Copyright 2009 © Opalesque Ltd. All Rights Reserved.
SECTION NAME
The ATM Syndrome
There were more than 1.5 million Automated Teller Machines worldwideas of 2006, according to Wikipedia. Commodity trading advisors couldbe added to that number. As highly liquid money managers, they’vebeen meeting investors’ need for cash amid the credit contraction.People are getting cash where they can while waiting for the hedgefunds that froze withdrawals to reopen the gates. As a result, certainmanaged futures funds with extremely strong performance had big
redemptions that dwarfed capital inows.
What’s going on with investors? I asked our editorial advisor TimMerryman, who not only talks with people in the know but looks at a lotof data and is a CTA himself. Tim has a hypothesis.In recent years pensions and other investors tried to diversify theirportfolios with long-only commodity allocations. But in the fourthquarter of 2008, commodities went down together with other markets.It happened in a few months, too fast for institutions to rethink theconcept of long-only commodities as a hedge, consider long/shortfutures managers as an obvious alternative and change their allocations.In the extreme turmoil, investors no longer looked for a hedge, just forcash. Hence the ATM syndrome.“Markets went to hell in a hand basket so quickly that people did notget around to hedging,” Tim says. “Allocators don’t like the idea of catching a falling knife. Why hedge a position when you think it’s goingdown further? People prefer to go to cash and wait it out.”A rally in stocks could ease the strain on portfolios and changeinvestors’ calculus. “Some allocators may feel slightly more comfortablehedging with managed futures at this point,” says Tim.Continued on page 2
In This Issue
Founding Father Q&A
How does one invest for times whenmarkets behave irrationally? Mark Rosenberg, founder of SSARIS, explains ...3
Futures Lab
Certain strategies work well in stressedmarket environments, as demonstratedby the difference between convergent vs.divergent investment philosophies. ............5
Index Track
Energy rally hits short sellers; commentaryfrom Credit Suisse......................................7
Insider Talk
Learn about turnkey managed accountinvesting. Interview with Aleks Kins, chiefexecutive of AlphaMetrix. ...........................8
News Briefs
Fortress finds investors want managedaccounts .................................................10
Practitioner Viewpoint
What needs to be done to restore investor confidence? An administrator with 30 yearsof managed futures experience speaks hismind .......................................................12
Regulators & Courts
Suicide Reveals Long-TimeScheme .................................................13
Manager Profiles
Up-and-coming managers comment on their strategy and the markets .........................15
Top Ten
Here is a ranking is from a managedaccount platform .....................................16
ISSUE 4
•
24 MARCH, 2009
Copyright 2009 © Opalesque Ltd. All Rights Reserved.
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ISSUE 4
•
24 MARCH, 2009
opalesque.com
OPALESQUE FUTURES
EDITORIAL
Besides cash, investors went to gold, the usual refuge in a panic. There’sthe fear factor and predictions of Armageddon, but also other reasonsto buy gold, such as an expected drop in the value of the US dollar.That would enhance the case for diversifying with futures.
Cyclical diversication 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 inthis issue’s
Founding Father Q&A
. Our
Futures Lab
presents evidencefor the argument.Meanwhile, investors don’t want to face suspended redemptions andsearch for an ATM again. They’re demanding separate accounts—seeour news brief about Fortress. The issue’s
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 condence after the
beating it took in 2008, veteran fund administrator Derek Adler offers acommonsense
Viewpoint
.
Chidem Kurdas
Editorkurdas@opalesque.com
Copyright 2009 © Opalesque Ltd. All Rights Reserved.
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ISSUE 4
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24 MARCH, 2009
opalesque.com
OPALESQUE FUTURES
Opalesque Futures Intelligence: How did youdevelop an investment philosophy?Mark Rosenberg: I always thought marketsrun on fear and greed and go through booms
and busts. Markets are mostly efcient but are
at times irrational. You have to have ways tomake money in both situations, be prepared for
irrational markets as well as efcient markets.
Convergent strategies are about prices
converging in efcient markets. That’s the kind
of bet Long-Term Capital Management made.In 1998 the Asian crisis frightened investors,who sold the under-priced assets LTCM hadbought, causing the arbitrage strategy tocollapse. But there are other strategies – likemanaged futures – that can make money inirrational markets.OFI: What does that mean in terms of returns?MR: During periods of relative calm,convergent strategies tend to make stable,attractive returns. In an extreme event,however, there is the tail-risk of a large loss.By contrast, divergent strategies perform bestwhen volatility and uncertainty rise. I havenot found many truisms in markets, but thisis one of them. The convergent/divergentdistinction is the real difference in investmentstrategies, as 2008 showed. If you take the
worst months for stocks, you see our diversied
trading program tends to move in the oppositedirection at those times—it becomes negativelycorrelated to stocks. Ditto for the worst monthsfor bonds.OFI: Are most investments convergent?Paul Lucek: Being long stocks and bonds is aconvergent strategy, so vast pension assets areconvergent. Most hedge fund strategies arerelative value based, so they’re convergent.Managed futures is one of the few true
diversiers.
FOUNDING FATHER Q&A
How to Hedge Irrational Markets
Certain strategies work well at times of nancial stress. Mark Rosenberg,chairman and chief investment ofcer of SSARIS Advisors LLC, explains why. Paul Lucek, the rm’s director of research and senior portfoliomanager, adds his observations.The SSARIS Diversied Trading Program made about 52% in 2008 and has returned almost 18% annualized since inception. The rm manages several other strategies and runs a fund of funds business for State Street,the institutional asset manager and custodian. The fund of funds arm wontwo industry awards this month. State Street Global Advisors and ABP, aEuropean pension fund, are majority owners of SSARIS.Mr. Rosenberg became aware of nancial markets at age 14, when heasked his father whether there was a way to make money without workingin a factory. He started trading futures in 1968 and founded a commodity trading advisor business in 1983—that was the inception of the Diversied Trading Program, which has been in operation continuously since then.
Mark Rosenberg
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