In today’s issue, doomsdayer Marc Faber says that rumors of the death of alpha are highly exaggerated, the rate of new fund launches has slowed considerably, and an Oliver Wyman white paper predicts a shake-up in the commodity trading industry. But up first, JLN Managed Futures recaps last Thursday’s CTA Expo Chicago.
Quote of the day:
“The fallacy of monetary policy in the U.S. is to believe this money will go to the man on the street. It won’t. It goes to the Mayfair economy of the well-to-do people and boosts asset prices of Warhols. My asset values go up but as a responsible citizen I have to say the monetary policies of the U.S. will destroy the world”
-Marc Faber, publisher of the Gloom, Boom and Doom Report, in a Bloomberg Television interview September 14, 2012
Observations – Statistics – Commentary
CTA Expo Chicago, September 13, 2012
Last Thursday, September 13, the JLN Managed Futures team spent the day at CTA Expo Chicago. A sellout crowd of about 450 people attended the event at the UBS Tower Conference Center – CTAs, fund managers, allocators, service providers and more. In addition to panels on emerging managers, diversification, and CTA opportunities in China, keynote speaker John Savercool of UBS offered his take on the macroeconomic impact of the upcoming elections in the U.S. John Lothian News Editor-in-Chief Jim Kharouf finished the day with a discussion of CTA marketing in today’s media environment. Congratulations to hosts Frank Pusateri and Bucky Isaacson on another successful Expo.
Managed Funds Association Announces 2012/2013 Board of Directors, Continued Focus on Coordinated Global Outreach
Business Wire via Yahoo! Finance
Managed Funds Association , the voice of the global alternative investment industry representing hedge fund and managed futures firms managing approximately seventy-percent of industry assets, today announced its 2012/2013 Board of Directors.
**DA: Maverick Capital’s William Goodell re-elected as chairman; new board members include Christopher Greene of Tudor, David Haley of HBK, Steve Kessler of S.A.C. Capital, and Kimberly Summe of Partner Fund Management. Congrats to all.
Trend to overcharge and overtrade persists
Jonathan Davis – FT
The damning money-weighted rates of return analysis carried out by Simon Lack in his book The Hedge Fund Mirage has prompted a useful debate about the true returns recorded by hedge funds. Industry lobbyists have not had much luck in undermining his critique, which is hardly surprising as the data, interpreted correctly, is essentially unanswerable, although the conclusions people draw from the data is another matter.
**JK – Food for thought in the managed futures space – are fees too high?
SEC Weighs Up Sophisticated Investors’ Sophistication
Stephen Taub – Institutional Investor
As the Securities and Exchange Commission prepares to permit hedge funds and other private partnerships to advertise, the trade group that looks out for the interests of hedge funds has asked the regulator to spell out exactly what they must do to verify whether investors are accredited after the rules in the Jump Start Our Business Start-ups Act (JOBS Act) are finalized.
**JK – Much is made of the JOBS Act and hedge fund advertising. It may not be the boost everyone expects though.
Study: Alt ETFs growing on advisers
Advisers plan to increase their use of alternative ETFs at twice the rate of alternative mutual funds over the next two years; overall alternatives use slipping.
**JK – Managed futures ETFs appear to be limited by SEC regs.
Investors Redeemed $12 Billion from Laggard Hedge Funds in July
Stephen Taub – Institutional Investor
Investors have been a little leery of hedge funds. And who can blame them, given that hedge funds have now lagged the broader indexes for nearly two years. According to eVestment’s latest data, hedge fund investors redeemed an estimated $11.8 billion in July alone, bringing total industry assets to $2.52 trillion.
**JK – Interesting fact from the story: “More investors redeemed than invested in hedge funds for four of the previous five months through July.” (Also see: Are Investors Growing Weary of Hedge Funds? below)
Wall Street Scams Get Personal in Richard Gere’s ‘Arbitrage’
In the new film drama “Arbitrage,” Richard Gere brings shady Wall Street dealings to the big screen as a hedge fund titan trying to cover up huge losses from a risky copper investment.
**JK – Just what the hedge fund world needs – another greed and hubris movie.
|Managed Futures Scorecard||9/13/2012|
|Newedge Indices||MTD Return||YTD Return|
|Newedge CTA Index||-0.25%||0.64%|
|Newedge CTA Trend Sub-Index||1.12%||0.97%|
|Newedge Trend Indicator||1.55%||-11.73%|
|Newedge Short-Term Traders Index||0.38%||-2.22%|
|Barclay Indices||MTD Return||YTD Return|
|Barclay CTA Index||1.33%|
|Barclay UCITS Index||5.29%|
|BTOP FX Index||0.20%||1.78%|
|BTOP 50 Index||0.06%||1.03%|
|Morningstar Long/Short Com. Index||-1.34%||-6.8|
Market Extra: Faber sees comeback for hedge funds, China
Marc Faber, famous for his bearish investment posture, sees the potential for hedge funds to make up lost ground and for equities in both China and Europe to outperform.
**DA: Faber is fading last week’s FT article “End to ‘alpha’ spells trouble for fund managers.” Who will be right?
Are Investors Growing Weary of Hedge Funds?
Stephen Taub – Institutional Investor
Investors appear to be fed up with hedge funds, at least for the time being.
For example, HFR Thursday reported that the number of launches of new hedge funds is on the decline. It counted 245 launches in the second quarter, down from 304 in the prior quarter. The June period marks the lowest quarterly launch total since the fourth quarter of 2010.
Oliver Wyman Predicts Major Commodity Trading Industry Shake-Up
Business Wire via Yahoo! Finance
The commodity trading industry is about to undergo its biggest transformation in 30 years, predicts a report released by leading global management consulting firm Oliver Wyman. “The Dawn of a New Order in Commodity Trading” argues that, as a result of rising financing costs and competition, the global commodity trading industry will see significant acquisitions, investments, public offerings, and new entrants in coming years.
Managed Futures/Managed Funds
Focus on rolls, not spot commodity prices: John Kemp
Roll returns rather than spot price movements have been a much more significant source of profits and losses for commodity investors over almost any time horizon. Yet most investors still formulate their strategy in terms of outright price moves rather than the spreads, missing out on the most important source of long-term performance.
Commodity ETFs: Beyond DBC
ETF Trends via Yahoo! Finance
Broad commodity ETFs have rallied since mid-June. While the $6.7 billion PowerShares DB Commodity Index Tracking Fund has attracted its fair share of interest, traders may also consider alternative fund strategies.
Investors pull more money away from hedge funds
Investors took more money away from hedge funds in July when they asked for $7.4 billion back, underscoring their frustration with an industry that has long promised to make money in all markets but is currently delivering only middling returns.
Hedge funds plow into commodities just before QE3: CFTCReuters
Hedge funds and other big speculators pumped more than $6 billion into U.S. commodity markets this week, the most in three weeks, just before the Federal Reserve announced a third round of stimulus for the U.S. economy, trade data showed on Friday.
**DA: Good call. Hope they don’t all rush for the exit at the same time, though.
Hedge Funds and DC Plans: Happy Together?
In the past couple of years, plan sponsors have become intrigued by illiquid investments like private equity, hedge funds, derivatives and direct real estate, as uncorrelated, diversified counterpoints to the volatile traditional markets. But because it can be difficult to value these complex products — much less explain them to participants who may not even understand a basic equity fund all that well — these asset classes, if its accurate to describe them as such, can’t be part of the regular investment menu. Many managers don’t think they even fit into off-the-shelf target date funds.
How to Invest Using Managed Futures
Altegris Investments CEO Jon Sundt talks about his investment strategy for Managed Futures. He speaks on Bloomberg Television’s “Money Moves.”
Pensions & Institutions
US funds fall out of love with commodities
A brief love affair with commodities is over at the $36bn Illinois Teachers’ Retirement System, one of the biggest public pension funds in America. Four years after hiring managers to make new commodities investments, the pension fund has scrapped the strategy and shuffled money into a portfolio it says “better reflects conditions in the world economy”.
New Jersey Pension’s Secondary Market Approach to Hedge Fund Allocation
Anastasia Donde – Institutional Investor
Although it is not unusual these days for a pension fund to dump its fund-of-funds managers and invest directly in hedge funds, it’s less common for another pension fund to scoop up those same assets for its own portfolio.
But that’s exactly what is happening at the $49 billion Massachusetts Pension Reserves Investment Management Board http://bit.ly/OxgSpA
Eugene Linden: In a World of Underpriced Risk, What Could Possibly Go Wrong?
By Eugene Linden , a journalist and author of seven books who has written extensively about animal behavior, environmental issues, and markets On a recent conference call, the strategist of a major international bank laid out the bare bones of what he called the world’s “giant experiment” in debt and interest rates.
**DA: Article quotes an IMF study of banking crises, which concluded that the result of propping up a failed banking sector is “a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline than would have occurred.”
SEI Quick Poll: Pension Plan Sponsors Combat Volatility and Low Interest Rates; Many Prefer Not to Terminate
SEI released the results of its fifth annual mid-year pension Quick Poll, revealing ongoing frustration among corporate pension plan sponsors in continuing to combat market volatility and low interest rates in 2012. Of the 110 participating U.S. and Canadian plan sponsors, more than half (55 percent) have closed the plan to new entrants, meaning that new employees cannot participate in this retirement benefit. However, given the hypothetical option of terminating a fully funded plan, more than half (56 percent) of plan sponsors said they would not terminate, as the pension remains too critical a part of their organizations’ employee benefits structure.
Harrison: Public pensions don’t need fixing
Public employee retirement systems and pensions are under attack. Those who are on the attack use such words as “unsustainable,” “unfunded,” and “bankrupt” to describe defined benefit pension funds. Words like “lavish,” “overly generous,” and “greedy” are used to describe the benefits afforded by these pension systems and the public employees who receive the benefits.
**DA: A number of pension plans in this country are fully funded and conservatively managed. Mr. Harrison should travel to New York, Illinois or California to see why many public pensions DO need fixing.
Asset gap widens as funds of funds slide
The gap between the growing assets managed by large hedge fund managers and the dire declines of many hedge funds-of-funds firms widened into a chasm over the past year.
Hedge Funds Ask SEC to Limit Liability in Solicitation Rule
The Hedge Fund Association—which represents investors, hedge funds and service providers— has asked the Securities and Exchange Commission to specifically tell private fund managers what they will need to do to safely verify whether investors are accredited once a new rule allowing solicitation and advertising of private funds is finalized.
Plea: Peregrine CEO can’t profit from fraud story
Associated Press via Yahoo! News
If he ever writes a book about his stunning 20-year fraud scheme, disgraced Iowa businessman Russ Wasendorf Sr. must give the profits to the government that he fooled for so long.
**DA: You can’t make this stuff up: “I have to say I don’t feel bad about having deceived the regulators,” Wasendorf wrote. “During the last 30 years that I have been exposed to the [CFTC] they have become more and more mean-spirited. … Well, they can put another feather in their hat! They have successfully put another firm out of business.”
Trades After 2008 Meeting Probed
JULIET CHUNG and JEAN EAGLESHAM – WSJ
U.S. securities regulators are investigating possible insider trading by Wall Street executives who attended a private meeting with then Treasury Secretary Henry Paulson in 2008, according to people familiar with the probe.