA EXPO has grown to offering one day conferences in New York, London, Chicago and Miami. Registrations have grown for our conference in Chicago from 140 in 2008 to 500 in 2011.
**Note from Bucky this morning – Two keynote speakers: Chuck Johnson, CEO of Tano Capital, a family office of one of the families in the Forbes 400; Dr. Bob Swarup, alternatives manager at an $8 billion pension fund and aspiring author. “We currently have 310 registered, including 53 CTAs, and expect to sell out by mid-March.”
Quote of the Day
“Growth in developed markets is likely to remain low in 2012, but we are positive on the outlook for Asia, which is supported by stronger fundamentals, particularly for China.”
Joanna Munro, Hong Kong–based CEO for Asia-Pacific at HSBC Global Asset Management in Institutional Investor’s article “Asset Management on the Rise in Hong Kong.”
U.S. futures players at odds on post-MF Global path
Four months after $1.6 billion in customer funds went missing in the collapse of futures brokerage MF Global, industry participants are full of ideas for how to prevent a similar debacle going forward. They are far from agreed on which are the best. About two dozen regulators, exchanges, brokers, money managers, dealers, and academics took part Wednesday in an open meeting at the Commodity Futures Trading Commission on ways to beef up protection of customer collateral.
**DA: Panelists at the roundtable include our own John Lothian. To see more ideas from industry participants, and to cast your vote on submitted ideas, visit our FuturesCrowd site
Deutsche Bank Hedge Fund Survey Predicts Growth And Increased Institutional Participation
Institutions now account for approximately two thirds of hedge fund assets compared to less than one fifth in 2003. Investors also predict continued growth, with an estimated net inflow of $140bn in 2012, taking industry AUM to an all time high of $2.26tn by year end.
**JK – BarclayHedge reports that Q4 2011 AUM for Managed Futures totaled $314.6 billion, down from $320.3 billion in Q3 2011.
Survey: Funds Need To Do More To Attract Capital
The fifth annual SEI report, “The New Dynamics of Hedge Fund Competitiveness,” found that the percentage of investors who listed a fund’s performance as the most important factor doubled from 2009.
Also noted is that while transparency at hedge funds has increased, the majority of investors still list that factor as a top worry and would like to see more improvement in that area.
**It’s survey day at JLN Managed Futures. Here’s the SEI Report: The New Dynamics of Hedge Fund Competitiveness.
Global hedge launches outpace liquidations for second year running, says report
Global hedge funds’ assets totalled USD1,902 billion at the end of 2011 according to TheCityUK’s report Hedge Funds 2012. Although a 3% reduction from the previous year, it follows two successive years of growth that have seen assets increase by around a quarter.
Hedge fund, CTA and private equity investors to increase allocations in 2012
A total of 65 per cent of investment managers and investors surveyed said they intend to increase their allocations to private investments by some degree this year, with 25 per cent of participants planning to raise their allocations significantly. Further, 35 per cent intend to leave their existing allocations unchanged.
John Paulson: Gold Fund Will Top Other Strategies
John Paulson, the hedge fund manager seeking to rebound from record losses in 2011, told investors his Gold Fund will outperform his other strategies over five years, according to a person with knowledge of the matter. The billionaire, at a meeting Friday at the Metropolitan Club in New York, said the metal is the best hedge against currency debasement as countries inject money into their economies, said the person, who attended the event and asked not to be named because the information is private. Paulson also cited gold as a hedge against the euro currency, as a breakup may occur, and an eventual increase in inflation.
**DA: Two days ago, I flagged this story for inclusion in the newsletter. Yesterday gold dropped almost $100/oz. Paulson made a name for himself several years ago due to his impeccable timing in shorting the housing market.
Man results in line with January trading statement
Man has reported statutory profit before tax from continuing operations of USD193 million for the nine months ended 31 December 2011 (12 months ended 31 March 2011: USD324 million), which is in line with estimates reported in the group’s 18 January trading statement.
**JK – Man reported $59.5 billion in AUM at the end of February.
Pension Pain Mounts, Low Rates Boost Liabilities
Companies from defense contractor Lockheed Martin Corp. (LMT) to aviation-electronics maker Honeywell International Inc. are caught in a vise: the Federal Reserve Board’s vow to keep rates at current levels until 2014 means pension plans’ fixed-income investments are stagnating just as new rules shorten the time available to shore up funding.
**JK – If ever there were an opportunity for pensions and alternative investments, this is it.
Bridgewater’s flagship up 36 in 2011 ranks number one in LCH list; managers expects dramatic 2012
Ray Dalio – Opalesque
Bridgewater’s Pure Alpha fund, the world’s biggest hedge fund with around $72bn in AuM, returned 0.9% (gross of fees) in the fourth quarter (Q4) of 2011, bringing the performance for the year to 36.4%, according to documentation obtained by Opalesque. The Strategy has annualised 22.2% since December 1991, and the fund has annualised 20% since its May 2005 inception.
Managed Futures, Managed Expectations
According to Morningstar, the amount of assets plowed into funds that employ managed futures strategies zoomed roughly 240% last year, to $3.4 billion. There are now 26 funds in this category, with half of them coming on board since the start of 2011.
Steve Cohen Hedges with New York Mets Investment
SAC Capital’s Steve Cohen has become the latest member of the alternative-investments community to invest in a professional sports team after last week’s $20 million investment in the struggling New York Mets. For Cohen, however, this is something of a hedge.
**JK – Just because John Henry did it…
Asset Management on the Rise in Hong Kong
The number of money management firms in the city had risen to 798 at the end of 2010 from 580 three years earlier. Total assets increased more modestly, to HK$10 trillion ($1.3 trillion) from HK$9.6 trillion, but that occurred against a backdrop of weak markets that saw the MSCI Asia APEX 50 Index drop more than 11 percent during that period. The industry’s growth put Hong Kong well above rival Singapore and made the city the largest fund management center in Asia outside of Japan.
SunGard launches Hedge360
SunGard has launched Hedge360, an integrated, hosted service that supports the complete investment lifecycle for hedge funds and alternative asset management firms, from portfolio management to risk management, portfolio accounting and reporting with dedicated coverage of convertible arbitrage strategies and independent valuation.
Managed Futures/Managed Funds
Managed futures’ performance fees lurk in loophole
Mutual funds aren’t allowed to charge hedge-fund-style performance fees, but some managed-futures funds are taking advantage of a loophole. Because managed-futures funds that use multiple hedge fund managers do so through offshore entities, those entities aren’t technically considered “subadvisers” and, therefore, are able to charge performance-based fees. In some cases, they may run as high as 35% of the managers’ profits during any year.
*DA: In a discretionary trading strategy, manager skill is everything, so the manager must be compensated accordingly. In the mutual fund world, deducting performance fees from NAV is a big “no-no.” When the CPO/CTA registration rules finalized by the CFTC this month goes through, this problem should go away. See the regulatory section for more information.
Goldman Adds to the Managed-Futures Rush
Focus on Funds – Barrons.com
Goldman Sachs’ (GS) asset-management arm is giving yet another sign that big money managers think that small time investors will cotton to highly quantitative, hedge fund-like “alternative” strategies. But investors should always be wary of chasing performance, and the managed-futures niche that’s the focus of this effort has had its share of chasers.
**DA: I prefer it straight, with no chaser.
Nick Sketch: why wealth managers got hedge funds so wrong
Citywire A few years ago, many of us invested in hedge funds via funds of hedge funds. The better examples generally offered a better risk-return trade-off than pure equity investment, while offering likely returns ahead of bonds. However, most had some net exposure to equity markets. Even without the discount swings that many investment trusts in the sector suffered (or the severe problems caused to some by illiquidity in their underlying assets), this feature made funds of this type less than ideal diversifying assets for an equity-based portfolio (and much less good in extreme circumstances than many of us expected).
*DA: The article cites CTAs/managed futures as the exception.
2011 New Hedge Fund Study
Seward & Kissel LLP
About 50% of the funds included in the study involved an equity or equity-related strategy (not including multi-strategy offerings which generally involved both equity-related as well as other strategies). About 1/3 of the
equity/equity-related offerings were focused on U.S. equities, while the rest had a global focus.
About 1/4 of the equity/equity-related strategies had a sector focus, with the most popular focuses being healthcare and financial services. About 20% of the funds included in the study were multi-strategy offerings, approximately 10% were credit or credit-related strategies, and the balance consisted of structured products, managed futures, commodities and miscellaneous other strategies.
UBP to Acquire Hedge Fund Manager Nexar Capital Group
Union Bancaire Privee, UBP SA, one of the leaders in Switzerland’s hedge fund industry, has signed a definitive agreement to acquire Nexar Capital Group, a global alternative investment manager.
Why CitiGroup Hid Its Hedge Fund Numbers
This coming April issue of Bloomberg Markets magazine reports that four of Citi’s seven biggest hedge funds have underperformed their indexes since they started, according to investors. Five of the seven lost money in 2011.
|Managed Futures Scorecard||2/28/2012|
|Newedge Indices||MTD Return||YTD Return|
|Newedge CTA Index||1.04%||1.63%|
|Newedge CTA Trend Sub-Index||1.85%||2.92%|
|Newedge Trend Indicator||2.4%||0.61%|
|Newedge Short-Term Traders Index||-0.83%||-1.07%|
|Barclay Indices||MTD Return||YTD Return|
|Barclay CTA Index||0.18%|
|Barclay UCITS Index||7.3%|
|Barclay Hedge Fund Index||6.33%|
|BTOP FX Index||1.68%||0.99%|
|Morningstar Long/Short Com. Index||1.47%||1.73%|
Pensions & Institutions
Texas Teacher fund moving into directional hedge funds
Pensions & Investments
Texas Teacher Retirement System, Austin, is in the process of building out a new 5% allocation — $5.5 billion in current dollars — to directional hedge funds to bring the $109 billion fund up to its 9% hedge fund target. Last year, the state Legislature approved an increase in the $109 billion system’s hedge fund cap to 10% from 5%.
**DA: We reported last month on the increased allocation.
Georgia Senate passes bill allowing state pension funds to invest in alternatives
Pensions & Investments
The Georgia State Senate on Thursday passed legislation to allow most of the state’s public pension funds, including the $13.8 billion Georgia Employees’ Retirement System, Atlanta, to invest in alternatives.
**DA: Diversifying portfolios or reaching for yield? Maybe a bit of both. See story below.
Pension Tension: Political Sparks Highlight Challenges Ahead for Retirement System
Free Times (Columbia, SC)
Roughly 20 state and municipal employees gathered in the lobby of the State House on Feb. 22 to press lawmakers on an issue that, to them, matters more than almost anything in the world — whether, when their day to retire comes, they can count on the arrival of their pension checks, and whether those checks might be smaller or come later than they’d planned.
**DA: Article highlights $13.4 billion funding gap over next 30 years. For a $25 billion plan, that is a significant shortfall. Alternatives the saving grace?
Private equity? You mean alternative asset manager
Bosses of some of the world’s largest private equity groups told the industry’s annual get-together that their growth into alternative asset managers, investing in everything from credit to real estate, was necessary for their investors to beat the economic cycle. Private equity, one of the alternative asset classes offering diversification from stocks and bonds, has traditionally been about leveraged buyouts – where the buyer funds the purchase price through borrowing, using the target company’s assets as collateral.
**DA: Tighter financing, Volcker Rule among the “game-changers.”
Hedge-Fund Assets To Rise To Record $2.26 Trillion – Deutsche Bank
Hedge-fund assets look set to surge to a record $2.26 trillion by the year’s end as investors increase their alternative investments and trim cash holdings. That is according to Deutsche Bank AG’s latest alternative-investment survey, which interviewed about 400 investor entities worldwide–like pensions, foundations and endowments–representing more than two-thirds of the industry’s $2 trillion in assets as at the end of 2011.
**DA: Not a bad haul considering the sector’s returns were down 5 percent last year.
Ford’s Novel Way of Paying Pensions
Last week Ford (F) announced plans to shift their pension fund even more heavily towards bonds. At a time when interest rates are ruinously low and equities should appear attractively priced to a long-term investor such as a pension fund this represents quite a radical move.
**DA: I think Ford is saying, “Why overweight equities? As the stock market rises, so does Ford’s balance sheet.” Interesting read.
FSA in £20bn crackdown on ‘pensions transfers’
The Financial Services Authority is the latest UK body to come out against “pensions transfer” deals, which offer to swap workers’ defined benefit entitlements for a one-off lump sum. It has set out a crackdown that it reckons will cost business – and save workers – £20bn.
CFTC Final Rule: Registration and Compliance Obligations for Commodity Pool Operators and Commodity Trading Advisors
On February 9, 2012, the CFTC published its final rule on compliance obligations for commodity pool operators (CPOs) and commodity trading advisors (CTAs). CPOs and CTAs that are registered with both the CFTC and SEC (“dual registrants”) will be required to file reports to the SEC similar to Form PF, the systemic risk reporting requirement, mandated by the Dodd-Frank Act, and to be used by the Financial Stability Oversight Council. Mutual funds that use futures and swaps tied to commodities will be required to register with the CFTC, just as they had been prior to the granting of the exemption by executive order in 2003. The National Futures Association (NFA) sought the change to improve protection of retail investors
**DA: This rule, plus the proposed rule below, should clear the air considerably on managed futures funds.
CFTC Proposed Rule: Harmonization of Compliance Obligations for Registered Investment Companies Required to Register as Commodity Pool Operators
On February 9, 2012, the CFTC unanimously approved a proposed rulemaking regarding certain compliance obligations for commodity pool operators who register with the SEC under the Investment Act of 1940. Under the rule, the CPO of any pool whose units of participation will be offered and sold pursuant to an effective registration statement under the Securities Act of 1933 (for example a commodity-linked mutual fund) may claim the relief from certain requirements.
Regulators likely to delay start date of Volcker rule
US bank regulators will probably delay implementation of the so-called “Volcker rule”, a small victory for bankers who have objected to a provision that will most likely crimp their trading profits.