European Institutions

The preparedness of European institutions to purchase either managed derivatives funds or programmes varies across the continent and is dependent upon a series of factors some of which may be addressed by marketing.

1. The regulatory (and tax) environment;
2. general familiarity with the derivatives and managed derivatives industry;
3. familiarity with the fund management group attempting to sell product;
4. presence and format of a track record (at least for past funds if a new product is offered);
5. money under management within the fund group;
6. technical expertise within the fund group;
7. performance aspirations for the fund or investment programme;
8. quality and content of the explanatory/sales materials;
9. financial considerations such as fees implicit within the fund or programme.

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Posted: February 11th, 2008 under Managed Futures.
Comments: none

Within the context of the managed futures industry in Europe, there are, looselydivided, six marketing objectives depending on the product being offered and the type of company or group which is offering it. These are:

sales of funds or management programmes to investment institutions;

• CTAs attempting to manage money within (usually) multi-manager funds or equivalent investment products;
• sales by fund management groups, to expatriate retail investors or, increasingly (with domestically registered funds) to retail investors within their own countries;
• fund management groups seeking joint venture partners for the creation and distribution of funds (usually retail) within an individual country or economic block;
• fund management groups seeking sales agents to distribute products on a commission basis in a defined area;
• consultancy groups attempting to act for investment management groups — particularly those considering multi-manager derivatives funds, to structure the fund, select CTAs and control asset allocation.

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Posted: February 11th, 2008 under Managed Futures.
Comments: 2

Commodity pool operators have developed their own methods of putting funds together.

New trading strategies derived from combining artificial intelligence, historical simulations and new applications of tested theory will also be incorporated into the markets. Mount Lucas Management Co. can test an algorithm using historical data going back 30 years. One Chicago proprietary trading firm uses 15 years of tick-by-tick trading data on key markets which are screened by artificial intelligence to discern price patterns over any possible time frame. These historical patterns are then compared against live trading data. Richmond Financial Resources, Richmond, Texas, has also developed an exclusively automated trading operation. Read more »

Posted: February 4th, 2008 under Future Fund, Futures Market, Managed Futures.
Comments: 2

Most managed futures funds have a CPO, an institutional fund manager, who in setting up the fund appoints either one or a selection of CTAs who actually advise on the management of the money. Some funds have a trading manager as well, a specialist who advises the CPO on the selection of the CTAs. The number of CTAs used within a fund differs, largely depending on fashion. Multi- adviser funds were considered, for a long while, to achieve diversification of risk and lower volatility. Now the fashion is coming back to single adviser funds again as mathematical systems of trading become more complex. CPOs are also responsible for organising the back-office administration of a fund, the trustee and custodian functions, the marketing and sales of the fund and so on. While this is always extremely important in the working of a fund, it is particularly important in managed futures funds where supervision of margin or premium is essential to controlling a fund’s exposure to risk. Read more »

Posted: February 4th, 2008 under Future Broker, Future Fund, Managed Futures.
Comments: 3

1) Sponsor: the company or individual responsible for launching the fund for example, for a limited partnership, the sponsor is the General Partner

2) Trading manager or pool operator: this is the company or individual responsible for the development of the fund both initially and on an ongoing basis

3) Domicile: the legal home of the fund

4) Clearing broker: the main clearing broker for the fund. Some funds use
more than one broker; in such a case, the entry will read ‘various’ Read more »

Posted: February 4th, 2008 under Future Fund, Future Trading, Futures Trader, Managed Futures.
Comments: 3

THE ORIGINS OF THE MANAGED FUTURES INDUSTRY

In 1949, Richard D. Donchian established what is believed to be the first managed commodity fund, Futures Inc., which was offered to the public in the US. This fund was traded until it was dissolved in the mid 1970s. Donchian was a broker at Hayden Stone and he applied a system to futures money management, based on the application of moving averages. Donchian’s initiative was not taken up by a large number of fund managers in the US and consequently managed futures funds suffered a temporary lull in their development.

The next development was that in 1965, Dunn & Hargitt became the Commodity Trading Advisers (CTA) for a managed commodity account. According to Thomas Northcote’s Major Events in the History of the Managed Futures Industry, the account was US$ 2000 and came under the direction of a non-broker CTA and traded at Lamson Brothers (now part of the Shearson Lehman Brothers Group). Says Northcote: ‘One of the more anachronistic policies of the CTA was that no women could open an account.’ The management fee was US$ 175 per year. Read more »

Posted: February 1st, 2008 under Future Fund, Future Trading, Futures Contracts, Managed Futures.
Comments: 3

Industry observers claim that the total effect of fee structures is to transfer almost all risk to the investor. This claim needs stating because it is a condition attached to futures funds which investors are finding less and less tolerable. With retail products the guaranteed funds have attempted to resolve this problem in terms of investor perception of risk, but for large institutional investors who can hedge their own risk, these fees are too high a price to pay for exposure to leverage.

Funds which recently described themselves as “changing the relationship between risk and reward in favour of the investor” do so through more sophisticated risk control program—in reality of course, the investor still bears the burden of financial losses. Read more »

Posted: January 31st, 2008 under Future Fund, Managed Futures.
Comments: 2

The purpose of performance measurement in managed futures is quite clear. It is to establish from a statistical perspective how ‘good’, ‘bad’ or ‘indifferent’ the performance is of a particular trading adviser.

All performance analysis is a study of the historical track record and there can be no guarantee that whatever has been achieved in the past can be achieved again in the future. Gaining historical information itself is difficult in this industry because of its short history.

The objective of analysis is simply to get an indication of the likelihood and capability of an adviser of managing risk and generating returns. Read more »

Posted: January 30th, 2008 under Future Fund, Managed Futures.
Comments: 2

There has, as yet, been little research into European CTAs as a separate phenomenon. However, Lois Peltz, managing editor of Mar, has undertaken some recent studies into the European managed futures industry and the CTAs covered by Mar’s database, and has found some evidence that European traders have a low correlation with the Mar CTA Index. This is because: Read more »

Posted: January 29th, 2008 under Managed Futures.
Comments: none

THE GROUP OF THIRTY

The recent report by the Washington-based think-tank, the Group of Thirty, sought to address many of the problems associated with the risk ofover-the-counter derivative products. The Group of Thirty or G30 is a private group made up largely of the senior management of banks from all over the world and academics working in the field of economics.

The current members are:

1. Rt. Hon. Lord Richardson of Duntisbourne KG, honorary chairman
2. Paul Volcker, chairman, Group of Thirty, and chairman of James DWolfensohn Inc.
3. Dr Pedro Aspe, Secretario de Hacienda y Credito Publico Mexico
4. Geoffrey Bell, executive secretary, Group of Thirty, and president of GeoffreyBell & Company

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Posted: January 26th, 2008 under Future Management, Futures Trading System.
Comments: 4