JLN Managed Futures

May 15, 2013 – Debby Hallett of Arthur Bell CPAs on Performance Reporting for CTAs & Managed Accounts, Chasing Returns: The Dangers of Linear Thinking

2013-05-15T13:01:45Z

JLN Managed Futures –
Observations – Statistics – Commentary

Debby Hallett of Arthur Bell CPAs on Performance Reporting for CTAs & Managed Accounts
MarketsWiki.tv

Debby Hallett is director of performance analysis for Arthur Bell Certified Public Accountants, a firm specializing in audit, tax, accounting, and advisory services for the alternative investment sector. Hallett, a licensed CPA, focuses on CTA and fund manager reporting procedures. She spoke with John Lothian News Editor-at-Large Doug Ashburn about presenting performance when a managed account is a fund, the differences between fund performance and CTA program performance, performance record examinations, and why more CTAs are outsourcing performance reporting services to a third party provider.

Watch the video »

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.
http://jlne.ws/YNNzrb

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.
http://jlne.ws/IW4UDa

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.
http://jlne.ws/WvBOqi

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”.
http://jlne.ws/11crN4i

Bloomberg Saga Highlights Clash Between Two Worlds
WILLIAM LAUNDER and CHRISTOPHER S. STEWART – Wall Street Journal
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.
http://jlne.ws/1432yPg

Hedge Fund Net Flows Advance 0.63% in May
HedgeCo.Net
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.
http://jlne.ws/14392xq

Barclay CTA Index Gains 1.11% in April; Systematic Traders Up 2.46% YTD
BarclayHedge
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.
http://jlne.ws/YWnAQO

Hedge Funds Up 4% Globally
HedgeCo.Net
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.
http://jlne.ws/15MVOJz

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.
http://jlne.ws/YWnU1T

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.
http://jlne.ws/10XrrXY

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.
http://jlne.ws/10XrpPQ

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.
http://jlne.ws/19tO63e
**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:
http://jlne.ws/10XrrY4

Alternative UCITS Strategies deliver strong start to 2013
Alceda
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
http://jlne.ws/16fMnSM
**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
http://jlne.ws/10XrqmM

Michael Lipper: we are all just gamblers
Citywire
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.
http://jlne.ws/YVX9KW
**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
Citywire
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.
http://jlne.ws/18L5T8s

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.
http://jlne.ws/17uP7LK

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.
http://jlne.ws/10XYfjF

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.
http://jlne.ws/16fEDjM

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.
http://jlne.ws/11EOVIN
**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
InvestorPlace
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.
http://jlne.ws/12v1seG
**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.
http://jlne.ws/YWmlkG

Alternative Fund Administration Survey
Risk.net
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
http://jlne.ws/13xmZo8

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.
http://jlne.ws/10yN8Od

U.K. corporate plans’ aggregate deficit worst since 2007
Pensions&Investments
The aggregate funded status of FTSE 350 corporate pension funds dropped two percentage points in April to 84%, according to a report from Mercer.
http://jlne.ws/10PnNVX
**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.
http://jlne.ws/11F1qUO

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.
http://jlne.ws/10PmyGp

New risk management tools for a post-financial crisis era
Pensions&Investments
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.
http://jlne.ws/14orwIx

Regulation

Cantab closes hedge fund as EU rules curb commodity investing
Reuters
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.
http://jlne.ws/101jxOk
**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.
http://jlne.ws/143grgs
**DA: Ditto the comment above.

Buzz on advertising rising as regs near
Pensions&Investments
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.
http://jlne.ws/13lJ5X5

May 1, 2013: CTAs eye swap futures; The end of the commodity party; So you want to be a CTA?

2013-05-01T10:31:12Z

Observations – Statistics – Commentary

In this issue, we see CTAs following a new trend – that of swap futurization. Some see the end of the commodity party, but a lady named Margarita says otherwise. George Soros continues to hurl verbal grenades at Germany after having recently declared war in the Eurozone. Our friends at Attain Capital ask, “So you want to be a CTA?” And Dodd-Frank is keeping the regulatory section of JLN Managed Futures full of new stories. But first, Allston Trading CEO Raj Mahajan takes a look at opportunities and challenges in the algorithmic sector.

So You Want to Be a CTA?

Attain Capital Management
From managed futures billionaire David Harding of Winton, to the legend of John Henry leveraging managed futures success into ownership of the Boston Red Sox, to the tale we recently told of Bill Eckhardt and the Turtle Traders – there are plenty of alluring stories to entice skilled traders to try their hand at becoming professional Commodity Trading Advisors (CTAs). Taking the leap from trading your own money to managing others’ is the first step toward building a legend of your own, but how realistic is it to turn that gleam in your eye into a successful enterprise and tens of millions in the bank?
http://jlne.ws/YdHCno
**DA: Making money is the easy part. Or so I hear.

Barclay CTA Index Up 0.57% in March; All Strategies Show First Quarter Gains
BarclayHedge
Managed futures gained 0.57% in March according to the Barclay CTA Index compiled by BarclayHedge. The Index is up 1.07% year to date.
http://jlne.ws/13022C8

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.
http://jlne.ws/IW4UDa

Lead Stories

CTAs eye swap futures
Kris Devasabai, Hedge Funds Review (Subscription Required)
The emergence of listed swaps and other esoteric futures contracts has piqued the interest of CTAs that are looking to increase diversification in programs by adding new markets
http://jlne.ws/159rmJf
**DA: All we need is liquidity and price action.

The end of the commodity party?
Richard Jeffrey, Fund Strategy Investment Committee
During a recent interview I did with a fund manager, it was suggested that after a decade of rising prices, the “supercycle” enjoyed by commodities is at an end. The theory went that 10 years of fast-rising growth meant it took a long time for supply to catch up with demand but now demand has slowed and supply has caught up. While not anticipating a collapse in prices, the manager said commodity cycles tend to last for a decade and the outlook for investing in commodity equities will remain difficult for at least another 10 years. So now is not a great time to invest in countries solely geared to commodities or commodity-related sectors. Can this really be true?
http://jlne.ws/Ymv9A5

Margarita Louis-Dreyfus lifts stake in trader
Financial Times
Margarita Louis-Dreyfus has increased her control over the holding company that owns Louis Dreyfus Commodities, buying shares from other members of the family. Ms Louis-Dreyfus, through a family trust known as Akira, raised her stake in LouisDreyfus Holding to 65.1 per cent at the end of last year, up from 61.1 per cent in 2011 and 50 per cent five years ago.
http://jlne.ws/12ZW1Fi
**DA: Not wasting away in Margaritaville, but rather aggressively buying out other family members. I smell an IPO, with maybe a hint of lime.

Soros Battles Top German Economist in Euro Spat
Here is the City
Billionaire investor George Soros has struck back at one of Germany’s top economists for distorting his arguments on Germany’s role in the euro zone.
http://jlne.ws/18cEMmA

CFTC to Name Fourth Defendant in Nymex Leak Case
JACOB BUNGE – WSJ.com
U.S. regulators plan to charge a fourth defendant in a lawsuit against the largest U.S. energy-trading exchange and two former employees, alleging that confidential trading information was leaked to an unnamed broker.
http://jlne.ws/YlXd6u

Brokerage Ills Stir Auditor Scrutiny
JEAN EAGLESHAM AND MICHAEL RAPOPORT – WSJ.com
U.S. regulators are tightening their scrutiny of accountants in an effort to crack down on firms bungling “red flags” that signal fraud and imperil customer money. The increased attention is occurring largely at the Commodity Futures Trading Commission, where investigators and top officials were rattled by the collapses of Peregrine Financial Group Inc. and MF Global Holdings Ltd. At both firms, rules that are supposed to protect customer funds were allegedly broken without being detected by accountants.
http://jlne.ws/YlXeat

Managed Futures/Managed Funds

Alternative Investments With the Best Payoff
Craig L. Israelson, Financial Planning
Some people see the investment universe as divided into just two classes of assets: core investments and alternative investments. Others prefer to view the asset allocation world as having three categories: core assets, diversifiers and alternatives.
http://jlne.ws/11VpLSL

Commodity funds Clive and Merchant gain from mid-April upheaval
Reuters
Clive Capital and Merchant Commodity Fund, two commodity hedge funds that lost money over the last two years, are on an upswing after their bearish bets on prices benefited from this month’s market tumble.
http://jlne.ws/Ye7Tln

Superfund launches new CTA programme
Investment & Pensions in Asia
CTA/Managed futures specialist Superfund has introduced a new product. The “Superfund Red One” is a new short term CTA programme. That means it will be looking for trends to ride in the usual CTA style, but only for shorter tenors. It will usually be in and out of positions within 10 days in comparison to its longer term offerings, which can endure in an asset class for years, assuming that the sustained trends are favourable.
http://jlne.ws/17xqM5D

Pensions & Institutions

Colorado Fire & Police creates managed futures allocation, pledges $49 million to alts
Pensions&Investments
Colorado Fire & Police Pension Association, Greenwood Village, approved a new asset allocation that includes a new 5% allocation to managed futures strategies and committed a total of $49 million to three alternatives managers, confirmed Scott Simon, chief investment officer. Shortlist searches for managed futures managers will take place in the “near term” and will be handled internally, Mr. Simon said. Interested managers can contact the pension fund.
http://jlne.ws/11Vp5Nh
**DA: Tell them JLN Managed Futures sent you. Then tell them who we are, and that we are awesome.

CalPERS asks Milken crowd for hedge fund resumes
Pensions&Investments
CalPERS continues to build out its hedge fund capability and seeks four additional investment professionals to join its six-person team, said Edigio “Ed” Robertiello, senior portfolio manager, absolute-return strategies, for the $258.3 billion fund.
http://jlne.ws/11C6dRI
**DA: CalPERS is also leading the push to turn 2-and-20 into 1-and 10. Yowza!

Regulation

Expanded authority, increasing numbers and record fines: the changing landscape of the CFTC’s enforcement actions
Jeffrey L. Steiner and John H. Sturc, Gibson Dunn & Crutcher
Since 2010, the CFTC has dramatically increased its annual enforcement action totals, and has imposed record high financial penalties on significant market participants. In 2011 and 2012, the CFTC filed at least 201 enforcement actions, almost as many as the past five years combined, and has already recovered approximately $1.8 billion in total sanctions. As CFTC Chairman Gary Gensler has stated, “Dodd-Frank expands the CFTC’s arsenal of enforcement tools. We will use these tools to be a more effective cop on the beat, to promote market integrity, and to protect market participants.” This alert focuses on the CFTC’s new rulemakings and how Title VII has increased the CFTC’s power to create and police the derivatives markets.
http://jlne.ws/1036FWC
**DA: Budget-starved, understaffed, and technologically behind the times. But look out, anyway – we’re on the prowl.

Exchanges Win Dismissal of Market-Data Pricing Rule Case
Bloomberg
NYSE Euronext, Nasdaq OMX Group Inc. and other exchanges can set prices for proprietary market data, a U.S. appeals court ruled, saying the Dodd-Frank financial reform law limits its right to review Securities and Exchange Commission decisions on the issue.
http://jlne.ws/18pcvqf
**DA: Almost three years after the signing of Dodd-Frank, and we are still learning what’s in there.

CFTC struggles to keep pace with technology issues
Dina ElBoghdady – The Washington Post
For years, the Commodity Futures Trading Commission has been working on a paper outlining how it should cope with the latest developments in the technological revolution transforming the investing landscape. Absent from the report: any mention of Twitter or other social media.
http://jlne.ws/YlXd6E

SEC’s White Said to Push for Lifting Ban on Hedge-Fund Ads
Bloomberg
U.S. Securities and Exchange Commission chairman Mary Jo White is pushing to adopt a rule allowing hedge funds to advertise in a move consumer advocates say could fail to protect unsophisticated investors, according to two people familiar with the matter.
http://jlne.ws/17xv0Kp
**DA: For more info on the proposed rule, visit the page in MarketsReformWiki.

April 15, 2013: Richard Dennis, Bill Eckhardt and the Turtle Traders; The Pension Rate-of-Return Fantasy; Hedge fund spotlight: Credit, global macro and managed futures

2013-04-15T11:09:33Z

In this issue, we see some of the aftermath of lagging performance from the managed futures and other alternatives sectors.Some municipal pensions have been keeping the long-term solvency dream alive via expected returns outside fixed income portfolios. One in California is headed to bankruptcy court, while another in South Carolina has pitted the state treasurer against the pension board. A Reuters analyst is questioning the notion that commodities are a distinct asset class. All this comes during a multi-session meltdown in the precious metals market. An Ontario pension fund manager, though, understands the role of managed futures in a portfolio – volatility management and non-correlation. Up first, though, is a retrospective on the original Turtles, compliments of Attain Capital.

Observations – Statistics – Commentary

Quote of the Day: “There will be scenarios where we underperform. But our real objective is to have assets outperform liabilities.”

-James Keohane, president and CEO Toronto-based Healthcare of Ontario Pension Plan on the fund’s objectives, which include the use of managed futures and other alternatives as part of a portfolio volatility management system.

Get Barclay Insider Report from MF email box
Pinnacle Awards nominees
http://www.mfpawards.com/#awards

Richard Dennis, Bill Eckhardt and the Turtle Traders
Attain Capital Management
We have been thinking about the Turtles quite a bit lately due to the sudden passing of one of their most successful and charismatic members. We were certainly not the only ones saddened to learn of the passing of Liz Cheval – and the outpouring of condolences from across the industry demonstrated the impact that she had on the people who knew her. Ms. Cheval was the head of trading firm EMC Capital, and seeing the impact that she had made us wonder – where are the Turtles now? And what have they done with the knowledge and skills imparted to them in that famous experiment?
http://jlne.ws/14WQjpX
**DA: A trip down memory lane, followed by a “Where are they now?” Fun read.

Paulson Loses More Than $300 Million as Gold Declines
Bloomberg
Billionaire John Paulson lost more than $300 million of his personal wealth on his gold bet, as the precious metal fell to its lowest price in almost two years. Paulson has roughly $9.5 billion invested across his hedge funds, of which about 85 percent is invested in gold share classes. Gold dropped 4.1 percent yesterday, shaving about $328 million from his net worth on this bet alone.
http://jlne.ws/104K2If
**DA: This article includes Friday’s $60 drop, but not Monday’s drop of $130 and counting. Ouch.

John Paulson to Start New Hedge Fund
Wall Street Journal
On Thursday, Mr. Paulson, who is trying to turn around his hedge-fund firm after a period of difficult trading, sent an invitation to clients and potential clients, announcing the launch of the Paulson Partners Premium L.P. Fund. The invitation said the fund is for investors “looking to mitigate income taxes.”
http://jlne.ws/17dTTc6
**JK – So who do you know wants to buy into JP’s new fund?

Will This Be the Year of the Actively Managed ETF?
Institutional Investor
http://jlne.ws/14qdbPF
**JK – Good piece on the actively managed ETF space and how ending the ban on using derivatives may help this sector.

Trading Technologies to Provide Connectivity to MexDer
Press Release
Trading Technologies International, Inc. (TT) and The Mexican Derivatives Exchange (MexDer) today announced that TT has linked its X_TRADER(R) derivatives trading platform to MexDer, the leading marketplace for trading derivatives on Mexican benchmarks, via the CME Group’s Globex(R) platform. TT’s connection launched concurrently with CME’s iLink enhancements for MexDer via Globex, which were released on April 14.
http://jlne.ws/YXl9LZ

Lead Stories

Andy Kessler: The Pension Rate-of-Return Fantasy
Wall Street Journal
It has been said that an actuary is someone who really wanted to be an accountant but didn’t have the personality for it. See who’s laughing now. Things are starting to get very interesting, actuarially-speaking. Federal bankruptcy judge Christopher Klein ruled on April 1 that Stockton, Calif., can file for bankruptcy via Chapter 9 (Chapter 11′s ugly cousin). The ruling may start the actuarial dominoes falling across the country, because Stockton’s predicament stems from financial assumptions that are hardly restricted to one improvident California municipality.
http://jlne.ws/10XLlUz
**DA: Kessler does a nice job going over the pension numbers and showing that they do not add up.

Hedge fund spotlight: Credit, global macro and managed futures
Financial News
All of the four main strategies as defined by HFR – equity hedge; event-driven; macro, which comprises global macro and managed futures; and fixed-income relative value, which comprises credit – posted gains, led by equity strategies. Gains from macro funds were tempered by commodity declines, currency reversals and falling equity volatility.
http://jlne.ws/135Oash
**DA: The study sees managed futures as having eked out a 1.2 percent gain. Didn’t really knock it out of the park, but better than last year.

As Hedge Funds Thrive on Mortgages, the House Party Is Far from Over
Institutional Investor
Story focuses on the residential mortgage backed securities space – and the major growth stories in it.
http://jlne.ws/16Yix2n

Ex-Soros Adviser Says BOJ’s Massive Easing to Backfire
Bloomberg
The Bank of Japan (8301)’s “huge bet” by boosting quantitative easing won’t turn the economy around and is instead sending the nation toward default, said Takeshi Fujimaki, former adviser to billionaire investor George Soros.
http://jlne.ws/1381Wqs

Man Group in New Drive to Turn Around Flagship Fund
Harriet Agnew – Bloomberg News
Man Group, based in London, wants to make AHL the best place in Europe for quantitative analysts to work, according to its new chief executive Sandy Rattray
Man Group EMG.LN +1.72%, the largest listed hedge fund manager in Europe, has created a new corporate structure for AHL – its $17 billion flagship computer-driven business and main profit driver – as its new management team looks to turn around the division’s fortunes.
http://jlne.ws/135ZxAl

Commodity Traders’ $250 Billion Harvest
CNBC
The world’s top commodities traders have pocketed nearly $250 billion over the last decade, making the individuals and families that control the largely privately-owned sector big beneficiaries of the rise of China and other emerging countries.
http://jlne.ws/ZW8Wm7
**DA: He that liveth by the sword…

Managed Futures/Managed Funds

COLUMN-Commodities as hedge funds not an asset class
by John Kemp, Reuters
The status of commodities as a distinct asset class is under threat following another lousy start to the year for investors.
http://jlne.ws/17BFqd0
**DA: Not sure I buy into his argument, which is, essentially, that commodities are not an asset class because they have been rallying along with the stock market over the last few years. By his rationale, Beanie Babies were a distinct asset class 10-15 years ago because prices rose and fell concurrently with the stock market.

How A Hedge Fund Could Get Into The Bitcoin Game
Business Insider
Part of being a hedge fund is having flexibility in what you invest in as long as it’s disclosed in the operating documents. For instance, there are funds that buy houses, farmland and timber, so why not snap up a stake in Bitcoins?
http://jlne.ws/YKzWdF
**DA: One could argue that Bernie Madoff was the first. Now you see it; now you don’t.

Pensions & Institutions

Investors keep a watchful eye on the horizon for risk
Pensions&Investments
Institutional investors increasingly are embracing myriad volatility management strategies in an effort to control downside portfolio risk and still meet long-term return goals. Sophisticated investors that implemented portfoliowide volatility management over the past few years — such as the C$47.4 billion (US$46.8 billion) Healthcare of Ontario Pension Plan, Toronto, and the $3.4 billion Fairfax County (Va.) Employees’ Retirement System — have racked up strong track records of impressive returns that outperformed their benchmarks and their peers while keeping risk at bay.
http://jlne.ws/10XyD8l
**DA: Today’s “Quote of the Day” features a healthcare pension fund manager who employs a volatility management system to aid in liability matching.

UK pension shake-up squeezes fees
Global Investor
Automatic enrolment into UK pension schemes will have profound implications for the asset management and asset servicing industries, finds Andrew Sheen
As of October 2012, the UK pensions and asset management industry has embarked on a once in a generation project that will transform the shape of the retirement landscape.
Automatic enrolment will see up to 10 million UK workers brought into saving for a pension over the next five years, compared with a total current membership of around 3.6 million. Many of these new members will be saving for the first time, or resuming saving after period of belt tightening.
http://jlne.ws/XNabtQ

Calpers Commodity Holdings Dropped 4.1% in February to $1.279B
Bloomberg
The California Public Employees’ Retirement System, the largest U.S. pension fund, reported the value of its commodity holdings slipped 4.1 percent in February from the previous month.
http://jlne.ws/12eHhC8

SC pension fund sues SC treasurer as power struggle explodes
The State
The S.C. Retirement Investment Commission, which manages the state’s pension fund for public-sector workers, sued state Treasurer Curtis Loftis on Thursday. Technically, the lawsuit is about Loftis’ refusal to authorize a $50 million investment. But the real goal is to settle a year-long power struggle between Loftis and the commission that has included two attempted coups, a pair of SLED investigations and a public censure.
http://jlne.ws/15aFiBC
**DA: JLN Managed Futures has been following this story, as it looks to be a test case for what happens when an alternatives gambit goes wrong. Heads we win; tails taxpayers lose. And don’t forget my 2-and-20.

Financial instability shifting from banks to pensions – IMF
Investment & Pensions in Europe
Financial sector risk may be shifting to pension funds and other institutions as a result of global central banks’ exceptionally easy monetary policy – including bond-buying programmes – according to a new report from the International Monetary Fund (IMF).
http://jlne.ws/Zwhv7w

Regulation

One in three hedge fund workers admits to knowing about rule-breaking, says US survey
The Telegraph
A confidential survey of hedge fund workers conducted by Labaton Sucharow, an American law firm, found that 30pc said they had either witnessed or had “first-hand knowledge” of wrongdoing in the workplace. Even more, 35pc, reported “feeling pressured by their compensation or bonus plan to violate the law or engage in unethical conduct”. A quarter of respondents said they felt “other pressures that might lead to unethical or illegal conduct.”
http://jlne.ws/YXj7vb

Republicans blast SEC over JOBS Act delays
Ronald D. Orol – MarketWatch
Rep. Blaine Luetkemeyer, Republican of Missouri, raised concerns about delays for another JOBS Act provision that would relax rules that have kept hedge funds, private-equity firms and small companies from soliciting to the general public for decades when seeking to raise capital.
The proposal for this measure was introduced in August. Luis Aguilar, a Democrat commissioner at the SEC, previously argued that the proposal, if approved, would result in an increase in fraud. The JOBS Act set a deadline for approving the rule by July.
http://jlne.ws/YXn4Af

Stop the Presses: IOSCO Calls for Balancing and Monitoring
AllAboutAlpha
The International Organization of Securities Commissions has produced a consultation report on “Regulatory Issues Raised by Changes in Market Structure,” drafted by its Committee on Secondary Markets (C2), that says a number of rather predictable things. Regulators, it says, must balance the need to promote competition (which suggests there ought to be lots of trading methods and intermediaries) against the need to minimize the inefficiencies and opaqueness that can come with fragmentation.
http://jlne.ws/17BEiWW
**DA: Uh…yeah.

M&A in the USA
Lawyers Weekly
In addition to the looming tax changes, private equity is faced with burgeoning new regulations imposed as a result of the 2008 financial crash and the US Treasury’s showdown with UBS over secret bank accounts. The costs of compliance with the Dodd-Frank Act and the Foreign Account Tax Compliance Act (FATCA) may add to the economic burdens of the private equity industry and shave its profit margins.
http://jlne.ws/15aCXGJ
**DA: Scroll down to section 3 for a primer on FATCA and Dodd-Frank compliance for CPOs and CTAs. Then come to MarketsReformWiki for the full story.

April 1, 2013: The Impact Of The Obamacare Tax On Hedge Funds; Investors Check Out of Commodities; A Crisis of Trust

2013-04-01T10:47:30Z

In this issue, first quarter results are still trickling in but it looks to have been a lackluster quarter for managed funds. A hedge fund law firm sees Obamacare as ground zero in a war on carried interest. And, investors are either getting out of commodities, or piling into them, depending one’s point of view. Finally, our friends at Horizon Cash Management published the results of a survey it conducted on the impact of the MF Global and Peregrine failures on CTAs and CPOs. Spoiler alert: they left a mark.

Observations – Statistics – Commentary

CTA Expo New York, April 25, 2013
CTA Expo
The group’s twelfth conference is fast approaching and is nearly sold out. Attendees include over 150 capital sources and dozens of traders. 40 percent of the attendees are new to the conference. Also, the final brochure is available via the link below.
http://jlne.ws/X8LKEH

Survey Results Show 73% of CTA/CPO Respondents Were Impacted by One or More FCM Failure
Horizon Cash Management
Horizon Cash Management said today that 73% of the commodity trading advisors (CTAs) and commodity pool operators (CPOs) that responded to its survey were impacted by one or more of the futures commission merchant (FCM) failures mentioned in the study. The results are documented in an executive summary, The Aftermath of MF Global and Peregrine Financial Group Meltdowns: A Crisis of Trust.
http://jlne.ws/10094Dd
**DA: 73 percent? I would say that 100 percent were impacted, but 27 percent don’t know it yet.

Jack Schwager: Chronicling trading excellence
Q&A with Daniel P. Collins, Futures Magazine
His early “Market Wizards” not only told the compelling stories of successful traders, but also served as inspiration to a generation of new traders, many of whom have taken their place in the roster of market wizards inspired by the stories in the original books. His newest book, “Market Sense and Nonsense,” attempts to debunk many of the misconceptions in the investment world. We talk to Schwager about what he has learned interviewing traders over the years.
http://jlne.ws/YNJhjt
**DA: Brings back memories of the “glory days.” Which book had the most profound effect on you: “Market Wizards,” “Liar’s Poker,” or “Merchants of Grain?”

MFA’s Forum 2013, June 19-20, Chicago
Managed Funds Association
Forum 2013 is MFA’s 19th annual managed futures and global macro strategies conference 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.
http://jlne.ws/YNNzrb

Lead Stories

Study: The Impact Of The Obamacare Tax On Hedge Funds
HedgeCo.net
Hedge fund law firm Hirschler Fleischer has issued a new whitepaper on the impact of the Obamacare tax on the incentive allocation/carried interest of private fund managers: ‘New Obamacare Tax: Can a Private Fund Manager’s Carried Interest Escape Its Reach?’
http://jlne.ws/Z3VsEQ
**DA: Trouncing Mitt Romney in the election was not enough. Now he is going to get hit in the pocketbook.

Investors Check Out of Commodities
Wall Street Journal
If you slept through the first quarter in commodity markets, you didn’t miss much. The Dow Jones-UBS Commodity Index fell 1.1% in the first quarter, and the lackluster performance could add further fuel to detractors’ argument that the commodity supercycle is over for now. The index fell 1.1% in 2012 after declining 13% in 2011.
http://jlne.ws/16exESY

Bullish Bets Rebound at Fastest Pace in Four Years: Commodities
Bloomberg
Investors are boosting wagers on higher commodity prices at the fastest pace in almost four years, rebounding from the least bullish position since 2009, on signs that the U.S. is accelerating and Europe’s debt crisis is easing.
Hedge funds and other large speculators increased net-long positions across 18 U.S. futures and options by 10 percent to 679,191 contracts in the week ended March 26, data from the Commodity Futures Trading Commission show. The bets surged 67 percent in three weeks, the biggest advance since May 2009. Wagers on higher oil prices climbed the most this year, while those for cattle are at a six-week high.
http://jlne.ws/14zZvk7
**DA: Just in time for a multi-day selloff in the grain market.

Former Commodities Corporation Alums Launch Witherspoon Asset Management
PRWeb
Three veteran investment professionals have teamed up to form Witherspoon Asset Management LLC (“Witherspoon”), a Princeton-based investment adviser. Witherspoon’s principals are Lee Gladden as CEO, Thomas Kuntz, CFA as Chief Operating Officer, and Tyler Vernon as Managing Director. Both Gladden and Kuntz share a background from Commodities Corporation. Witherspoon’s first offering is the Witherspoon Managed Futures Strategy Fund. The fund is designed for investors seeking non-correlated investments that also provide transparency and daily liquidity.
http://jlne.ws/15P8BFH

Managed Futures/Managed Funds

Winton Capital Management – Best Managed Futures/CTA
Hedgeweek
In 1997, David Harding and two employees established Winton with approximately USD2million. Today, that figure stands at an incredible USD25.75billion. Before Winton, Harding was the H in AHL. Once AHL had been assumed into Man Group by 1994, Harding started Man Research before leaving in 1996. Winton Capital is now Europe’s largest CTA manager and the world’s fifth largest hedge fund firm
http://jlne.ws/YYJEug

Niche commodity funds beat markets as Jamison doubles assets
Reuters
Commodity and macro markets trader Stephen Jamison has closed his macro commodity fund to new investors after nearly doubling its capital to $1.5 billion last year, making it one of the biggest players in that niche market. Jamison Capital Partners took the action for its Koppenberg Macro Commodity Fund just four years after its launch with $125 million under management, a source familiar with the New York-based company said.
http://jlne.ws/XSOC5H

The Best Commodity Broad Basket ETF?
Spencer Bogart, Index Universe
When GreenHaven’s commodity fund wins a best-in-class award, what does ‘best’ really mean?
http://jlne.ws/16rzyl6
**DA: It appears that the best broad market commodity ETF does not represent its market segment. What gives?

Carlyle’s Vermillion CTA Loses on Commodity Bets
ValueWalk
Last year, Carlyle Group LP added a commodity trading advisor to its growing empire. Carlyle Group LP bought a 55 percent stake in Vermillion Asset Management (AUM$2.07 billion) last year. Vermillion’s flagship Viridian Ltd (AUM $1.46 billion) is just doing as well as the commodity focused hedge funds are in the running year. The fund was down 2.5 percent in February, wiping out the near one percent gain in January.
http://jlne.ws/Zwrqtr

The Simple Truth about Hedge Funds
Forbes
Are hedge funds “mysterious” and “controversial?” Are they “inherently evil?” Periodically, stories bubble up in the mainstream press that paints these funds in a poor light. Unfortunately, both critics and champions of alternative funds attempt to reduce complex financial transactions into simple language. In doing so, important details are inevitably lost and the search for meaningful insights is thwarted.
http://jlne.ws/XmdwzV
**DA: Don’t knock mystery and controversy. Without them, I will be out of a job.

More wealthy Americans turn to alternative investments to reach financial goals
Hedgeweek
Affluent Americans are more likely to allocate assets to alternative investment strategies in asset classes such as private equity, real estate investment trusts and hedge funds today than they have been for several years.
http://jlne.ws/10sJfMa
**DA: If nothing else, it gives them something to talk about at cocktail parties and charity balls.

Pensions & Institutions

U.S. Eyes Pension Funds to Renew Crumbling Infrastructure
Independent European Daily Express
President Obama doubled down on a new push for infrastructure investment in a major speech Friday, highlighting roads, ports and bridges that many say have suffered from decades of insufficient upkeep. “When the American Society of [Civil] Engineers put out their 2013 report card on our national infrastructure, they gave it the best overall grade in 12 years. The bad news is we went from a D to a D+,” President Obama said, speaking at a port in Miami.
http://jlne.ws/YqHmlo
**DA: Color me skeptical, but if the bonds described in the article will receive a Federal guarantee, will this just make them sort of like an off-balance sheet Treasury bond? And how is this “fiscal restraint?”

Senate panel approves version of state pension overhaul
Tampa Bay Times
Florida lawmakers in the House and Senate may be on a long road to compromise as they advance starkly different plans on overhauling the state retirement system. The Senate Appropriations Committee on Thursday cleared a bill (SB 1392) that keeps the option for new state and county employees and teachers to have a traditional pension. It now goes to the full Senate for approval.
http://jlne.ws/Zwuvtq
**DA: Florida’s pension fund is 87 percent funded, among the highest in the nation, yet it is looking at reform. Meanwhile, here in Illinois…

Big public pension funds trump hedge fund benchmarks
Pensions&Investments
Big public pension funds reaped strong returns from their hedge fund portfolios in 2012, with most of them handily surpassing their own benchmarks and well-used industry indexes. The hedge fund portfolios, for the most part, achieved close to what chief investment officers wanted, despite a 1,500-basis-point difference between the best and worst performers, according to Pensions & Investments’ analysis of the returns of 19 hedge fund portfolios from 17 U.S. public retirement plans with aggregate hedge fund assets of $60.7 billion.
http://jlne.ws/10hqsEL

CalPERS remains cool on commodities
John Kemp, Reuters
The California Public Employees’ Retirement System (CalPERS) continued to cut its exposure to commodity futures at the start of the year, even as the largest public pension manager in the United States increased its total inflation hedging sharply.
http://jlne.ws/11c0wMn

Fooled by fund fees
Mark Harrison, Financial Times
In a low-return environment fund management fees have a significant impact on outcomes for investors. The writer considers why investors might be fooled by fees.
http://jlne.ws/10sG7jq
**DA: The more you pay in fees, the less you get to keep. Got it.

Hedge fund managers face tough business climate and heightened investment expectations
Hedgeweek
Hedge fund managers must rethink their business models, provide tailored solutions, and offer multi-faceted client communications, according to a study conducted by SEI in collaboration with Minard Capital.
http://jlne.ws/126uG6d
**DA: Results of SEI’s sixth annual poll of institutional investors

Regulation

Alternative Ucits shaken by regulatory changes
Risk.net
Esma guidelines for Ucits funds and the introduction of the AIFM directive are casting doubt over the future shape of the alternative Ucits industry as demand for the products remains strong
http://jlne.ws/13Lrkqm
**DA: For more on the AIFMD, visit the dedicated page in MarketsReformWiki.

Fund managers still have AIFMD concerns, says Northern Trust survey
Hedgeweek
While 86 per cent of respondents to a Northern Trust survey say they broadly understand the implications of the Alternative Investment Fund Manager Directive, close to 70 per cent feel their investors are not engaged in AIFMD considerations.
http://jlne.ws/11ckjuQ

March 18, 2013: Investors Ponder the Future for Managed Futures; Managed futures under pressure on fees; ‘Finding’ Hedge Fund Investors Just Got A Bit More Difficult

2013-03-18T10:35:22Z

After a disappointing 2012, the CTA space is looking to the future of managed futures. Articles featured in this issue include two on the difficulty of trend following in markets that have not been trending, and another two articles on the squeezing of fees and performance incentives. Another category getting squeezed: middlemen – capital introducers, or “finders.” All of this is inevitable after a year in which the typical equity index fund blew away alternative investments. There are bright spots, however, in some 2013 metrics on returns and asset allocation.

By the way, readers may notice that today’s newsletter should have been delivered last Friday. We have no excuse except to say that the JLN Managed Futures team was traveling home from a fun but exhausting week at the FIA Boca 2013 conference. While in Boca, we interviewed over a dozen market participants, mostly bigwigs, for two upcoming special reports. Detail to follow.

Observations – Statistics – Commentary

Quote of the Day: “Once firms have invested in technology and research, they may be able to offer parts of their portfolio at significantly lower fees.”

-Cantab Capital Partners founder Ewan Kirk on the global squeeze on fee structures

Second Annual Managed Futures Pinnacle Awards, June 19, 2013
Join CME Group and BarclayHedge for the only awards event to recognize excellence exclusively in the managed futures space, Wednesday, June 19, 2013, preceding MFA’s Forum 2013, Chicago. For more information, including a list of the categories, and to see last year’s winners, visit the MFP Awards site below.
http://jlne.ws/IW4UDa

What is the future of trend following CTAs and futures funds?
FOW
I want to examine what has driven this asset class to deviate in 2011 and 2012 so far from such an incredible history of superior returns. It seems two atypically poor years is enough to shake the confidence of some in the industry. That’s a big mistake. Not only is the vitality of trend following far from over, I expect 2013 to be a great year for trend following CTAs. To begin with we need to examine in particular what drives such superior returns for trend following CTAs in the first place.
http://jlne.ws/YXkXJN

Executive Profile: Impassioned advocate for commodities customers
Chicago Tribune
James Koutoulas, a Chicago hedge fund manager, had about 85 percent of his clients’ money tied up in MF Global, about $55 million. Because of the shortfall in what were supposed to be safe balances, customers were frozen out of their accounts. His panicked clients were not the biggest MF Global customers, but Koutoulas became the loudest voice advocating for the speedy return of their money.
http://jlne.ws/Wz6p4t
**DA: Nice piece on the newest member of the NFA board.

Barclay CTA Index Down 0.53% in February; Currency Traders Gain from Stronger US Dollar
BarclayHedge
Managed futures lost 0.53% in February according to the Barclay CTA Index compiled by BarclayHedge. The Index remains up 0.77% year to date. “A combination of trend reversals and downdrafts across the major futures markets made the task of extracting profits more difficult in February,” says Sol Waksman, founder and president of BarclayHedge.
http://jlne.ws/YjR3Bw

Lead Stories

Investors Ponder the Future for Managed Futures
Institutional Investor’s Alpha
Commodity trading advisers and their close cousins, managed futures funds, continue to miss out on the global market rally. CTAs lost 3 percent in February, their worst month since May 2012, while managed futures lost 1.41 percent, putting both strategies in the red for the first two months of the year, according to industry tracker eVestment. Managed futures lost 1.67 percent and 1.44 percent in 2011 and 2012, respectively.
http://jlne.ws/15VWE37

Managed futures under pressure on fees
Financial News
Cantab Capital Partners’ new CCP Core Macro fund set the cat among the pigeons in January with a 0.5% management fee and a 10% performance fee, against the hedge fund standard 2% and 20%. Cantab founder Ewan Kirk said: “Once firms have invested in technology and research, they may be able to offer parts of their portfolio at significantly lower fees.” Kirk thinks that firms need the scale – typically at least $2bn – to cover these overheads before rolling out lower-cost products
http://jlne.ws/107SJyl
**DA: Fee squeeze: Coming soon to a fund near you? Read on:

Hedge fund fees under pressure
Financial Standard
Hedge fund fees tend to be the most expensive of all active managed options available to investors because they typically promise higher returns, use more sophisticated techniques and often invest in more expensive, niche areas. However, disappointing returns through 2010 and 2011, coupled with on-going industry pressure on fees has seen institutional investors across the globe review their hedge fund exposures.
http://jlne.ws/XUppgS
**DA: Yeah, that, plus the fact that equity markets have been outperforming alternatives since the crisis.

Educator and Introducing Broker FuturesANIMAL Officially Launches
PRWeb
Combining a futures education element with a proprietary brokerage platform, FuturesANIMAL, a licensed member of the National Futures Association (NFA), aims to provide the retail trader with the tools they need to successfully navigate and access the futures and options market
http://jlne.ws/YmcfU6
**DA: CEO Travis McGhee used to be with OptionMonster. At least he has a clever naming algorithm.

Managed Futures/Managed Funds

‘Finding’ Hedge Fund Investors Just Got A Bit More Difficult
Forbes
The hedge fund world has always walked a fine line when it comes to attracting new investors. And nowhere has this line been thinner than the one between “finders” and “solicitors” — the parties who act as the middlemen in the investor location process.
http://jlne.ws/15gX1TL
**DA: Keep your head above water, consistently beat your benchmarks,manage risk well and limit drawdowns, and the investors will find you.

What You Can Do to Steer Clear of a ‘Custody’ Battle
Wall Street Journal
First, it was money-market funds that lost their aura of invulnerability, then auction-rate securities. Could the ultimate assurance of investment safety also be shaken? When you buy a mutual fund or hire a financial adviser, your assets generally must be held in “custody,” or safekeeping—segregated from anyone else’s assets, scrupulously recorded and even protected if the institution that holds them becomes insolvent. Investors have long taken it for granted that an asset might lose value in a market crash, but the asset can’t disappear if it is properly held in custody.
http://jlne.ws/15gX3ed

Elite Advisers’ Wine Fund Favors Burgundy Over Bordeaux
Bloomberg
Elite Advisers SA’s wine fund, one of Europe’s largest, is boosting its holdings of Burgundy over Bordeaux and sees value in the region even after price gains. The investment vehicle, branded Nobles Crus, has a five- year track record and had 102 million euros ($135 million) under management at the end of December. Wines held include a Romanee- Conti 1915 Domaine de la Romanee-Conti, harvested during World War I, and Chateau d’Yquem Sauternes dating back to 1811, when Napoleonic troops were fighting in Spain.
http://jlne.ws/WxMN1L
**DA: This article gives an excellent snapshot into the managed wine asset market. Two words: caveat emptor.

The Ups and Downs of Trendspotting
Institutional Investor’s Alpha
For managed futures funds, the past two years were some of the toughest ever. Managed futures funds make their money from following trends in the market, and it’s tough when there are no steady trends to capture.
http://jlne.ws/XkSagI
**DA: I knew that long-only investors have a hard time in bear markets, and investing in CDs is hard when interest rates are at zero. And now I learn that trend followers lag when markets do not trend. Got it.

Pensions & Institutions

Sorry, Folks: One Way or the Other, You’ll Never Be Able to Completely Count on Retirement
The Daily Beast
For over 100 years, the Studebaker Corporation made vehicles, from wagons for the Gold Rush to tracked vehicles for World War II. And of course, the cars that we mostly know them for: streamlined, a little stodgy, and very much of their era. That’s because their era ended, in 1963, when the company closed its South Bend plant. That wasn’t a surprise; sales had been suffering for years, due to high costs and concerns over reliability. What was a surprise was the state of its pension fund, which was disastrously underfunded.
http://jlne.ws/Z9pVB5
**DA: The ultimate adverse selection problem: Underfunding is necessary during recessions, but overfunding during boom times makes one susceptible to the LBO sharks. Besides, it is awfully tempting to extrapolate good times into the future, a la 1999.

Tiburon: Investable assets to hit $80T by 2017
LifeHealthPro
Investable assets market firms will be chasing an $80 trillion market by 2017, according to a new report. Tiburon Strategic Advisors, Tiburon, Calif., published this in a summary of results from its survey, “State of the Financial Products and Services Businesses: Deleveraging, Increasing Investable Asset Options, and Growing Insurance Demand.” The March 2013 report is part of Tiburon’s Financial Institutions Research Series.
http://jlne.ws/ZDLuMH

Top LA pension OKs $800 mln for commodities; eyes ‘active’ play
Reuters
The largest public pension in Los Angeles is investing $800 million in commodities over the next two years, a quarter in actively managed derivatives, as it tries to profit from markets that have frustrated many institutional investors. The Los Angeles Fire and Police Pension System, with nearly $16 billion in assets, said it is allocating 5 percent of its money to commodities with investments that aim to maximize returns and minimize downside risks. That includes commodity futures, stocks and private equity.
http://jlne.ws/16EtiYd

Sovereign wealth funds to hit record $5.6 trln by year end-study
Reuters
Sovereign wealth funds (SWFs) are set to see their assets grow to $5.6 trillion by the end of 2013, a study found, a sum more than double British GDP and underscoring their status as the world’s wealthiest investors.
http://jlne.ws/XkUgNC

Pension funds struggle with asset allocation
Financial News
It is a difficult time to be a pension fund manager. Few asset classes are generating strong performance, complicating asset allocation decisions to the point of paralysing investors.
http://jlne.ws/Z9pve5

Regulation

SEC Issues Guidance Update on Social Media Filings by Investment Companies
Press Release
On March 15, 2013 the Securities and Exchange Commission published a guidance update from its staff to clarify the obligations of mutual funds and other investment companies to seek review of materials posted on their social media sites.
http://jlne.ws/15gWYaw
**DA: If only I could fit a D-Doc into 140 characters or less.

Paulson says he’s staying put, not moving to Puerto Rico
Reuters
Hedge fund titan John Paulson, who oversees $18 billion in assets from his offices in New York, said on Friday he has no plans to leave the island of Manhattan for the island of Puerto Rico. In an unusual move, Paulson, a life-long New Yorker who guards his personal life zealously, had his firm, Paulson & Co, put out a news release to rebut speculation that he might pick up his family and move to the Caribbean.
http://jlne.ws/15gX1TM
**DA: Not yet, anyway. In the race for returns, do not underestimate the value of the tax arb.

NFA Regulatory Requirements For FCMs, IBs, CPOs, and CTAs
National Futures Association
March 2013 Revisions: Updated to reflect the amendments to NFA Financial Requirements Section 4 to make use of technology to monitor FCM segregation compliance.
http://jlne.ws/XUxy2K

Proposed amendments to NFA Rule 2-45 and its related interpretive notice for member CPOs
Lexology
Under CFTC final rules adopted in February 2012, CPOs are required to register with the CFTC and become a Member CPO unless an exemption is available under the CEA or the CFTC Regulations. The NFA acknowledges that Member CPOs that would be exempt from registration but for the Final Rules may have, as part of their normal course of business, previously caused their pools to make certain types of loan or advance arrangements that would violate Rule 2-45. The Proposed Amendment requires such CPOs to notify the NFA of these existing arrangements within 30 days of either (i) the effective date of any amendments to Compliance Rule 2-45 or its Interpretive Notice or (ii) becoming a Member CPO, whichever occurs latest.
http://jlne.ws/XUH9IV

March 1, 2013: Nils-Robert Persson Talks About Cinnober and the Growth of Real-time Risk Management

2013-03-01T11:06:54Z

Nils-Robert Persson Talks About Cinnober and the Growth of Real-time Risk Management
MarketsWiki.tv

There are some firms who are ahead of the curve and profit from it. Cinnober Financial Technology, the Swedish-based provider of electronic trading platforms was certainly one of them when it began pushing real-time risk management technology for trading and clearing platforms long before the 2008 financial crisis. Now its an integral part of the marketplace.

Nils-Robert Persson, executive chairman for Cinnober spoke with JLN editor-in-chief Jim Kharouf about the speed of execution and clearing systems, as well as what’s next for the firm.

Watch the video »

March 1, 2013: Man takes $837m GLG writedown; Commodity funds: Glimmer of light following tough 2012; CCC Launches Insurance Surveys

2013-03-01T11:04:41Z

Today’s newsletter features an interesting video from Cinnober’s Nils-Robert Persson, who talks about the evolution of real time risk management. The Commodity Customer Coalition is surveying for interest in an insurance plan for futures customers while Man Group takes a hit.

Observations – Statistics – Commentary

Quote of the Day:

“The longer-term slowdown in China will be well anticipated but it will be another five years before the boom times are over in China and there will be other emerging market countries on the rise.”

CME Group Chief Economist Bluford Putnam, in the article “Investors Stick with Commodities

CTA Expo New York, April 25, 2013
We now have over 210 registered, including 24 traders, for CTA Expo New York, April 25, 2013 at the CME Group Building (NYMEX Building). We are at over 50% of our limited capacity for CTA Expo New York and we anticipate selling out in advance of the conference. Visit the CTA Expo web site to view the complete demographics for CTA Expo conferences as well as our Promotional Demographics.
http://jlne.ws/WXbIGg

CCC Launches Insurance Surveys
John Roe, Commodity Customer Coalition
The Commodity Customer Coalition has launched two surveys to measure market sentiment and gather data to help determine the feasibility of its private commodity account insurance proposal, the Commodity Insurance Corporation. There are two surveys: one for public commodity customers and one for NFA Members and Member Firms (IBs, CTAs & CPOs).
http://jlne.ws/YONdjx
**DA: Please go to the site and take one, or both, of the surveys. The data you submit will remain anonymous. To view the video Mr. Roe made for our Restoring Customer Confidence series, click the link below.
http://jlne.ws/UEgASI

Interest Rate Swap Futures: Finally the Right Time
by Sean Owens, Woodbine Associates
After three decades of increasing use of OTC derivatives for sophisticated, customized and even generic forms of risk transfer (call it “swap-ification” of risk), the frameworks being implemented via Title VII and Basel III are compelling participants to migrate to more generic products for trading and hedging.
http://jlne.ws/Z2akUo

Fitch expects East Asian markets to show most growth
HedgeWeek
The Asian region has a large, growing middle class population with a low penetration of managed products at 5 per cent of total financial assets on average compared with 15 per cent in western countries.
http://jlne.ws/Yc3nCo
**JK – Interesting stat. Opportunity for managed funds?

Lead Stories

Man takes $837m GLG writedown
Financial News
The listed hedge fund manager announced it has written down a total of $837m against the value of its May 2010 acquisition, which pushed the group into a bottom-line loss of $745m in the year to December. According to Man, the writedowns resulted from “challenging market conditions”. It wrote down $746m against GLG at the end of 2012. This added to a $91m GLG provision made in June, when Man also wrote down its multi-manager business by $142m. The Financial Times reported in December that the firm was considering a significant writedown in the book value of GLG.
http://jlne.ws/WlwK8d
**DA: Does this mean that there were no “challenging market conditions” prior to the acquisition in May 2010? Perhaps it is simply a case of Caveat Emptor.

Man Group Combines Hedge Fund Units, Names Ellis as President
By Chris Larson – Bloomberg
Man Group Plc, the biggest publicly traded hedge fund manager, combined two computer-driven hedge fund units and made management changes in recent weeks before Emmanuel Roman takes over as chief executive officer next week.
http://jlne.ws/YDCOnw

Commodity funds: Glimmer of light following tough 2012
Hedgeweek
Commodity hedge funds have been in the doldrums somewhat, as the macroeconomic climate continues to make life difficult for managers. Performance, in effect, just hasn’t stacked up, leading to some institutional investors heading for the exit. As the Financial Times reported on 6 February 2013, industry executives estimate that overall AUM in the commodity hedge fund sector has fallen “by at least 20 per cent in the past year, and perhaps by more than a third”.
http://jlne.ws/XrGKKf
**DA: If you spend your investment life chasing the hot money in reactionary fashion, you will never catch up with it.

Hedge funds seen behind likely VIX short squeeze
Reuters
Hedge funds have levered up their short plays on VIX futures to such extreme levels that the market is poised for a significant short squeeze. According to the latest available Commitment of Traders data published by the Commodity Futures Trading Commission, the hedge fund community is currently net short the CBOE’s Volatility Index (VIX) to the tune of US$85m vega notional via futures contracts. That level is down slightly from US$108m at the end of January. In June, that net exposure was zero – and the swing in exposure means a short squeeze on the VIX is likely if not inevitable.
http://jlne.ws/Z2xbiS

Managed Futures/Managed Funds

Investors stick with commodities
Euromoney
“Oil, gold and copper just are not what they used to be,” muses Blu Putnam, chief economist at the CME Group. “The hedge funds trading them got whipsawed last year.” Indeed, several high-profile commodities funds closed their doors last year because of poor performance and Clive Capital and BlueGold were among several large billion-dollar commodities funds to suffer hefty losses in 2012. The January revelation that the California Public Employees’ Retirement System pension fund (Calpers) had more than halved its commodities exposure to just $1.57 billion (0.6% of exposure) from $3.45 billion in September 2012 started speculation that an exodus from the sector is imminent.
http://jlne.ws/YbQx7k

2100 Xenon Group won IAIR Hedge Funds Awards
International Alternative Investment Review
2100 Xenon Group won IAIR Hedge Funds Awards as Excellence in Hedge Funds Management/CTA USA with the following motivation: “For the return provided to the investors thanks to the diversification strategy and the investment instruments that are able to give absolute returns despite the markets in this period of crisis”.
http://jlne.ws/Vit9WQ

Triton Capital Advisors Expands to Boston
EON
Triton Capital Advisors is bringing its specialized managed futures services to the East Coast. The independent provider of alternative investment services announced the opening of a new office in Boston, Massachusetts. Jeff Garcia, a veteran of the alternative investment industry, will helm the branch. Garcia joins Triton as Vice President.
http://jlne.ws/Ww33w2

Manage Risk And Diversify With Alternative ETFs
Seeking Alpha
Exchange traded funds have helped democratize exposure to the markets, allowing retail investors to manage risk and improve diversification through alternative exchange traded fund strategies. Specifically, individual portfolios are beginning fill up with alternative asset classes like commodities, 130/30, long/short and non-traditional fixed-income strategies as the ETF industry produces a wider range of products
http://jlne.ws/XHo6iu

The 40 Highest-Earning Hedge Fund Managers And Traders
Forbes
While 2012 was not a great year for the average hedge fund, which underperformed the U.S. stock market, traders who oversee large hedge funds didn’t need to match the S&P 500 index’s 16% performance to make a lot of money last year. In total, the 40 highest-earning hedge fund managers and traders made a combined $16.7 billion in 2012, with the lowest earning managers on our list making $90 million.
http://jlne.ws/WwhekH

Pensions & Institutions

Analysis: What will come of Canada’s defined benefit pensions?
Financial Post
A $400-billion shortfall forcing plan sponsors to re-evaluate the future of defined benefit pensions.
There was a time not so long ago when business leaders and investors paid little mind to the issue of pension solvency. Pensions, after all, were designed to be self-sustaining investments that would allow employers to attract and retain a loyal and dedicated workforce. The latter part is still true today, the former less so.
http://jlne.ws/Y3UFmQ

Calpers to Boost Allocations to Event-Driven, Macro Funds
Bloomberg
The biggest U.S. pension fund aims to invest 5 percent of its hedge-fund portfolio with event-driven managers, up from zero in its current weighting, and increase investments in global macro funds to 10 percent from 2 percent, according to a presentation posted on the system’s website.
http://jlne.ws/ZAkTAs

Deutsche Bank Alternative Investment Survey identifies investor expectations for 2013
The Financial
Deutsche Bank announced the results of its eleventh annual Alternative Investor Survey, the largest and longest standing hedge fund investor survey with over 300 investor entities worldwide managing more than $1.2 trillion in hedge fund assets participating.
http://jlne.ws/13tOLna

South Carolina Pension’s Hedge-Fund Bet Trails as Fees Soar
Bloomberg
South Carolina’s $27 billion pension dove into private equity and hedge funds in 2008, hoping to increase returns that were at the bottom tenth of public- employee retirement funds. Five years and $1.2 billion in fees later, its annualized gain of 1.3 percent still trails the median among public pension-systems, according to data compiled by Wilshire Associates Inc. In neighboring Georgia, the $53.5 billion teachers’ pension buys only stocks and bonds. It paid money managers $119.5 million over the same period and its annualized returns of 2.95 percent were in the top quartile.
http://jlne.ws/13oHIvM
**DA: Heads, the political status quo wins; tails, the taxpayers lose.

Debate Heats Up over Public Pension Fund Discount Rates
Institutional Investor
Record low interest rates stir controversy over the way funds value future liabilities and expose a major difference between the US and Europe.
http://jlne.ws/XHDxaj

Regulation

US watchdog set to weaken derivatives rules
Shahien Nasiripour in Washington and Michael Mackenzie and Tom Braithwaite in New York – FT.com
A leading US regulator is poised to water down rules for derivatives trading that critics argue will allow global banks to preserve their dominance of the market. Mark Wetjen, seen as the swing vote on the five-person Commodity Futures Trading Commission, recommended this week in a confidential agency memorandum that the CFTC alter its proposed rule regarding derivatives marketplaces, or “swap execution facilities”, according to people who have seen the document.
http://jlne.ws/Z2alb8

New Wall Street tax bills unveiled in US House, Senate
Platts
US Senator Tom Harkin, an Iowa Democrat, and Representative Peter DeFazio, an Oregon Democrat, on Thursday again introduced bills to place a 0.03% tax on futures, swaps and other derivatives.
http://jlne.ws/Yc4Msy

John Lothian News Special Report: Residual Interest Proposal Poses “Monumental” Challenge to FCMs

2013-02-15T11:07:53Z

CFTC Proposal Poses “Monumental” Challenge to FCMs

By John Lothian

Changes to the way customer funds are held and accounted for by futures commission merchants (FCMs) were inevitable after the bankruptcies of MF Global and Peregrine Financial Group. But it is pressure from buy-side market participants and their allies in Congress who are pushing for regulatory changes that could change the face of the futures business.

At last week’s CFTC Roundtable, the fourth panel of the day titled “Enhancing Protections Afforded Customers and Customer Funds Held by Futures Commission Merchants and Derivatives Clearing Organization,” highlighted the challenges and potential consequences to the industry. CFTC plans call for FCMs to hold more “residual interest” capital to cover all customer margin calls to reduce customer-to-customer default risk.

Because the roundtable was under-reported by the big news services, we are bringing you this John Lothian News Special Report based on the CFTC’s video of the meeting. Watch the JLN video:

The deadline for public comment on the proposed rulemaking on Enhancing Protections Afforded Customers and Funds Deposited by Customersis February 15, 2013. Members of the public wishing to submit comments on the roundtable and proposed rulemaking may do so via:

Paper submission to Melissa Jurgens, Secretary, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW, Washington, DC 20581; or
Electronic submission by visiting http://comments.cftc.gov and following the instructions for submitting comments through the CFTC’s website.

All comments must be identified by RIN number: 3038-AD88. All submissions provided to the CFTC will be published on the Commission’s website, without review and without removal of personally identifying information.

February 15, 2013: Investors pull $1 billion from hedge fund giant Winton; Barclay Hedge Fund Index gains 2.84 per cent in January; Hedge fund giant Bridgewater bullish on stocks, oil, some commodities

2013-02-15T11:01:03Z

A recurring theme in the current issue is that of “chasing performance.” First, Attain Capital introduces the “toxic cycle sync” and reminds us that investors who let emotions get the better of them in investment choice will ultimately underperform. Sure enough, we are seeing signs that investors are doing exactly that. Clients of Winton Capital have pulled over a billion dollars out of its portfolios. Pension funds are cutting back on alternatives in favor of equities, which did well last year. Even Bridgewater Associates says it is bullish on equities and oil, two classes that have just had quite a run. In other news, a white paper by Campbell & Co. aims to lay to rest questions about CTA performance if and when interest rates rise again. But first, John Lothian explains how a rule proposed by the CFTC could bring about “monumental” change to the FCM model.

Quote of the Day:

“You want to be borrowing cash and hold almost anything against it. We are at a possible inflection point right now with respect to the pricing of economic conditions in markets and then the actual conditions that are likely to occur.”

-Bob Prince, Bridgewater Associates’ co-chief investment officer, from the InvestmentNews article “Hedge fund giant Bridgewater bullish on stocks, oil, some commodities.”

Observations – Statistics – Commentary

The Toxic Cycle Sync: Investing and Managed Futures Performance Cycles
Attain Capital Management
As is the case in every asset class under the sun, managed futures investors love to chase performance. The sustainability of a strategy often comes second to double or even triple digit returns. We do our best to discourage such decision making, because in our experience, this is uniquely damaging in managed futures allocations. http://jlne.ws/11GBxn1
**DA: Always great to see the work of Barry Ritholtz in print. His blog is on my list of daily must-reads.

Altegris CTA Challenge 2013 Update
Altegris Clearing Solutions
The first month’s results are in and the leaderboard has been posted. Some of the names may surprise you. To learn more about the participants, current leaders and the scoring methodology,visit the Challenge site.
http://jlne.ws/14VbWVl
**DA: Quite a unique game they have set up. I think there are, like, 11 herbs and spices in the scoring recipe.

CTA performance historically invariant to interest rates changes, says Campbell & Company
hedgeweek
In a new white paper, Prospects for CTAs in a Rising Interest Rate Environment, the firm provides a quantitative evaluation of CTA performance in relation to the direction of rates and concludes that the strategy has not historically been rate regime-dependent. This conclusion is positive news for investors who may wonder if CTAs, many of whom have spent their entire existence operating in a bull market for fixed income, can weather a secular uptrend in rates.
http://jlne.ws/14WLMRY
**DA: An uptrend in interest rates? What’s that? I’m not familiar with the concept.

Lead Stories

Exclusive: Investors pull $1 billion from hedge fund giant Winton
Reuters
Winton Capital, one of the world’s most successful hedge fund firms, has seen clients pull $1 billion of cash out of its portfolios amid falling returns from computer-driven fund managers.
http://jlne.ws/11KxNkj
**DA: Is the bloom coming off the rose? Perhaps capital flows are mean-reverting. Harding has had a nice run, but some have been grumbling about a natural limit to the scalability of a firm like Winton.

Barclay Hedge Fund Index gains 2.84 per cent in January
Hedgeweek
Sixteen of Barclay’s 18 hedge fund strategies began 2013 with a gain. On the losing side, equity short bias dropped 8.06 per cent in January and merger arbitrage lost 1.34 per cent. Equity short bias suffered a record loss in 2012, giving up 24.18 per cent for the year.
http://jlne.ws/14WKuX3

Hedge fund giant Bridgewater bullish on stocks, oil, some commodities
InvestmentNews
Bridgewater Associates LP, the $140 billion hedge fund founded by Ray Dalio, is betting on global stocks and oil as it expects money to move into equities and other assets amid increased economic confidence. Bridgewater, the world’s biggest hedge fund, is bullish on stocks, oil, commodities and some currencies as it expects cash to shift to riskier assets, co-chief investment officer Bob Prince said on a client conference call on Jan. 23.
http://jlne.ws/XJQro7
**DA: Borrow dollars, short them, and buy pretty much anything else. 2008 all over again.

Evaluating ‘Better Beta’ In Commodity Related Funds
By Carolyn Hill,
Seeking Alpha In futures-based commodities investing, picking the right ETP is harder than it looks. A lot of exchange-traded products try to beat the market, but it’s only in commodities that the more active products are often more popular than their plain-vanilla counterparts.
http://jlne.ws/14WK3w9

Managed Futures/Managed Funds

Voices: Greg Anderson, on Managed Futures
Wall Street Journal
When advisers think of managed futures, they tend to think of moments like 2000 or 2008, when futures performed extremely well as short-term hedges in the face of a stock market crash. But they don’t think of them as long-term components of a well-balanced portfolio.
http://jlne.ws/Un3RXh
**DA: Says who?

Ramius Releases White Paper: Allocating to Managed Futures: Performance Considerations within the Risk Parity Framework PYMENTS.com
Ramius LLC, the global alternative investment management business of Cowen Group, Inc., provided a review of recent managed futures performance, the nature of certain market phenomena impacting trend following strategies, and the role these strategies have within the asset allocation framework. The review was co-authored by Ramius Trading Strategies Chief Executive Officer, William (“Bill”) Marr and Director of Investment Research, Alexander Rudin, PhD.
http://jlne.ws/VZbxLE

Lillian Nicola Asset Management Announces the Launch of the LNAM Managed Forex Strategy
Gate 39 Media
Lillian Nicola Asset Management is proud to announce the launch of the LNAM Diversified Forex Strategy, a discretionary, directional trading methodology which enters and disposes of currency pairs within the spot forex market to capture price trends lasting anywhere from 2 weeks up to 6 months within these markets. The program utilizes a trading approach based upon the tenets of chaos theory, Elliot Wave theory, fractal geometry and price momentum.
http://jlne.ws/UGq0RO

Novus Ranked #1 by Autumn Gold
Novus Precious Commodities, a managed futures program offered by Novus Investments LLC, is proud to announce its ranking of Top Performing Commodity Trading Advisor (CTA) in the United States for the 5 year period of 2008-2012 according to Autumn Gold.
http://jlne.ws/V2Z5Qo

United States Commodity Funds LLC announces four of its Exchange Traded Commodity Funds are available to trade commission-free in the new Schwab ETF OneSource program
MarketWatch
Charles Schwab & Co. announced earlier today that Schwab clients can now buy and sell 105 ETFs with $0 online trade commissions. They also stated that all major asset classes are included in the offering, with funds from six leading providers, including the United States Commodity Funds. Schwab clients who buy and sell ETFs on the Schwab ETF OneSource platform will pay the exact same operating expense ratio (OER) they would elsewhere, but without paying a commission.
http://jlne.ws/14WJSkn

Smaller hedge funds may exit industry on fee pressures, says Agecroft Partners’ Don Steinbrugge
Investment Europe
Don Steinbrugge, managing member of Agecroft Partners, says that pressure remains on the hedge fund industry to lower fees, despite a 15% average decline in management fees on net assets received by hedge funds since 2008.
http://jlne.ws/12plGsz

Pensions & Institutions

Kazakhstan’s National Investment Corp. wants alternatives managers
Pensions&Investments
National Investment Corp. of the National Bank of Kazakhstan issued RFPs for hedge fund-of-funds and private equity managers in several different categories, according to a source at the bank. The hedge fund-of-funds portfolios will range between $50 million and $150 million per manager. The strategies are global macro, event driven, credit, long/short equity, multistrategy, fixed-income arbitrage and managed futures.
http://jlne.ws/VUySDK
**DA: Hello. My name-a Borat. I new in town. I sell-a thousand-a soybean-a future. Verrry nieeece!

Farmland, loan portfolio drive 11% return at Sweden’s AP1
Investments&Pensions in Europe
AP1, one of the Swedish national buffer funds, returned 11.4% for the full year 2012, with farmland in Australia and New Zealand boosting its fortunes. The fund’s ‘new investment’ portfolio also includes exposure to subordinated and mezzanine debt, as well as agricultural land.
http://jlne.ws/Vj9Tr5
**DA: Fund has a 2.3 percent allocation to managed futures and macro hedge funds.

Pension Funds Cut Back On Commodity Indexes
Wall Street Journal
Pension funds and other institutions are retreating from popular investments linked to commodities after finding they did little to protect their portfolios against inflation risk and the unpredictable returns of stocks. Investors have yanked nearly $10 billion from tradable indexes tied to energy, food, metals and other commodities after two years of record outflows. That leaves about $133 billion, said Kevin Norrish, a managing director at Barclays PLC.
http://jlne.ws/ZfuO1W

SEC Complaint Filed over City of Atlanta Pension Investment
Atlanta Progressive News
The complaint, filed on January 18, 2013, alleges that the investment consultant for the Pension Fund, Larry Gray, steered some 28 million dollar investment from the Pension Fund into a hedge fund company that he owns, without full disclosure to the Board of the conflict of interest.
http://jlne.ws/WMUZum
**DA: What do you mean “inadequate disclosure?” It’s right there in paragraph 42, section J, subsection 12(a)(4)(gggg).

CalSTRS board to forward options for saving teacher pensions
EdSource
Later this week the board of the California State Teachers Retirement System, or CalSTRS, will forward to the Legislature a report laying out options for raising higher contributions into the pension system to ensure its long-term viability. The Legislature has avoided action for a decade, and Gov. Jerry Brown’s budget forecast for education, with healthy projections for revenue, doesn’t take into account the daunting cost of teachers’ pensions on the expense side of the ledger.
http://jlne.ws/Z2ELf2
**DA: Unfortunately, none of the options allow current and future retirees to have their cake and eat it, too.

Pensions: Public Choices and Investor Caution
AllAboutAlpha
A new study by EDHEC-Risk Institute urges investors to be more vigilant about pension liabilities when making investment decisions concerning sovereign instruments. Perhaps the most intriguing part of this discussion involves the “political risks,” that is, the reasons pension reform however necessary is politically always very difficult. That portion of the study is a contribution to public choice theory, the use of economic tools to re-conceive political-science issues. Two of the key conclusions of this study, each expressly political, are: that European institutions should work toward more transparency in regard to their public finances, and that Europe needs explicit criteria on pension liabilities, in addition to the existing goals of growth, stability, and specified budgetary constraints.
http://jlne.ws/12LhKha

Regulation

SEC scrutiny blamed for stifling active ETF market
Risk.net
The US Securities and Exchange Commission (SEC) lifted its moratorium on reviewing actively managed exchange-traded funds (ETFs) that make use of derivatives last December. But industry sources say sponsors wishing to list the products still face long waiting periods with the regulator’s Division of Trading and Markets.
http://jlne.ws/VjacC9
**DA Plan on 9-12 months, unless you would like to use OTC derivatives, in which case plan on waiting even longer.

NFA’s credit card ban proposal – another malicious nail in the retail forex coffin
FX Street
NFA has gone a long way trying to completely kick retail forex out of the US eventually reducing the number of retail forex brokers from several dozens to just 11. With FX Solutions heading out as well the number of US forex brokers may fall below 10 within few months. The latest proposal to ban the use of credit cards and ewallets as a funding method is just another nail in the retail forex coffin. However what makes it special is that NFA is bluntly ignoring its own members, namely the Forex Committee and makes a proposal exclusively concerning forex brokers however without even consulting with them.
http://jlne.ws/VhQk58
**DA: Retail investors must be protected from themselves at all cost. In fact, what we need is a similar proposal covering Ebay purchases.

2013-02-01T12:12:22Z

This issue is all about the turning of the page. We are turning the page on MF Global and Peregrine, as MF customers are getting close to being made whole, and as Peregrine’s Russell Wadsendorf is sentenced to 50 years in prison. The NFA is making strides toward the next phase, as new board members push for change, and as it assesses the findings of an independent investigator. And, as CTAs close the book on 2012 and look to 2013 and beyond, several weigh in on what the future holds for the managed futures sector.

Observations – Statistics – Commentary

Quote of the Day

“On average, CTAs seem to have one down year every six years. It was a very difficult year, particularly for purely trend-following funds, but you cannot have everything. The only investment style that makes money all of the time is fraud.”

-Ewan Kirk, founding partner of Cantab Capital Partners, in the article “Can managed futures adapt to deliver in the low interest rate world?”

Five Minutes with Tom Kadlec, President, ADM Investor Services, Inc.
John Lothian Newsletter
Tom Kadlec is president of ADM Investor Services (ADMIS), the futures commission merchant (FCM) subsidiary of Decatur, IL-based Archer Daniels Midland Co (ADM). He spoke with JLN Editor-at-Large Doug Ashburn at ADMIS’ recent National Broker Meeting, an annual convention of networking, information sharing, and cutting-edge economic research presentations. Kadlec’s message to brokers is that of financial stability and growth in the wake of diminished customer confidence and regulatory uncertainty. Transparency and communication, he says, are the keys.
http://jlne.ws/rGdF70

Peregrine fraud investigation finds shortcomings at futures regulator
By Lynne Marek – Crain’s
The National Futures Association said it will implement 21 changes to how it oversees futures industry firms after an independent investigator found numerous auditing shortcomings in the wake of the $200 million financial fraud by futures broker Peregrine Financial Group Inc.
http://jlne.ws/UJ7KF0
**JL: Interestingly, there were no whistleblowers uncovered by the report. There are lots of things in this report to think about.

A letter from NFA’s CEO and Chairman
Dear Members,
We wanted to send you a personal update on all that has happened in the months following the collapse of Peregrine Financial Group Inc. (PFG), and let you know that we have taken steps to refine and improve our regulatory practices and better protect you, your customers and the industry in the wake of this tragic situation.
http://jlne.ws/9A3hzd

Attain Capital’s Semi-annual CTA Rankings
Attain Capital Management
It’s that time of year again, when we have the data for all of the CTAs we track through 2012, allowing us to try and answer the question we get on a daily basis: What’s your BEST managed futures program? That question is always a tricky one, as depending on who is asking it, they may want to know any one of several variations on who is best. Best last year? Best for all time? Best risk adjusted return? Best in terms of lowest drawdowns?
http://jlne.ws/115FvVO
**DA: Great list, with a number of surprises. From what they are saying in the popular press, you wouldn’t think any CTAs made money last year. I like that in the “top 15 overall” category, numbers 1 and 2 were funds that had minimum investments of $100k and $50mm respectively.

Town Hall Meeting: Rethinking the NFA for Commodity Customers
John Roe, Commodity Customer Coalition
The Commodity Customer Coalition will host a public Town Hall meeting Monday February 4, 2013 to get customer feedback on the role of the NFA in protecting customers and regulating its registrants. This will be the first in a series of Town Hall meetings designed to inform CCC co-founders and NFA Board Members-elect James Koutoulas and John Roe as to the public desire for reform at the National Futures Association.
http://jlne.ws/WHqjtn
**DA: Election congratulations to Mssrs. Roe and Koutoulas. We will get our first clue Monday as to how the CCC would like to steer the organization.

Altegris CTA Challenge 2013 Update
Altegris Clearing Solutions
We have just concluded the first month of the CTA Challenge. January results will be posted soon. We have just added an email sign-up for those interested in following us. To find out more, and to add your email to the list, visit the CTA Challenge portal site.
http://jlne.ws/WvBOqi
**DA: JLN Managed Futures is a media sponsor of the year-long event. Look here for periodic updates.

Lead Stories

What does the future hold for CTAs?
Anthony Hodges – FOW
Much has been written about the lack of CTA performance over the past 3-4 years. Managed Futures proponents point to 2008, when CTAs demonstrated a remarkable ability to generate handsome profits when the financial world was in crisis, as a reason for including managed futures in a balanced portfolio.
http://jlne.ws/WYtn0z

Given These Returns, Where Does A Specialist Managed Futures Fund of Funds Go?
Simon Kerr, Hedge Fund Insight
One of the major decisions taken by the investing institutions that came back to hedge funds after the Credit Crunch was to stick with CTAs. In the period after the Credit Crunch that was not difficult – the Barclay CTA index was up 14% in 2008, and some brand name CTAs up a lot more. The long term role of CTAs in a portfolio context was proven in adversity. So CTAs got a disproportionate share of fresh allocations to hedge funds in 2009-10.
http://jlne.ws/UJRCmr

Be Very Afraid When Fear Disappears From Markets
Bloomberg
These days, many indicators suggest we are in an extremely low-risk market environment. The Chicago Board Options Exchange Volatility Index, or VIX, sometimes known as the fear index, has reached a five-year low. European sovereign-bond yields, long a source of anxiety, have eased since their uncomfortable march higher in 2011, and the euro has risen 13 percent from its 2010 low.
http://jlne.ws/WYN7Da
**DA: The only thing we have to fear is lack of fear itself. FDR is spinning in his grave.

The Political Implications of America’s Oil & Gas Boom
All About Alpha
s we begin a new year we wanted to take a look at the current energy landscape and see what the future holds for the global economy, America’s oil and gas boom, whether renewables will continue to be a favorite amongst investors and whether we should be focusing more attention on conservation and energy efficiency rather than our continuous effort to increase supply.
http://jlne.ws/WFQhKU

Bill Gross: Economy is headed for credit supernova
Futures Magazine
They say that time is money. What they don’t say is that money may be running out of time.
http://jlne.ws/XYsAh5

Managed Futures/Managed Funds

Can managed futures adapt to deliver in the low interest rate world?
CityWire
After delivering stellar returns in 2008, managed futures and CTA strategies have attracted over $100 billion in assets as growing numbers of investors have been drawn to their diversification benefits. But following another year of negative returns for the sector, should investors continue to back them or are many of the existing quants models unable to cope with the zero interest rate, post-financial crisis world?
http://jlne.ws/10UEm3j

Lines Blur Between Hedge Funds and Asset Managers
WatersTechnology
Regulation is driving asset managers and hedge funds into the same space, according to Paris-based vendor Linedata’s annual survey of buy-side clients. Matt Gibbs, product manager for Northern Europe at Linedata, speaking at the survey release, says regulation is forcing asset managers to become more like hedge funds by focusing on a greater number of asset classes. Conversely, hedge funds have had to become more traditional.
http://jlne.ws/WYtoSe
**DA: To me, the only difference is where the fees are buried.

How to hold fickle commodities in your portfolio
Reuters via Yahoo! Finance
Commodities are among the most skittish investments. Not only do they react to global economic forces, they can seesaw with supply and demand, China’s voracious appetite for raw materials and the weather.
http://jlne.ws/X7OvBF
**DA: Good advice if your objective is long-only commodity exposure. If you would like exposure to both sides, come see us here in the managed futures space.

Alternative Ucits strategies deliver solid performance in 2012, says Alceda
HedgeWeek
Overall alternative Ucits strategies delivered solid performances in 2012, but managed futures struggled to keep up, according to the Q4 Alceda Quarterly Ucits review from Alceda Fund Management.
http://jlne.ws/XYoq93

BTG Pactual shuts macro hedge fund to new money
Reuters
The hedge fund arm of Brazilian bank BTG Pactual has shut its top-performing fund to new cash, in the latest sign managers believe markets may be too tough for trading huge amounts of money
http://jlne.ws/14v9Fjg
**DA: Must be nice to be in a position to chase away AUM. But this is a good lesson in the limits of scalability.

Hedge Funds Boost Bullish Bets by Most Since July: Commodities
Bloomberg
Hedge funds increased bullish commodity bets by the most in six months as accelerating growth from China to the U.S. boosted prices for a seventh week. Speculators raised net-long positions across 18 U.S. futures and options by 11 percent to 758,048 contracts in the week ended Jan. 22, the biggest gain since July 3, U.S. Commodity Futures Trading Commission data show. Bullish crude- oil bets reached a four-month high, while those for soybeans climbed by the most since March. Investors are the most bullish on cotton since February 2011.
http://jlne.ws/WITpXz

Commodity Confusion
Barron’s
The torrid growth of exchange-traded funds is as clear a trend as you get in financial markets. Investors poured a record $191 billion into ETFs last year, driving 18% asset growth (27% including performance gains). One niche, though—commodities—has been somewhat sleepier. The nearly $11 billion that went into this group, though respectable, made for 10% growth, showing that investors are not as enthusiastic about commodity ETFs as they are about stock or bond ETFs. There are good reasons for that.
http://jlne.ws/YoUxRd

Need A Better Investment Strategy? Listen To A Woman – New data reveals that female hedge fund managers outperform their male competition.
Co.EXIST
Male hedge fund managers, watch out for your jobs: a new report from financial services firm Rothstein Kass has revealed that female hedge fund managers significantly outperform their male counterparts. In the third quarter of 2012, they scored a net return of 8.95% (according to the Rothstein Kass Women in Alternative Investments Hedge Index) compared to a 2.69% net return overall on the HFRX Global Hedge Fund Index. But at the same time, women make up less than 20% of all C-suite members in the firms polled. Not enough people have yet woken up to the fact that it makes sense to hire more women in senior positions.
http://jlne.ws/YJ5jpk

Pensions & Institutions

Pensions Bet Big With Private Equity
MICHAEL CORKERY – WSJ.com
On the 13th floor of a sleek downtown office building here, the trading desks are manned overnight. The chief investment officer favors cowboy boots made of elephant skin. And when a bet pays off, even the secretaries can be entitled to bonuses. The office’s occupant isn’t a highflying hedge fund but the Teacher Retirement System of Texas, a public pension fund with 1.3 million members including schoolteachers, bus drivers and cafeteria workers across the state.
http://jlne.ws/WYtpFO
**DA: What happens when a “bet” doesn’t pay off?

Bridgewater’s Dalio Sees ‘Game Changer’ as Money Shifts
Bloomberg
Ray Dalio, founder of Bridgewater Associates LP, the world’s biggest hedge fund, said 2013 will be a “game changer” for the economy as investors reallocate money after risks such as Europe’s sovereign debt crisis receded.
http://jlne.ws/14vbH2Q
**DA: All this central bank pump-priming was destined to make its way into the market. Will they have the foresight to pull back in time, or will they err on the side of bubble-blowing? If recent history is a guide, “hello, bubble.”

U.K. Pension funds hold more bonds than shares for first time since 1975
The Telegraph
Last year funds held an average of 35pc of their assets in shares, compared with 39pc in bonds and other fixed-interest investments. In 2011 they still held more in shares – 42pc against 33pc in bonds, according to the annual survey of company pensions by the National Association of Pension Funds (NAPF).
http://jlne.ws/11p4piz

What are the Most Commonly Used Strategies for Wealth Managers in Hedge Funds?
Prequin
Hedge funds serve as an important component within wealth managers’ portfolios, providing protection from downside risk along with diversification benefits.
http://jlne.ws/Xt6t3q

Analysis: Canadian hedge funds’ growth dreams face tough reality
Reuters
Canadian hedge funds will likely remain more boutique than big box in the future, as lack of scale, poor returns and difficulty accessing big investors weigh down growth.
http://jlne.ws/VsREwl
**DA: Article says Canadian pension funds largely prefer allocating to the “big boys” in New York and Boston, rather than domestic funds.

U.S. Endowments To Increase Hedge Fund Allocations Over Next Year
ProHedge
According to data firm Preqin, endowments in the United States have an average hedge fund allocation of 19.1%, and are looking to grow this over the next 12 months.
http://jlne.ws/YoMOCP

In a Volatile Economy, Colleges’ Endowment Returns Fall Flat
Chronicle of Higher Education
The value of college endowments fell back to earth in 2012, just a year after soaring an average of 19.2 percent, according to a new survey released on Friday. The Nacubo-Commonfund Study of Endowments, which looks at data from more than 800 education institutions in North America, found that endowments for the fiscal year that ended on June 30, 2012, were essentially flat, returning an average of minus-0.3 percent.
http://jlne.ws/11djmoS

Regulation

CFTC Staff to Host a Public Roundtable February 5 on Enhancing Customer Protections
Press Release
The roundtable will focus on: the role of an “Examination Expert” to review Self-Regulatory Organization (SRO) examination programs; the proposed disclosures of firm specific risks and financial reporting; the proposed requirement for segregation and secured acknowledgement letters; and the proposed residual interest requirements for Futures Commission Merchants.
http://jlne.ws/W7vCBi

Futures Industry Moves Forward with Enhanced Customer Protections
Joanne Morrison – FI Magazine
Since the collapses of MF Global and Peregrine Financial, the futures industry has made significant progress to better protect customer funds with a series of actions that have led to better transparency and internal controls. Many of the recommendations are in line with initiatives recommended by an FIA task force early in 2012.
http://jlne.ws/XLJUFn

Recent compliance guidance from the National Futures Association
Association of Corporate Counsel
The National Futures Association (the “NFA”) has recently released a number of notices to CPOs and CTAs, summarized as follows and addressed in detail under the respective section headings below.
http://jlne.ws/WHVvZw

Reality dawns for alternatives sector
Financial Times
Radical reforms from Brussels that recast the way alternative funds are sold across Europe are catching hedge fund and private equity managers off balance. Starting as early as July, the Alternative Investment Fund Managers Directive (known in industry argot as the AIFMD) will disrupt how most alternative investment funds work in the EU by subjecting them to a diet of regulations and streamlining the way they are distributed across 27 countries.
http://jlne.ws/WYKPUy
**DA: For more on AIFMD, visit the page in MarketsReformWiki.

MF Global accord, once thought unlikely, goes before U.S. judge
By Nick Brown – Reuters
A year ago, the bankruptcy of MF Global, the collapsed brokerage run by former New Jersey Governor Jon Corzine, seemed like it would be a long and messy affair involving plenty of courtroom drama around the world.
http://jlne.ws/VpVvu2

Peregrine boss Wasendorf gets 50 years jail for fraud
Reuters
A judge on Thursday sentenced the founder of Peregrine Financial Group to 50 years in prison for looting hundreds of millions of dollars from the brokerage, saying his customers would probably never recover the money they lost.
http://jlne.ws/XaCk78