U.S. hedge funds are reportedly playing “catch-up” after missing this year’s big rallies in equities and commodities, and are now piling in with leveraged money – but is it worth your two-and-twenty? The coming food shortage is having ripple effects, from Swiss regulation to the bacon on your breakfast plate. There is one thing worse than drunk-dialing an ex – drunk-buying $520 million in crude oil futures. But up first, CTA Expo founder Frank Pusateri discusses managed futures trends with John Lothian News Editor-in-Chief Jim Kharouf.

Observations – Statistics – Commentary

Frank Pusateri of CTA Expo Discusses the Potential for Managed Futures ETFs
MarketsWiki.tv
Frank Pusateri is the president and founder of CTA EXPO, the conference group which hosts events for emerging managers in Chicago, New York, London and for the first time, in Miami on December 13. He spoke with JLN editor-in-chief Jim Kharouf about the trends he is seeing in the managed futures space, the challenges they face and the prospects for managed futures ETFs as well as mutual funds.
http://jlne.ws/SuCiZC

Emerging Manager Forum, Miami Update
CTA Expo
EMF Miami will be held on December 13, 2012 at the Eden Roc Renaissance, Miami Beach. The event will feature a full slate of panels, including our own Jim Kharouf, who will be giving a presentation entitled “Media and How to Use it to Build your Business.” Additionally, the venue has three breakout rooms where managers can, for a small fee, make 30-minute presentation to the capital sources in attendance.
http://jlne.ws/Hjvnzc
**DA: To sign up for a breakout room, follow the link or contact Frank or Bucky. Or me.

From the Horse’s Mouth
Attain Capital Management
If you follow our newsletter and blog regularly, you know we tend to speak with one voice on a variety of subjects related to managed futures and portfolio construction, but to be fair, it’s never just one person behind the curtain. Our materials are a team effort, with a dozen different hands touching a piece before it heads out the door and to your inbox. And these pieces rarely get put together without some level of debate occurring on different portions. Everyone comes at the subjects from a unique perspective with diverse opinions and input, which is the way we like it. After all, if steel sharpens steel.
http://jlne.ws/Swyrwq

U.S. hedge funds play “catch-up” after missing rally
Edward Krudy, Reuters
Many U.S. hedge funds that have the lagged the stock market rally in 2012 are now buying riskier stocks and commodities – and using more borrowed money – in an effort to play catch-up.
Funds have cut cash holdings and reversed broad bets against the surging market. If the shift in the $2 trillion hedge fund industry continues, it could drive asset prices even higher.
http://jlne.ws/QPDVhk
**DA: I smell a bubble brewing. Hope everyone doesn’t try to head for the exit at the same time, or else we could see a repeat of ‘08.

Today The World’s Top Hedge Fund Managers Are Presenting Their Best Investment Picks
Business Insider
Investors are gathering at the Marriott Marquis in Manhattan today and tomorrow to hear some of the world’s top hedge fund managers present their investment picks at the annual Value Investing Congress.
http://jlne.ws/O0A9Er

Hot New CTAs: Not your father’s option traders
By Daniel Collins, Futures Magazine
This is the 23rd year Futures has profiled emerging commodity trading advisors (CTAs), and while every year is unique, we have seen a trend in recent years toward more short-term and option programs.  This year we focus on three unique option programs. Perhaps this is the result of a difficult environment for trend-followers, but it also may be a realization that for emerging managers to be recognized, they must separate themselves from the pack and offer something unique.
http://jlne.ws/RuMq3K

Managed Futures Scorecard   9/27/2012
     
Newedge Indices MTD Return YTD Return
Newedge CTA Index -0.80% 0.16%
Newedge CTA Trend Sub-Index -2.12% -0.06%
Newedge Trend Indicator -0.47% -13.48%
Newedge Short-Term Traders Index -1.29% -3.85%
     
Barclay Indices MTD Return YTD Return
Barclay CTA Index   1.17%
Barclay UCITS Index   5.42%
BTOP FX Index 0.42% 2.00%
BTOP 50 Index -0.77% -0.14%
Morningstar Long/Short Com. Index -2.61% -8.09

Lead Stories

Winton backs China’s first managed futures fund
by Harriet Agnew, MarketWatch
Winton Capital Management, the largest managed futures firm in Europe, has teamed up with Shanghai-based Fortune SG Fund Management for what is believed to be the first Chinese managed futures fund.
http://jlne.ws/QmfvPk

Managed futures give stable returns
Financial Review
Managed funds have a track record dating back to the 1970s, but they are still not a particularly well known or understood part of the investment landscape. However the stability and portfolio diversification the product offers has seen assets under management in the global managed futures sector jump from around $US50 billion in 2002 to $US340 billion as of second quarter 2012.
http://jlne.ws/Rv2baJ

Drunk broker boosted oil prices for eight months in 2009
The Daily Caller via Yahoo! News
While most people would agree with the sage advice not to drink and drive, the same could generally be said for mixing drinking with just about any activity. Former senior broker at PVM Oil Futures Steve Perkins learned this the hard way.
http://jlne.ws/RuQLE1

The Coming Bacon Famine And The Glory Of Speculation In Food
Forbes
The LA Times brings us the distressing news that there is going to be a shortage, a near famine, of that food of the Gods that is bacon. Might want to get your fill of ham this year, because “a world shortage of pork and bacon next year is now unavoidable,” according to an industry trade group.
http://jlne.ws/QSpUiK
**DA: Is there really a bacon shortage, or is it just going to cost more?

Commodity ETFs to Fight Inflation
Yahoo! Finance
As the Federal Reserve extends its money printing spree to stimulate the economy, the extra cash sloshing around could eventually stoke inflation. However, investors can use commodity ETFs to help protect themselves against inflation and rising prices.
http://jlne.ws/QETXgE

Managed Futures/Managed Funds

Hedge fund fees rise as industry demand returns
Investment Europe
Hedge fund fees have been the focus of intense discussion in recent times, but certain investors say that better managers deserve the fees they earn. These are possibly a hedge fund manager’s favourite words: “Two and twenty”.
Together, they explain how hedge funds charge their clients – by taking 2% of fund assets plus 20% of profits. Just as important, though, they also explain why some successful managers are among the world’s richest entrepreneurs. But during the financial crisis, you could almost make an allocator’s blood boil, just by saying ‘two and 20’. http://jlne.ws/SpQsep
**DA: Let us not forget those other words – “high water mark” and “clawback.”

Thin hedge-fund bonuses expected in wake of weak returns
New York Post
Warning to all Mercedes dealers: hedge fund bonuses could be tight this year. Many money managers are looking at lower pay — in the form of performance fees — as tepid returns for 2012 fail to make up for last year’s steep losses.
http://jlne.ws/UCg1H0
**DA: Don’t worry – they have a plan. Read the next story.

Sunrise Study Affirms Diversification Benefits of Managed Futures Strategies
PR Web
Sunrise Capital Partners released a study today updating, affirming, and expanding the seminal academic work that first identified and quantified the significant diversification benefits managed futures strategies bring to portfolios of hedge funds and traditional financial assets.
http://jlne.ws/SYkwu1

Hedge funds play long game for profits
By Sam Jones in London
Profit-starved hedge fund managers, best known as masters of the financial universe, are turning to an unlikely place for their next windfall: the unglamorous world of long-only asset ­management.
http://jlne.ws/VVRzTi
**DA: Paying two and twenty to a managers, most of whom will not significantly beat relative benchmarks? The odds are better in blackjack

Hedge Funds Bullish on Silver as Hoard Nears Record
Bloomberg
Hedge funds are the most bullish on silver in seven months and investors’ holdings are expanding toward a record on speculation the metal will outperform gold as central banks seek to boost growth. Wagers on rising prices jumped 10-fold since June, U.S. Commodity Futures Trading Commission data show. Investors bought 717.2 metric tons valued at $797 million through exchange-traded products this quarter, the most in a year, according to data compiled by Bloomberg.
http://jlne.ws/Uwu2WE
**DA: Why is it that journalists refer to metals trades as “wagers” but equities trades are “investments?”

Young Money Managers Launch Hedge Fund Focused on Macro Global Events
PR Newswire via Yahoo! Finance
WILMINGTON, N.C., Sept. 27, 2012 /PRNewswire/ — Lumina Investments, LLC, founded and managed by three North Carolina college students, has opened its first hedge fund that seeks to capitalize on the growing influence of “macro events.”
http://jlne.ws/W8DSR8
**DA: There is no returning to the ‘good old days’ of investing in companies based solely on their balance sheets,” says one of the founders. Funny; that is the same thing said to Warren Buffet in 1999 for his refusal to join the dot com bubble. These kids were in grammar school then. I hear the sound of history repeating.

Pensions & Institutions

Analysis: They’re back! Yield hunt pushes funds into CLOs, CDOs
Reuters via Yahoo! News
NEW YORK – Fund managers are increasingly eyeing riskier exotic assets, some of which haven’t been in fashion since the financial crisis, as yields on traditional investments get close to rock bottom. Returns from investments in “junk” bonds, government guaranteed mortgage securities and even some battered euro-zone debt are plunging in the wake of global central bank policies intended to suppress borrowing costs.
http://jlne.ws/U0bnaX
**DA: Ugh! Chasing a few extra basis points by piling on risk. Have we learned nothing from the past 5 years? Perhaps the lesson is that the Fedwill always be there to backstop the market.

Pensions threatened by bond ‘bubble’
Telegraph
Your pension may be 75pc invested in bonds as you near retirement – bad news if they crash. We look at your options.
http://jlne.ws/QSDfaS

Illinois Teachers Retirement System lowers expected rate of return on investments
Crain’s Chicago Business
The board for the biggest Illinois pension fund, the Teachers Retirement System, voted Friday to lower its expected rate of return on investments, a move that will automatically boost the pension’s liabilities and the required state government contribution to the already underfunded pension.
**DA: They lowered the rate to 8 percent from 8.5, which added $300 million to 2014 contribution. I guess they better not invest too heavily in treasuries – the 10 year is at 1.62 percent as of this morning.

U.S. Institutional Investors Say Alternative Investments Are Essential as Volatile Markets Are Here to Stay
Business Wire via Yahoo! Finance
Three in four U.S. institutional investors have changed their approach to risk management over the past five years and now consider the use of alternative investments essential to diversify portfolio risk , according to a new study of 151 U.S.-based institutional investors by Natixis Global Asset Management , the 13th largest asset manager in the world.
http://jlne.ws/V6Hyox

TIPS Show Inflation Alarm Fading as Options Give Fed Time
Bloomberg
Bill Gross, who runs the world’s biggest bond fund, says the Federal Reserve’s open-ended plan to flood the economy with $40 billion a month will ignite inflation. The options market is signaling that won’t happen anytime soon.
http://jlne.ws/U0bqUg

Auditor general urges consolidation of municipal pension plans
The Beaver County Times
Pennsylvania has seven times as many municipal pension plans as any other state and 25 percent of all the municipal pension plans in the nation — and about 40 percent of them don’t have enough money in them to cover liabilities.
http://jlne.ws/SYhJ3N

Liability Driven Investing Main Topic at SEI’S 2012 Pension Management Strategy Client Conference
Marketwire via Yahoo! Finance
Liability driven investing , the implications of new pension legislation, and strategies for reducing pension liabilities via lump sum payments were among the most popular topics of discussion at SEI’s recent Pension Management Strategy Client Conference.
http://jlne.ws/O0D4Ni

New strategies come to fore as funds take broader view
FT.com
On the face of it, appetite among global pension funds for alternative assets is rising. Institutional investors around the world have been looking for asset classes that are less correlated ever since the credit crunch in 2008. Pension funds now hold 20 per cent of their total wealth in so-called alternatives, which include hedge funds, private equity and commodities, up from 5 per cent 15 years ago, according to a recent survey from Towers Watson.
http://jlne.ws/Rv1rCv

Regulation

Court Rejects CFTC Rule Limiting Speculation
FOX Business
A new rule set up by the post-crisis Dodd-Frank Act to limit speculative trading in the commodities market was vacated Friday afternoon by a district court.
http://jlne.ws/STCJ0U

Currensee Delivers PAMM Replacement Solution for CTAs and Money Managers
Marketwire via Yahoo! Finance
Currensee , the industry’s first foreign exchange alternative investment service, today announced the launch of the Currensee Intelligent Multiple Account Manager . Currensee IMAM will enable managers to set allocations centrally for all accounts and execute trades across multiple accounts at once.
http://jlne.ws/UwvmJ3
**DA: New NFA and CFTC rules have made PAMM accounts akin to commodity pools.

Swiss party wants to ban agricultural commodity speculation
Reuters
A Swiss political party is seeking to drum up support for a national vote to ban banks and other financial institutions from speculating in agricultural commodities, in the latest sign of growing political backlash against record food prices.
http://jlne.ws/Rv2SkB
**DA: Glass-Steagall, Swiss-style?

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