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May 2012

May 15, 2012: There's Nothing Wrong With Hedging; Managed Futures Can Smooth Your Ride

May 15, 2012 by Ron Sebonia   Comments (0)

Observations - Statistics - Commentary

London - Emerging Manager Forum, June 28, 2012, Mayfair Hotel
CTA Expo
Are you tired of talking to the same people? Are you looking to expand your rolodex?  Emerging Manager Forum was established to help Professional Capital Raisers, Asset Allocators and Clients identify new international trading talent, including CTAs, FX and global macro traders, and to promote investing in managed futures, foreign exchange and hedge funds.The second annual Emerging Manager Forum - London (EMF London), will be held at The May Fair Hotel, June 28, 2012.
**DA: Special note from Frank and Bucky: Keynote speaker just added - Eirv Knox, former CEO of Abu Dhabi Commercial Bank and current chairman of Ambata Global Advisors. Impressive resume, great speaker and a unique perspective on a growing area of alternative investment.

Managed Futures Pinnacle Awards, Monday June 11, 2012, Chicago
Join CME Group and Barclay Hedge for the first and only awards event to recognize excellence exclusively in the managed futures space
**DA: The JLN Managed Futures team will be there. Be sure to look for us.

Managed Funds Association Forum 2012, June 12-13, 2012, Fairmont Millennium Park, Chicago
Forum 2012 is MFA’s 18th Annual Managed Futures and Global Macro Strategies conference. Forum 2012 is designed to engage MFA’s members with institutional investors to discuss the economy, regulatory reforms, investment opportunities and investor needs.

A whale in the waters of negative yields
Bill Gross, featured in FT.com
In nature, the mighty whale depends upon the lowly plankton for its survival and the same analogy rightly applies to global developed economies, which have dominated trade and finance at the expense of developing nations. Now the tides may be turning as once minuscule global economies find themselves in possession of a plethora of reserves. The hunted may be turning into the hunter and the global monetary system, which has evolved and morphed over the past century – but always in the direction of easier, cheaper and more abundant credit – may have reached a point at which it can no longer operate in the same way. Major changes to our global monetary system may lie on a visible horizon.

Quote of the Day

"Hedging is fine, but when you have a complex and highly diverse portfolio like JP Morgan, you end up taking on too much risk and creating your own derivative products to manage those risks."

Lance Roberts, chief strategist at Street Talk Advisors, a Houston-based investment advisory

Managed Futures Scorecard 5/15/2012
Newedge Indices MTD Return YTD Return
Newedge CTA Index -0.08% -0.55%
Newedge CTA Trend Sub-Index -1.16% -0.11%
Newedge Trend Indicator -1.76% -5.73%
Newedge Short-Term Traders Index 0.86% -1.63%
Barclay Indices MTD Return YTD Return
Barclay CTA Index -0.57%
Barclay UCITS Index 5.03%
Barclay Hedge Fund Index 5.03%
BTOP FX Index 0.50% 1.27%
Morningstar Long/Short Com. Index -1.00% 2.72%

Lead Stories

There's Nothing Wrong With Hedging, Except...
Americans might have had enough of hedge strategists, but the truth is that investors use hedging strategies to protect investments.  If investors have a portfolio that’s long the S&P 500, it can buy S&P index option puts to protect that position in a bear market and lose less.  If a farmer wants to protect from falling corn and soybean prices, it can lock in the price in the futures market, also a hedging strategy.

Managed Futures Can Smooth Your Ride
Managed futures funds take advantage of trends in various options, futures, and currency markets to weather choppy markets, writes Dave Kavanagh. He also explains how his managed futures fund-of-funds can also capitalize on both sides of the market, by going long as well as short.

Altegris' Strategic Investment Conference Draws Leaders From Across The Financial Industry
Altegris held its ninth annual Strategic Investment Conference from May 2-4, 2012 at the Park Hyatt Aviara Resort in Carlsbad, CA. The conference was co-hosted by renowned financial expert John Mauldin and brought together some of the world's top economic minds in addition to over 400 professional and qualified individual investors
**DA: If you missed our recent interview with Altegris' Max Eagye, you can view it on MarketsWiki.tv.

TrimTabs and BarclayHedge Report Hedge Funds Take in $2.3 Billion in March
BarclayHedge and TrimTabs Investment Research reported today that the hedge fund industry added $2.3 billion (0.1% of assets) in March, down from a $6.8 billion inflow in February and only the fourth monthly inflow since July 2011. Based on data from 3,034 funds, the March TrimTabs/BarclayHedge Hedge Fund Flow Report estimated that industry assets stood at $1.8 trillion in March, up 2.2% from $1.7 trillion in February.
**DA: Still attracting investment despite relatively flat returns thus far in 2012.

Investors losing faith in commodity hedge funds
Investors in some of the best-known commodity hedge funds are getting increasingly frustrated by their performance, with some heading for the exit as managers rack up a second year of losses. Some major funds focused on energy, metals and agricultural products have fallen this year after traders - still cautious about big bets following last year's losses - sought to protect themselves against rising volatility just as it fell.
**DA: Some of the biggies are closing up shop, such as John Arnold's Centaurus and the once wildly successful BlueGold oil fund. Read on:

Fortress to Close Commodities Fund After 13% Decline

Fortress Investment Group LLC (FIG), the first publicly traded private-equity and hedge fund manager in the U.S., said it will close its commodities fund on or around May 23 and return the money to investors after losing almost 13 percent in the past four months. Fortress Commodities Fund LP declined 4.2 percent in April and fell 13 percent since the start of the year through April 30, New York-based Fortress said in a May 8 regulatory filing with the U.S. Securities and Exchange Commission.

Managed Futures/Managed Funds

How Much to Invest in Managed Futures
Fund manager Greg Anderson tells how his fund’s sub-advisors use trend following and forecasting strategies in tandem. He also describes his firm’s method for determining the proper allocation of managed futures within an investor’s overall holdings.

Hedge Fund Giant Man Names Dr Douglas Greenig New AHL CRO
Global hedge fund Man Group plc, announced an addition to the management team at AHL, its industry-leading quantitative managed futures manager.

How to buy futures

The futures market is often seen as a casino, a legal betting parlor for speculators of the kind portrayed in the 1983 movie "Trading Places." Futures are speculative, leveraged instruments and aggressive traders can lose big, but these derivatives also can be prudent ways to diversify portfolios and hedge against losses in volatile markets.

Was Managed Futures Tackled by Turbulence? When is Volatility a Friend or Foe?
Lackluster performance in the Managed Futures sector in 2011 has certain investors asking tough questions. The most common of these is related to volatility and the fact that during last year’s times of market turbulence CTAs seemed to struggle despite the fact that they are often sold under the tantalizing “long volatility” moniker. In a recent paper educational/thought piece for the CME Education Group, this complex or “convex” relationship is decomposed by volatility cycles to help clarify these issues.

Bullish Wagers Plunge Most This Year on Greek Impasse
Speculators cut bets on a rally in commodities by the most since November as Greece’s struggle to form a new government and weaker-than-expected industrial output in China erased this year’s gains in raw materials. Money managers reduced net-long positions across 18 U.S. futures and options by 19 percent to 723,239 contracts in the week ended May 8, the biggest decline since Nov. 22, Commodity Futures Trading Commission data show.

How to Battle a Deflationary (debt) Economic Climate: Build a Portfolio For A Variety of Market Environments
By Mark Melin, Opalesque
"In a deflationary environment, it is very hard for investors to hide," Cantor Fitzgerald's John Trammell said, who went on to note an investment that offers a family office a hedge to their beta exposure would be of interest. The general benefit of managed futures investments are their lack of strategic correlation to the variables of economic strength. Most investments are based on the concept of an asset-stock, real estate, commodity-rising in value. Managed futures is a slightly different animal in that, due to the different market environment considerations, managed futures can deliver returns independent of the rising or falling value of assets. In other words, managed futures trend followers could perform positively in a deflationary environment so long as such an environment created consistent price trends.

Pensions & Institutions

TIAA-CREF Announces $2 Billion Global Agriculture Company
TIAA-CREF has finished reaping funds for its agricultural investment company, raising $2 billion, including commitments from pension funds of Sweden and Canada's British Columbia and Quebec.
**JK - More of a physical/real estate play than futures but interesting nonetheless.

China May Give Foreign Pension Funds New Investment Opportunities
Chinese authorities are mulling whether to create a new mechanism for foreign pension funds that would be outside the country's main official investment program for international investors, according to people who have been briefed on the matter. Currently, foreign investors have limited access to Chinese markets except through programs such as the Qualified Foreign Institutional Investor, or QFII, program.

Regulators Move to Take Over Pension Funds at New York Law Firm Dewey & LeBoeuf LLP
The Pension Benefit Guaranty Corp., which oversees U.S. private-sector pension plans, wants to terminate three Dewey & LeBoeuf plans that it says are underfunded by about $80 million.
The move highlights the firm's deteriorating financial condition. Dewey & LeBoeuf has only $127 million in assets to cover $214 million in obligations, according to a person familiar with the matter.
**JK - All kinds of Dewey names to attach here.

Taxpayers deserve facts, not spin, on Fort Worth pension program
Mitchell Schnurman, Fort Worth Star-Telegram
A year ago, the Fort Worth pension fund issued a news release to trumpet a big improvement in its financials. "It was good news," a spokeswoman explained. Last month, a new report showed a sharp reversal in the same measure, and officials didn't send out anything.
*DA: A must-read for anyone concerned about the future of municipal pensions. But first, please remove sharp objects from the vicinity.

Alternative investments continue to dominate Australia's Future Fund portfolio
Alternatives still dominate Australia’s Future Fund portfolio, with its 1st May publication of end March figures showing the A$77bn ($77bn) fundʼs alternatives allocation remained steady at around A$14.48 billion ($14bn).

In Search of Better Returns, Insurance Companies Dial Up the Risk

Institutional Investor
Victims of the same low yields that are plaguing other investors, insurance companies of all stripes have had to move further out of their comfort zone. Besides chasing the higher returns that come with riskier assets, many of them are outsourcing their alternative investment portfolios.


Regulators at odds over longer CME grain cycle
Reuters via Yahoo! News
Jill Sommers, a commissioner at the Commodity Futures Trading Commission, said CME Group should be allowed to increase trading of its grain futures and options to 22 hours a day. In a Reuters interview, Sommers said the CME's request is similar to other markets that trade nearly around the clock.

Regulations on the Horizon for the Hedge Fund Industry
Managed Funds Association
With the passage of the landmark Dodd-Frank Wall Street Reform and Consumer Protection Act, hedge funds are regulated today as never before. Recently, some of the largest hedge fund managers were required to register with the Securities and Exchange Commission, an important section of regulation that was included in the Dodd-Frank Act.
**DA: Also released by MFA this month is a presentation on the impact of the JOBS Act on Regulation D.

Hedge Funds Are Shadow Banks in Need of Regulation, Bafin Says
Hedge funds act as shadow banks and should be added to the list of organizations in need of regulation, according to Raimund Roeseler, head of banking supervision at Germany’s financial regulator Bafin. Shadow-banking definitions by the Financial Stability Board and the Basel Committee are too narrow, Roeseler said. Bafin is working on its own proposals to regulate the sector and will provide them for the discussion at the FSB, he said.

Form PF: Know your RAUM, consider who will view the report, but ultimately ‘Be prepared’ says GlobeOp’s Barback
Hedge funders managing north of USD5billion in assets face a rapidly encroaching 15 June 2012 deadline to file Form PF.

Oil, commodity price swings not driven by funds: ICI
Fighting back against the widespread notion that speculation has driven commodity and in particular oil prices, the Investment Company Institute on Wednesday released a study showing that fundamentals rather than fund flows drive commodity prices.
**DA: Perhaps this is what scares politicians and regulators the most. I shudder to think where we would be if fundamentals were truly reflected in asset prices.

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May 1, 2012: Managed Futures Pinnacle Awards; Wisdom Tree Receives Award; Volatility Returned Briefly in April

May 3, 2012 by Ron Sebonia   Comments (0)

Observations - Statistics - Commentary

Hedge Fund Marketing and the JOBS Act - Five Minutes with Bart Mallon, Cole-Frieman, Mallon & Hunt LLP

On April 5, 2012 President Obama signed into law the Jumpstart Our Business Startups Act (“JOBS Act”). Inserted into the Act were provisions on hedge fund marketing and accredited investor restrictions. John Lothian News Editor-at-Large Doug Ashburn spoke with Bart Mallon of Cole-Frieman, Mallon & Hunt LLP about the JOBS Act provisions, what they entail and how it will affect the hedge fund community.

Managed Futures Pinnacle Awards
CME Group and BarclayHedge proudly present the first and only awards event to recognize excellence exclusively in the managed futures space. On June 11, the Managed Futures Pinnacle Awards will honor the top managers in the industry today, and provide opportunities for managers to meet new investors.

Quote of the Day

"If you’re on a gurney, about to go into surgery, do you raise your hand and ask, “Can I have the cheapest surgeon?” No, you want the best surgeon. So I think the average investor has to think about having exposure to alternatives, because all that means is you have exposure to skill-based managers."

Mark Yusko, founder and head of Morgan Creek Capital Management, on the nature of alternative investments.

Managed Futures Scorecard 4/30/2012
Newedge Indices MTD Return YTD Return
Newedge CTA Index -0.06% -0.59%
Newedge CTA Trend Sub-Index 0.53% 0.81%
Newedge Trend Indicator -2.07% -3.39%
Newedge Short-Term Traders Index 0.06% -2.26%
Barclay Indices MTD Return YTD Return
Barclay CTA Index -0.55%
Barclay UCITS Index 5.78%
Barclay Hedge Fund Index 5.56%
BTOP FX Index 0.27% 0.77%
Morningstar Long/Short Com. Index 0.85% 3.13%

Lead Stories

WisdomTree Receives Award for 'Most Innovative ETF' for Managed Futures Strategy Fund (WDTI)
WisdomTree, an exchange-traded fund sponsor and asset manager, announced the WisdomTree Managed Futures Strategy Fund (WDTI) has been recognized as the 'Most Innovative ETF in 2011' by a committee of analysts who cover ETFs in connection with Capital Link's 11th Annual Closed-End Fund and Global ETF Forum. 

Hedge funds in pole but is it enough?
I do not doubt that hedge funds can produce a strong return for a reasonable amount of risk. But what I do doubt, and what investors need to know, is whether hedge fund managers really exploit the advantages of their business model well enough to justify the fees they charge.
**JK - This article brings up the good question of whether the hedge fund strategy is scalable. 

Don't Bank On It
Alternative Investing By GREGORY ZUCKERMAN - WSJ.com 
Leveraged loans and managed futures offer opportunities, but beware risks 
**DA: Article quotes several wealth management executives who question the sometimes-high fee structures associated with managed futures. What did the pot call the kettle?

PerTrac: Largest Hedge Funds Continue to Dominate
Single-manager hedge funds with greater than $1 billion under management account for a mere 3.9% of reporting funds, but they control about 60% of the total single-manager hedge fund assets, according to a study conducted by PerTrac.

Actively Managed ETFs
With the launch on Thursday of three new funds offered by State Street, there are now 47 actively managed ETFs total, which compares to around 1,500 exchange-traded products overall. In spite of the relatively low numbers, actively managed funds represent the future of the industry, Morrison said.
**JK - Interesting look at actively managed ETFs.

Once Reviled, Hedge-Fund Manager Rebounds
Rapidly hitting the buttons on his calculator, John Devaney totes up some of the things he had to jettison as his hedge fund crashed: a $36 million jet, $10 million helicopter, $45 million art collection and $22 million yacht called "Positive Carry," named for an investment strategy that rakes in easy money.

Merlin Develops Decomposition Tool for ETFs

Merlin’s ETF decomposition tool allows clients to run a position report that can tell them their total exposure to a stock, whether it is held outright or indirectly through an ETF. The tool can be used for risk management and to help attribute portions of fund performance to individual stocks. 
**JK - At first glance, I'm not crazy about something being called a decomposition tool. But on second look, it's an interesting idea.

Managed Futures/Managed Funds

Eze Castle releases white paper on tech solutions for Form PF
Eze Castle has released a new white paper providing an in-depth examination of the challenges that Form Private Fund (Form PF) regulation poses to hedge funds. It also looks at the factors that customers should consider when making technology decisions for filing and data management.
**The White Paper, "Preparing for Form PF" can be accessed through the press release HERE.

Analysis: Smaller managed futures funds tempt investors
Smaller managed futures funds able to exploit niche commodity markets and the most volatile conditions are increasingly likely to win assets from investors disappointed with returns from the big trend-followers that dominate the industry.
**DA: No easy feat for a $10 billion fund to make a move in, say, the cocoa market without affecting the price.

Volatility Returned Briefly in April, Smacking Hedge Funds
Stock-trading hedge funds looking to extend their first-quarter rebound ran into a familiar adversary this month: a nervous market.

Managed Futures Strategies
In recent years, the asset class and investment approach has started to become democratized in more retail-friendly vehicles. Today investors can access the benefits of managed futures by not only investing with the traditional commodity trading advisors (CTAs), but also by investing in mutual funds and exchange-traded funds.

Analysis of Hedge Fund Influence in New York State Politics 
Of the Top 20 recipients of hedge fund dollars Governor Andrew Cuomo ($3,486,162.90) and former Governor Eliot Spitzer ($1,947,192.44) lead the list. 14 of the Top 20 recipients are statewide candidates, reflecting the sky-high contribution limits for these offices.

William Blair & Company Introduces Commodity Strategy Long/Short Fund
The Commodity Strategy Long/Short Fund is designed to give broad exposure to commodities and seeks to provide attractive risk-adjusted returns with low correlations to traditional asset classes. It is also expected to maintain the inflation protection of commodities investing, while maintaining the ability to profit in both up and down commodity markets. The fund is actively managed and uses a multi-manager approach, typically providing exposure to between 6 and 15 commodity trading strategies. 

TFG Systems Appoints Marc Sharman to Manage Outsourcing Service to Hedge Funds
TFG will offer hedge funds an outsourced operations service, leveraging their industry expertise to manage fund operations, covering: trade confirmation, trade related settlements, trade feeds to relevant counterparties, reconciliation, and reporting. 

Pensions and Institutions

A Chat With Mark Yusko
Mark Yusko is the founder and head of Morgan Creek Capital Management LLC. From 1998 to 2004, he led the endowment office at the University of North Carolina at Chapel Hill. Journal of Indexes caught up with him recently to discuss the nature of alternative investments.

Defined benefits are being re-imagined
Mitchell Schnurman, Star-Telegram.com 
Traditional pensions are struggling for many reasons: low investment returns, too-generous benefits, and the happy fact that people are living longer than expected. But to understand why pensions can't seem to break a sorry cycle, look no further than what happened last week in Fort Worth.
**DA: From the article: "At the end of 2007, before the Great Recession and stock dive, Lockheed's accrued pension liability was about $1 billion. On Dec. 31, it was $13.5 billion." Yowza!

BlackRock Said to Plan Asia Investment Fund With CIC
CIC, the nation’s sovereign-wealth fund, and BlackRock will initially provide capital for the investments, which would be in Chinese companies and businesses that sell products in China, said the person, who asked not to be identified because the details aren’t public.

Video: Mark O’Hare, Founder & CEO, Preqin
AllAboutAlpha: Hedge Fund Trends & Alternative Investment Analysis 
Mark O’Hare, Founder & CEO, Preqin, discusses the future of alternative investments and their role in institutional portfolios, private equity, data transparency, and the need for education in the alternative investment industry.

Japanese Pensions Plan More Alternative Investments After AIJ
Retirement funds that plan to increase investments in the asset class, which includes hedge funds and private-equity funds, in the current fiscal year that started April 1 totaled 20.6 percent, according to the survey by JPMorgan’s Tokyo-based asset management unit. That was the most among 10 asset types.

Japan's Pension Fund Association (PFA) Selects MSCI's RiskMetrics HedgePlatform
MSCI Inc. MSCI -0.65% , a leading provider of investment decision support tools, announced today that Japan's Pension Fund Association (PFA) has chosen RiskMetrics HedgePlatform as their hedge fund transparency provider. 

As private equity portfolios expand globally, emerging markets see growing share
Pensions & Investments 
More private equity investors are delving into emerging markets, but significant hurdles remain to finding sustained outperformance, according to consultants and pension fund executives. 


Regulations face implementation hurdles and could curb innovation, warns NYSE Euronext 
Hedge Funds Review
Regulators in the US and EU face problems in implementation of the myriad rules created through Dodd-Frank and various European legislation, warns NYSE Euronext’s Garry Jones. The move to clearing over-the-counter derivatives on exchanges may be heading in the right direction on paper but implementation is going to be difficult on both sides of the Atlantic.

Hedge fund managers need to pay closer attention to details of regulation to avoid compliance pitfalls 
Hedge Funds Review
Hedge funds are in danger of missing important compliance criteria if they do not keep on top of the fine print of regulation, according to Marie Defalco, vice chair of the investment management group at US law firm Lowenstein Sandler. “You almost have to have someone in the house that’s focusing on [just regulation]. If you’re a smaller fund and you can’t afford in-house general counsel, you have to have someone that is doing the co-ordination with outside counsel, staying aware,” advises Defalco. 
**DA: We refer to Dodd-Frank as the "Attorneys and Compliance Professionals' Full-Employment Act of 2010."

CFTC Sued by Fund Industry to Overturn Registration Rule
The U.S. Commodity Futures Trading Commission was sued by two business groups seeking to overturn a rule requiring mutual funds with commodities investments to register with the agency. The CFTC didn’t properly assess the costs and benefits when it imposed the regulation in a 4-1 vote in February, the U.S. Chamber of Commerce and the Investment Company Institute argue in a lawsuit filed today in federal court in Washington. The measure is unnecessary, they said, because mutual funds are already overseen by the Securities and Exchange Commission. 
**DA: The cost-benefit red-herring is being used to challenge several sections of Dodd-Frank. For more on this, see the cost-benefit page on MarketsReformWiki

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Commentary: Attorney Bart Mallon on the JOBS Act and Hedge Fund Marketing

May 3, 2012 by Ron Sebonia   Comments (0)

Five Minutes with Bart Mallon, Cole-Frieman, Mallon & Hunt LLP

On April 5, 2012 President Obama signed into law the Jumpstart Our Business Startups Act (“JOBS Act”). Inserted into the Act were provisions on hedge fund marketing and accredited investor restrictions. John Lothian News Editor-at-Large Doug Ashburn spoke with Bart Mallon of Cole-Frieman, Mallon & Hunt LLP about the JOBS Act provisions, what they entail and how it will affect the hedge fund community.
Q: On April 5, 2012 President Obama signed into law the Jumpstart Our Business Startups Act (“JOBS Act”). Inserted into the Act were provisions on hedge fund marketing and accredited investor restrictions. What exactly do the provisions entail?
A: There is not actually any change in marketing provisions per se. What happened is the JOBS Act repealed earlier provisions in the securities laws which did not allow managers to have general solicitations with respect to their offerings. This essentially meant that managers could not solicit by advertising to the public through these private offerings and so managers really had to be careful when trying to grow the assets of their fund. One of the important things to note with respect to the provisions of the JOBS Act is that they can only market more freely if all of the investors of the fund are accredited investors. If they have non-accredited investors coming into the fund, then they cannot use these more liberal advertising means in order to solicit investors.
Q: Does this affect all types of fund structures?
A: For a 3(c)(1) fund structure, the accredited investor limit does not change. These managers are still limited to 99 individual investors. For 3(c)(7) funds, previously the limit was 499 investors. Now, that can be bumped up to 1999 investors. For 3(c)(7) funds, though, all investors must be qualified purchasers, which is actually a higher threshold than that of accredited investors.
Q: What do these marketing rules have to do with the JOBS Act, and why are they a part of it?
A: You have a couple things going on here. As people have been pointing out for a number of years, most of these securities laws were written in the 1930s, with the last one in 1940. The general nature of the industry has changed over the years; the JOBS Act is a reaction to some of the problems with these laws. Technological advances, and the ability of the internet to be a means of connecting with people in a way to market to potential investors - securities laws just do not address those issues. The JOBS Act was trying to find a way to balance investor protection of the securities laws with the ability for managers to go out and communicate and have a sort of certainty with respect to their activities on the internet.
Read the rest of the interview at MarketsReformWiki.com.

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