Observations – Statistics – Commentary

Today’s issue features an interview with Debby Hallett of Arthur Bell. We also saw a positive April performance from the CTA space.

June is Managed Funds Event Month in Chicago
On June 19-20, the Managed Funds Association will be hosting Forum 2013, its 19th annual managed futures and global macro strategies conference The event is designed to bring managers and investors together for networking, education and business development. Forum 2013 will be held June 19-20 at the Four Seasons, Chicago.

In conjunction with MFA, CME Group and BarclayHedge will be holding the second annual Managed Futures Pinnacle Awards, an event which recognizes excellence in the managed futures space.

Altegris CTA Challenge Update
Altegris Clearing Solutions
As the year moves on we have seen a rebirth of performance from trend followers after a few years of lackluster performance.  With the spring thaw and what might appear to be some market movement based on fundamentals, we are interested to watch the participating managers take advantage of forming trends, particularly in commodities.  While each program is a bit different, we are hoping the general direction of performance keeps moving in a positive way.  Will it be the metals, agriculturals, financials or something else?  Like us, you will have to keep watching at www.ctachallenge.com and see who takes the lead.

Chasing Returns: The Dangers of Linear Thinking
KD Foster, The PRICE Futures Group
As my old boss Jeff Gordon (one of the Turtles) used to say, “good times follow bad and the other way around”. I would laugh because it is a truism – of course good times follow the bad. The question is – when does the change happen? While we still need to look at the past for indications of how something will work going forward, we don’t want to fall into the “linear thought trap”.

Bloomberg Saga Highlights Clash Between Two Worlds
In an era when Internet ad tracking and social media have heightened consumer awareness of digital privacy, Bloomberg LP’s disclosure that certain subscriber data were previously available to its journalists has risked alienating the tightly regulated world of finance.

Hedge Fund Net Flows Advance 0.63% in May
The gross return of the SS&C GlobeOp Hedge Fund Performance Index for April 2013 measured 1.44%. Hedge fund flows as measured by the SS&C GlobeOp Capital Movement Index advanced 0.63% in May.

Barclay CTA Index Gains 1.11% in April; Systematic Traders Up 2.46% YTD
Managed futures gained 1.11% in April according to the Barclay CTA Index compiled by BarclayHedge. The Index is up 2.11% year to date.

Hedge Funds Up 4% Globally
Hedge funds posted positive returns in April as most markets trended upwards during the month according to the Eurekahedge Hedge Fund Index which was up 1.09% during the month, while the MSCI World Index gained 2.02% in April.

Hedge Fund Industry Underperforms S&P 500 by 252 Basis Points in March
Press Release
BarclayHedge and TrimTabs Investment Research reported today that hedge funds took in a net $817 million (0.04% of assets) in March, building on an inflow of $11.4 billion in February. The results are based on data from 3,409 funds.

Lead Stories

Hedge funds target mutual fund market
Dan McCrum in New York – FT.com
The next source of growth for the hedge fund industry are the widows and orphans of the mutual fund market, according to Citigroup, which predicts that retail assets will more than triple to $940bn during the next four years, from $305bn at the end of 2012.

Why CTAs might be miscalculating their risk
Galen Stops – FOW
Drawdown is the money that an investor has lost since reaching their most recent high-water mark and is of particular interest to the managed futures industry which has suffered significant drawdowns recently. At the end of 2012 the Newedge CTA index, which tracks the performance of the top 20 CTAs that are open for investment, was down 2.84% for the year and had fallen 9.27% from the previous high water mark in April 2011. That’s a 20 month drawdown, making it one of the worst on record.

Horizon Cash Management Promotes Michael Markowitz to President
Press Release
Horizon Cash Management LLC, the leading investment advisor specializing
in active cash management solutions for the alternative investment industry, today announced that Michael Markowitz has been named president, effective April 24, and continues as chief investment officer. Mr. Markowitz replaces Pauline Modjeski, who served as president since 2008.
**DA: For more on Mr. Markowitz, check out the video he made for our Restoring Customer Confidence series.

Trend Following, Style Drift, and Portfolio Hedging – from Quest Partners
Attain Capital Management
We think the team over at Quest Partners includes some of the smartest in the business, and we’ve posted their periodic research pieces in our newsletter before – so we were thrilled to get one of their new research pieces in our inbox last week. In their latest white paper (if you’d like a copy, email us and we’ll send you one), Quest looks at the data and reasoning behind using managed futures as a hedge to an equity portfolio. And not just as a diversifier (more on that in a bit), but what really caught our eye were some of the zingers/takedowns/eye-openers aimed at the large trend following managers in the managed futures world. Quest pulled no punches in their assessment:

Alternative UCITS Strategies deliver strong start to 2013
Alternative UCITS funds have delivered a good start to 2013 with the sector growing in terms of number of funds as well as assets under management, according to the Alceda Quarterly UCITS Review, produced by leading independent structuring specialist Alceda Fund Management
**DA: “Managed Futures strategies delivered a 3.79 percent growth in the quarter, the first positive quarter in over two years.”

Altegris Receives Multiple Honors For Its Contributions To Asset Management Industry
Firm Wins CAIA Award for Leadership in Alternative Education, While President and CEO Jon Sundt is Named to IA 25 and California Pioneers of Investing

Michael Lipper: we are all just gamblers
The decision to get out of bed in the morning is based on a belief that the day will produce more good impacts than bad ones. While we have no enforceable guarantees, our experience is what has happened in the past. So we gamble that this is our fate for today. When we cross a street we gamble that everyone will follow both the laws of the land and physics, otherwise we are at risk of loss of life, injury, and property damage.
**DA: Simple but sage advice from Mr. Lipper. Kind of like a piece of advice early in my trading career – “Never let a day-trade become an investment.”

Managed Futures/Managed Funds

Future proofing: best Alt Ucits managed futures investors revealed
Managed futures strategies may face an uncertain outlook in the wake of increased regulatory scrutiny but which fund managers are leading the pack regardless of wider difficulties? In the Citywire Managed Futures sector, there are currently 34 fund managers on our radar, while 14 of these can boast a three-year track record.

Retail Alternatives to Triple to Nearly $1 Trillion by 2017 According to Citi Prime Finance Survey
Financial Post
Global demand for retail focused, liquid alternative investment products will reach $939 billion by 2017, more than three times the current level, according to a just-released survey from Citi Prime Finance. The growth forecast comes amid new flexibility for mutual fund and exchange-traded fund (ETF) providers, unprecedented levels of transparency among hedge funds, and new demands from wealth managers and broker-dealers who want to add alternatives to more mainstream portfolios.

Commodities hedge funds suffer weak first quarter
Financial Times
The commodities hedge fund industry is bleeding money.
The average fund lost 0.8 per cent in the first quarter of the year, according to a closely watched index compiled by brokerage Newedge.

Financial Advisors Primed for Alts Virtual Summit
ETF Trends
Most individual investors traditionally have been focused on long-only strategies such as the well-worn 60/40 split between stocks and bonds. However, the financial crisis and market volatility of recent years have caused more investors to seek out strategies that limit risk and volatility.

Bonus Watch ’13: Money-Losing Commodities Hedge Funds
Jon Shazar, Dealbreaker.com
Never before has a 50% pay cut felt so good. Well, at least not since last year’s 50% pay cut. Clive Capital LLP paid its top-earning partner $33.5 million in the 12 months through February as the commodity hedge-fund firm managed by Chris Levett posted losses for clients for a second straight year.
**DA: So long as you do not send the bill to taxpayers, you are free to (mis)manage your firm as you see fit.

Commodity Funds: Don’t Bother
When fund providers make the case for investing in commodities, one of the most frequently cited selling points is that they provide a source of non-correlated returns for traditional portfolios.
Unfortunately, that claim doesn’t stand up to scrutiny.
Given that commodities actually have had an exceptionally high correlation with stocks — as well as a dismal risk-return profile — in recent years, investors might want to think twice before piling their money into commodities.
**DA: In this market, I would not recommend long-only investing in any single asset class.

Pensions & Institutions

The EU is both saint and sinner on pensions reform
Mark Cobley – Financial News
At a time when the UK’s membership of the European Union has rarely been more controversial, two current EU initiatives aimed at Europe’s €3.5 trillion pensions industry, which could have a particular impact on the UK, make Brussels look like both saint and sinner at once.

Alternative Fund Administration Survey
Custody Risk’s Alternative Fund Administration Survey is an annual round-up of service providers to hedge funds, funds of alternative funds, private equity funds, real estate funds and Ucits-compliant funds. In this survey, we show how successful companies were in their competition for mandates in the alternative fund administration space in 2012

Top 40 money managers: Time to retool
Benefits Canada
It’s a promise that’s getting harder to keep. Sponsors of Canada’s DB pension plans are struggling against formidable odds to keep the pension promise alive for members, retirees and future members as equity markets roil and interest rates remain depressingly low in the wake of the 2008 financial crisis. Plan deficits are proving stubbornly hard to eliminate, and some plans are simply closing or turning to drastic solutions. General Motors’ decision to orchestrate a pension buyout, shifting the risk of its pension plan to an insurance company last year, proved this point.

U.K. corporate plans’ aggregate deficit worst since 2007
The aggregate funded status of FTSE 350 corporate pension funds dropped two percentage points in April to 84%, according to a report from Mercer.
**DA: I know plenty of plans here in the states that would love an 84 percent funded status, like my home base in Cook County, State of Illinois.

Cook County pension woes worsen
Crain’s Chicago Business
Solvency of Cook County’s pension funds deteriorated in the last fiscal year, according to a new report, and county commissioners are pressing anew for reforms. The county’s main Employees’ Annuity and Benefit Fund saw its pension debt grow to $6.79 billion, up $969.5 million last year and an increase of $1.6 billion in the gap between assets and liabilities since 2010. The plan is only 53.5 percent funded, down from 57.5 percent in fiscal 2011, and the fund is projected to be insolvent by 2034.

State Street’s Haines and Patel look to the state of selection driving long term savings
Investment Europe
Raymond Haines, head of EMEA Strategy & Research, State Street Global Advisors and Chirag Patel, head of State Street Associates EMEA, State Street Corporation, have looked at the drivers of asset selection in Europe’s changing long term savings market. Funding gaps pose ever greater challenges to defined benefit (DB) schemes across Europe as they battle to combat funding deficits and the low-yield environment. But while taking measures to address potential funding gaps, pension scheme sponsors must also heed evolving standards for managing risk against returns, and successfully clear higher regulatory hurdles.

New risk management tools for a post-financial crisis era
Institutional investors are reaching out for new risk management tools to address shortcomings in estimating risks that left them more exposed to losses in the financial market crisis than they expected.


Cantab closes hedge fund as EU rules curb commodity investing
Cantab Capital Partners is to close a retail investor-friendly version of its flagship hedge fund because of new European guidelines regulating investment in commodities, underlining the growing difficulty firms face in trading metals, grains and oil.
**DA: Thankfully, I am here in America where regulatory overreach is not a concern. Right?

Local hedge funds barred from currency, commodity derivatives on volatility concerns
The Economic Times (Mumbai)
Local hedge funds, half a dozen of which are likely to enter Dalal Street this year, will not be allowed to trade on currency derivatives as the securities market regulator believes that their trades could increase the volatility in the foreign exchange market.
**DA: Ditto the comment above.

Buzz on advertising rising as regs near
An 80-year-old tradition of silence among issuers of private offerings is coming to an end, as SEC officials finish rules lifting a ban against solicitation and general advertising during periods of fundraising.

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