Beruflich Dokumente
Kultur Dokumente
In This Issue
Founding Father Q&A
How does one invest for times when markets behave irrationally? Mark Rosenberg, founder of SSARIS, explains ...3
Futures Lab
Certain strategies work well in stressed market environments, as demonstrated by the difference between convergent vs. divergent investment philosophies. ............5
Index Track
Insider Talk
Learn about turnkey managed account investing. Interview with Aleks Kins, chief executive of AlphaMetrix. ...........................8
News Briefs
Practitioner Viewpoint
What needs to be done to restore investor confidence? An administrator with 30 years of managed futures experience speaks his mind .......................................................12
Manager Profiles
Continued on page 2
Top Ten
OPALESQUE FUTURES
EDITORIAL
Besides cash, investors went to gold, the usual refuge in a panic. Theres the fear factor and predictions of Armageddon, but also other reasons to buy gold, such as an expected drop in the value of the US dollar. That would enhance the case for diversifying with futures. Cyclical diversification aside, the fundamental case for managed futures may rest on unchanging human nature. Mark Rosenberg, founder of SSARIS, explains the behavioral basis of his investment philosophy in this issues Founding Father Q&A. Our Futures Lab presents evidence for the argument. Meanwhile, investors dont want to face suspended redemptions and search for an ATM again. Theyre demanding separate accountssee our news brief about Fortress. The issues Insider Talk is right on target: Aleks Kins, a veteran in this area, discusses managed accounts. As for the all-important need to restore investor confidence after the beating it took in 2008, veteran fund administrator Derek Adler offers a commonsense Viewpoint. Chidem Kurdas Editor kurdas@opalesque.com
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OPALESQUE FUTURES
Mark Rosenberg
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OPALESQUE FUTURES
Paul Lucek
Last year, when many bonds and even some stocks became illiquid, futures markets stayed open to trading.
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OPALESQUE FUTURES
FUTURES LAB
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OPALESQUE FUTURES
FUTURES LAB
Divergent Strategy in Periods of Stock Market Stress Since 1984
Period
Oct. 1987 Oct. 2008 Aug.1998 Sep. 2002 Feb. 2001 Aug. 1990 Sep. 2008 Jun. 2008 Sep. 1986 Nov. 1987 Sep. 2001 Nov. 2000 Jul. 2002 Nov. 2008 Jun. 2002
CTA Program
- 2% 19.7% 12.4% 4% - 2.5% - 1.8% 2.33% 3.8% - 14.4% 4% 5.1% 3.8% 5.6% 4.8% 6.5%
* The CTA program is SSARIS Diversified Trading Program. The returns are net of fees.
The same conclusion emerges from a study of times when there were heavy losses in the bond market, as measured by the Merrill Lynch 5-7 Year US Constant Maturity Index. The index lost a total of 62.7% during the months that it declined by more than 3% since 1990. In those same months, the managed futures program gained a total of 29.9%. Again, the correlation was negative. Because of these characteristics, adding divergent strategies enhances a portfolios return in economic environments where opportunities are limited for convergent strategies. Combining the two types of strategy in a portfolio reduces the negative outliers and shifts the skew to the positive side. Compared to either category of strategy on its own, the combination has higher risk-adjusted performance.
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OPALESQUE FUTURES
INDEX TRACKER
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OPALESQUE FUTURES
INSIDER TALK
Aleks Kins
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OPALESQUE FUTURES
INSIDER TALK
the traders and the money coming into the platform, so investors dont need to devote a lot of time and money to investigating. Weve vetted more than 150 managers and track some 1,000 programs. Currently 36 CTAs are trading on the platform and a total of 60 are approved. The money is held in accounts at banks or brokerage firms in the name of the pool, not transferred to the traders. Our people do legal, operations, back office, research and risk management work. OFI: Are you a fund of funds manager? OFI: How is the outlook for managed futures this year? AK: We are not a fund of funds manager. The investor picks the traders and allocates the money. Nor are we a counterparty. Large commercial banks are counterparties. We provide the platform, which comes with a whole system of checks and balances. A third-party administrator manages the inflow and outflow of assets and monitors the accounts. Investors can have 24-hour risk monitoring and see where every penny is in near real-time, through the use of our proprietary technology. In some ways it is like an exchange, with standard terms and posted prices. OFI: What do investors pay for your service? AK: Investors do not pay any additional fees to us. We charge managers and brokerages to participate. Investors are charged the managers standard fees, which are usually 2% and 20%. OFI: Are investors showing interest? AK: We see new investors making allocations. There is an influx of capital not just because of impressive performance by CTAs in 2008 but also because managed accounts is an established way of investing in futures and people now recognize the value of the transparency you get with a managed account. Theres been a change in the investor culture. We have about 500 investors using the platform and theyve been talking to us about expanding the service to other liquid strategies. Funds of funds and institutional investors are the largest source of investment on the platform. OFI: Do you seed new CTAs? AK: Not currently, but we will start a CTA incubator later this year. Our platform is the right structure for this. When you work with emerging CTAs, you cant take anything for granted, you even have to make sure they liquidate contracts before expiration. Implementing simple checks like that saves you trouble in the future and we have automated many such procedures, resulting in a very scalable solution. OFI: What is the index fund you recently introduced?
AK: Weve created an index fund of short-term CTAs, meaning programs that have an average holding period of less than ten days. It tracks Newedges Short-Term Traders Index. Shortterm strategies have little to no correlation to any traditional or alternative investments. Each program is highly liquid and transparent. Currently the index fund has 16 managers and approximately $90 million in assets.
AK: CTAs tend to do well in unstable and inefficient markets. Many Wall Street firms are no longer trading and a lot of capital has been pulled out of futures markets. That makes these markets less efficient and more volatile. That, along with the possibility of inflation in the economy, means opportunity for CTAs.
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OPALESQUE FUTURES
NEWS BRIEFS
Fortress Finds Investors Want Managed Accounts
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Fortress Investment Group, a large private equity and hedge fund company that is exchange listed, is responding to a demand for managed accounts, which give investors liquidity and transparency. During an earnings conference call last week, executives of the firm said that there is a focus on setting up separate accounts for investors and this requires significant administrative work. Fortress has managed accounts already for some of its investment strategies, such as Drawbridge Special Opportunities. In November of 2008 Fortress suspended redemptions in its Drawbridge Global Macro fund. At the time many hedge fund managers froze withdrawals, which forced investors in need of cash to sell off other, more liquid, assets. This is one issue that is fueling demand for managed accounts, where the investor owns the account and faces no gates to liquidating the assets. When Fortress reopened Drawbridge Global Macro at the end of January, there were $3.3 billion in redemptions. The fund paid out $2.1 billion cash, expects to pay another $0.3 billion this month and distributed $0.9 billion of shares in newly created special purpose vehicles that hold illiquid assets. Fortress also received $1.5 billion of redemption requests for its hybrid hedge funds. The money is to be paid out over time as the underlying investments are liquidated. Many commodity trading advisors offer managed accounts, but hedge funds have tended to set up such vehicles only for big investments.
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Partnership
Hedge Funds and CTAs
In todays volatile markets, you want to maximize your opportunities and minimize your exposure. We work with you to understand your strategies, anticipate your needs and optimize your resources through our ongoing investments in expertise and infrastructure. We offer prime brokerage services spanning all major asset classes, with cross-margining tools, cutting-edge risk calculation, start-up services and in-depth market intelligence all geared to taking you where you want to go. Newedge committed to helping you reach your goals.
www.newedgegroup.com
OPALESQUE FUTURES
PRACTITIONER VIEWPOINT
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If we are to be honest, virtually each and every one of us is to blame for the unnecessary mess we are now in. I am not at all surprised by some of the problems that some money managers, hedge funds and banks have to face. We all need to think of how to improve the way we do things. For money managers, that includes hiring a third-party administratorto my mind, an essential and now obligatory service. Allow me to declare upfront my interest in a fund administration company. Yes, I have a vested interest, but nevertheless believe profoundly in the issues I bring to your attention. As administrators, my partner and I always had a mantra of transparency. The only possible reason why someone does not like transparency is that there must be something to hide. Therefore all of the funds that we administer have always had a daily NAV which includes and accrues for absolutely every fee and charge. No surprises at month end. We dont like funds that you cannot value independently via an exchange or market
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14
Nevertheless the investors lost money because Mr. Donnelly misappropriated at least $1 million for himself and his wife and may have received another $1.7 million to which he was not entitled. The CFTC seeks to get money back not only from him but from Deborah Donnelly as well as two commodity pools, Blue Logic Operating Partners and Nadia Capital Operating Partners. Ray White and CRW Management LP of Mansfield, Texas, were charged with operating a Ponzi scheme involving the solicitation of at least $10.9 million from more than 250 investors. Mr. White claimed to trade off-exchange forex contracts but the CFTC says he used investors money to fund a drag racing team and purchase real estate, cars and Dallas Stars hockey season tickets. He told customers that CRW would generate between five and eight percent weekly returns, corresponding to an annual return of between 260% and 416%. Of the $10.9 million raised, at most only $94,000 was used to trade and most of that was lost. The government seeks to take assets from Christopher White and Hurricane Motorsports because they allegedly received money as a result of the fraud. The CFTC settled charges of failure to supervise the handling of customer accounts against Walsh Trading Inc., a Chicago-based introducing broker. The firm is required to pay $50,000 and strengthen its supervisory oversight of associated persons, employees, and agents. The regulator says Walsh failed to diligently supervise the handling of certain accounts managed by an unregistered commodity trading advisor and lacked procedures to detect unauthorized trading of these customer accounts. An associated person who managed Walshs Arkansas branch office solicited customers, primarily from the farming community, for an unregistered CTA, opening at least five customer accounts. None of these accounts contained a power of attorney or a letter of direction authorizing trading. The unauthorized trading by the unregistered CTA continued undetected for two years.
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OPALESQUE FUTURES
MANAGER PROFILES
Managers with diverse approaches describe their strategy and what they see happening in the markets. Their comments have been edited.
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David Mather
Integrated Managed Futures Corp. David is executive vice-president of Integrated Asset Management Corp. since 2002 and vice-president of Integrated Managed Futures Corp. since 2003. Previously he was at SEI Investments and Fidelity Group Pensions. Comments: The central investment tenet of the IMFC Global Investment Program is that markets exhibit persistent anomalies that cannot be explained by random behavior or the assumption of fully informed and rational market participants. Price trends, or serial correlation in market prices, may be the result of many factors, including the crowd behavior of market participants. We utilize proprietary systematic trading strategies to invest in longterm price trends in over 60 industrial, agricultural and financial futures markets. IMFCs trading is based on an analysis of market statistics that is rooted in both probability theory and postmodern portfolio theory.
Comments: We manage risk at both the system level and the portfolio level. At the system level, stop loss orders are entered in the markets for each open trade. A proprietary filter determines the strength of the trend and activates different trading systems. The stop levels are calculated by the system algorithm and are designed to exit losing trades as quickly as possible while providing flexibility to navigate market noise. Risk management at the portfolio level consists of diversification across markets, system styles, trading time frames and sizing of portfolio positions.
Anderson Huber
Beardown Partners Andy has over twenty years of trading and investment industry experience. He began his Wall Street career in 1980 in the commodity futures markets at Shearson Hayden Stone, where he was first exposed to trend following systems, and has worked for Lehman Brothers, Deutsche Morgan Grenfel, Nationsbank, and Citicorp. Currently, he manages the loan credit default swap inter-dealer operation at Phoenix Partners Group.
Comments: Trading systems must have built-in flexibility and while being a rule-based process, must have the fewest filters and qualifiers to be consistently effective. This is an important aspect of our Vertical Equity Trading Program. While systematic at its most basic level, the program is neither a black box nor purely a trend following system. It is a dynamic investment activity, involving real time risk weightings, adaptation to rapidly changing conditions and superior execution. Most futures traders have expectations of a high return for risk taking in these highly levered, often volatile markets. I believe in the opposite. The goal being to generate consistent profitability over time, Im more than satisfied to break even on a trade and take many small gains and losses, with the comfort that capital has been preserved for future opportunities.
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OPALESQUE FUTURES
TOP TEN
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PUBLISHER Matthias Knab - knab@opalesque.com EDITOR Chidem Kurdas - kurdas@opalesque.com ADVERTISING DIRECTOR Denice Galicia - dgalicia@opalesque.com EDITORIAL ADVISOR Tim Merryman - tmerryman@opalesque.com CONTRIBUTORS Bucky Isaacson, Frank Pusateri, Pavel Topol, Ty Andros, Walt Gallwas.
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