Sat, Aug 23, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Stonehenge Capital’s Forward Curve Realignment (FCR)hedge fund debuts strong returns one month after launch

Monday, October 24, 2011
Opalesque Industry Update - Florida-based asset management firm, Stonehenge Capital Management’s new direction neutral strategy Forward Curve Realignment (FCR) hedge fund debuted with a strong return one month after it was launched on September 1 this year.

FCR returned 0.3 percent in its first month of trading during one of the most turbulent market conditions, Stonehenge Capital Manager Steven Michael said.

According to Michael, FCR seeks to capitalize on the reversion to equilibrium of the forward curve following the distortions brought about by the rolling of contracts of established positions, primarily by long-index investors and speculators.

FCR will focus on investing in a variety of sectors (energies, grains, metals, softs and livestock) and markets in order to take advantage of reversions to equilibrium of the forward curve following distortions brought about by large capital flows.

Michael commented, “According to the CFTC, as of July 29, 2011, there was in excess of $180 billion (notional) in net long index commodities positions across 21 markets. Also, we believe that there is more than $100 billion managed by CTAs, and an additional $100 billion in commodities Exchange Traded Funds. Much of this total investment is held in nearby or front-month contracts. As these contracts near their expiration, non-commercial investors must exit their positions in order to avoid taking or making delivery of the physical commodities. This results in massive flows of capital. Most often, these large flows of capital do not exit the market, but rather shift to new positions farther along the curve in order to maintain their overall (long or short) directional interests.”

FCR uses several proprietary methodologies for analyzing these capital flows, allocating investments across all of the markets, and balancing the positions across both long and short interests using calendar spreads. The strategy employs internally-developed volatility and correlation analyses in order to keep overall volatility down, to reduce correlation of returns to the direction of the underlying market, and to achieve smooth margin to equity ratios, thereby increasing the efficiency of the deployment of capital.

Michael added, “We employ a proprietary methodology that holds both long and short spread positions in each market in order to minimize exposure to underlying market moves. We maintain positions at the front of the curve, never extending beyond the first year. Our model adjusts the relative long and short positions in order to minimize correlation to the underlying directional moves in each particular commodity. We aim to achieve a result which can be profitable in both an upward and a downward trending market of the underlying commodity and not restricted to making a profit only when prices go up (or down).”

By trading calendar spreads, the strategy seeks to avoid the effects of shocks to a market that are felt across the entire curve. Additionally, the strategy frequently holds both long and short spreads simultaneously within a market to further reduce shock risk.

Stonehenge Asset Management, sister company to SCM and manager of the Stonehenge Diversified 1 Fund believes that the addition of this strategy to its portfolio is keeping with its core philosophy that capital flows are the most tradable and consistent factor in price movements. “Both our intra-day and short-term trading strategies are based on this foundation, as well,” Michael said.

“We use proprietary means to adjust both our overall allocations to each market traded and to the sub-allocation within each market to each of the components of the trades described above. We attempt to keep a consistent deployment of capital using proprietary volatility analyses to reduce the overall capital required to target a particular level of volatility and to try to have a more predictable use of capital/margin,” he said.

To speak to Steven Michael,, please e-mail him at smichael@ stonehengeam.com or you can call him 561-952-1655 or visit www.stonehengeam.com...Corporate website: to Source
pd

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing
  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Institutions – Texas Employees sets 2015 tactical plan for alternatives, CalPERS' real estate consultant cautions the pension fund's investment committee, Why Sunsuper likes hedge funds[more]

    Texas Employees sets 2015 tactical plan for alternatives From PIOnline.com: Texas Employees Retirement System will invest in up to four new hedge funds in the next fiscal year, which begins Sept. 1. Trustees approved 2015 tactical investment plans for the hedge fund, private equity and in

  2. Private equity follows hedge funds into reinsurance for long-term capital[more]

    From Artemis.bm: It’s not just hedge funds that are entering the insurance and reinsurance market in search of so-called long-term capital to put to work in their strategies, private equity firms targeting the space are also seeking opportunities to add assets under management. The entry of large pr

  3. North America – New York City’s next hot neighborhoods targeted with property funds[more]

    From Bloomberg.com: New York’s real estate world is filled with tales of ordinary people who bought property decades ago and saw values skyrocket to the millions. Seth Weissman is seeking investors to get in early on the next hot neighborhoods. The veteran of Goldman Sachs Group Inc. and hedge

  4. Investing – George Soros bets $2bn on stock market collapse, Warren Buffett's Berkshire reveals Charter stake, cuts DirecTV, Hedge funds lusting to cash out of MGM, Top hedge fund managers are buying Ally Financial, Hedge funds dumped 5m Herbalife shares in Q2, Paulson & Co hedge fund ups Puerto Rico real estate bet, Netflix Inc., Citigroup Inc, Google Inc are top new picks in Tiger Management’s 13F[more]

    George Soros bets $2bn on stock market collapse From Newsmax.com: Billionaire investor George Soros has increased his financial bet that U.S. stocks will collapse to more than $2 billion. The legendary hedge fund manager has been raising his negative bet on the Standard & Poor's 500 Inde

  5. Investors now net short S&P500 and increased Russell shorts, technicals suggest further selling[more]

    Komfie Manalo, Opalesque Asia: Market Neutral funds increased their market exposure to -1% net short from -6% net short last week, according to Bank of America Merrill Lynch’s Hedge Fund Monitor. The report also added