Sat, Jun 24, 2017
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Opalesque Futures Intelligence

Insider Talk: Why Don't CTA Assets Grow? Two veterans offer a contrarian view

Tuesday, March 10, 2009


FUTURES LAB

Why Don't CTA Assets Grow?

With notable exceptions, commodity trading advisors tend to manage small amounts of capital. In a roundtable, we asked Bucky Isaacson and Frank Pusateri why this is the case and what advice they would give to CTAs who want to expand their business.

Mr. Isaacson is president of Future Funding Consultants and a pioneer trend follower. Mr. Pusateri is executive vice president of Fall River Capital LLC and a veteran fund marketer. Together they helped found and develop the predecessor of the Managed Funds Association. Their contrarian view of the industry should be an eye opener.

Opalesque Futures Intelligence: Some people argue that investors should consider managed futures a separate asset class and allocate more to it. Is it happening?

Frank Pusateri: I don't think so. This strategy is poorly understood by clients. There is talk now of more money moving into managed futures but once the stock market comes back, that talk will disappear. Right now CTAs are getting redemptions despite their stellar performance in 2008, because many investors need cash and commodity pools and managed accounts are liquid—they're truly like ATMs!

Bucky Isaacson: Talking to people in the institutional investor world, it's clear they're not looking at this industry any differently than they did before. For instance, they've known for years that CTAs offer greater transparency than hedge funds. Why should that make a difference now?

OFI: But don't some CTAs attract a lot of investment?

BI: Very few CTAs manage more than $500 million. They can't make the transition to managing big money. There are a few exceptions, like Paul Tudor Jones, who started as a CTA and built a hedge fund business, and Campbell and Winton who still market themselves as CTAs.

OFI: What differentiates those managers?

FP: It's not just a matter of performance, although that has to be there. Those who make the transition to a large shop create hedge fund businesses. They know how to present themselves to investors as reliable money makers with an organization to support the trading.

BI: To have access to big money you have to show you have operational stability. So you have to spend money to hire people and build a corporate structure. Many CTAs don't know how to build a business. They focus on trading and don't pay attention to the business side. They are not set up to deal with clients, don't have a business plan. Even their web sites are not good.

OFI: What should CTAs do?

FP: They have to realize how important fund marketing is. Take presentations — if your presentation looks like everybody else's, the investor has no way to distinguish you from the crowd. You have to spend time to build relationships. Meeting a fund of funds representative once or twice a year is not enough. You have to contact several hundred people to raise money. It is now more complicated and expensive than it used to be.

BI: CTAs need to decide how much time and money they can spend on marketing the fund, then make a plan. There are different types of marketing, depending on the resources available. For instance, marketing overseas is very expensive. If the budget is small, the plan may be to build relations with local people.

OFI: Are there other common CTA mistakes?

FP: Many CTAs stay with their original program and keep trading in the same way. I believe that at some point the program stops working or it's reward-to-risk characteristics are no longer competitive. Long-term success requires that the trading style evolve as the competition gets more sophisticated and/or markets change.

OFI: Would you identify some encouraging developments?

FP: Fund seeders did not need to look for CTAs in the past, but maybe now they will. The lack of CTA incubators has been a major problem—there's little money to develop new talent. Another good thing is that sophisticated allocators now put CTAs and global macro funds into the same bucket. Pensions allocate much more money to hedge funds than to CTAs, so the latter have a better chance if they're together with global macro. Splitting them is generally an arbitrary distinction.



 
This article was published in Opalesque Futures Intelligence.
Opalesque Futures Intelligence
Opalesque Futures Intelligence
Opalesque Futures Intelligence
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. FinTech - Rise of robots: Inside the world's fastest growing hedge funds[more]

    From Bloomberg.com: Believe the hype. Quants have never been more popular. After doubling over the past decade, assets run by so-called systematic funds have hit a record $500 billion this year, according to estimates from Barclays Plc. In some ways, their meteoric rise is due to the same technolog

  2. Legal - Bond market concerns could scuttle Paulson's Fannie-Freddie plan[more]

    From Bloomberg.com: A hedge fund proposal for freeing Fannie Mae and Freddie Mac from U.S. control is poised to face stiff opposition from investors who say it risks wrecking the mortgage-bond market. The Moelis & Co. blueprint, which firms including Paulson & Co. and Blackstone Group LP sponsored,

  3. Other Voices: Are your pricing policies and procedures for less liquid instruments adequate?[more]

    Komfie Manalo, Opalesque Asia: The unrelated position mismarking incidents that quickly precipitated the closures of both Visium Asset Management and Marinus Capital have been recent focal points for market participants, but regulatory scrutiny of valuation choices for less liquid instruments is

  4. FinTech - AI hedge fund Numerai now live on Ethereum, Cryptocurrency hedge funds generate huge returns as bitcoin surges[more]

    AI hedge fund Numerai now live on Ethereum From Cryptoninjas.net: Back in February, Numerai announced numeraire (NMR), a cryptographic token to incentivize a new kind of hedge fund built by a network of data scientists. Earlier today, the Numeraire smart contract was officially deployed

  5. Investing - Advisors slash hedge fund positions, Theravance Biopharma is a top pick of investment guru Seth Klarman, As asset management industry grows a search for new revenue streams[more]

    Advisors slash hedge fund positions From Barrons.com: Financial advisors have cut wealthy clients' exposure to hedge funds by up to one third over the past 12 months, The Financial Times reports. Advisor firms in the FT's annual top-300 ranking have reduced their hedge fund allocation to