We’ve talked before about how the minimums in the managed futures space are made up of a few different things. One, the actual amount needed in the account to cover the cash requirement for trades (usually about 10% to 15% of the minimum). Two, a cushion amount needed to absorb a losing streak or drawdown period (about 15% to 25%). And three, an arbitrary amount used to make the percentage returns more appealing to investors (the remaining 60% to 75%).
From a managed account perspective, this means an investor can utilize notional funding to have $250K traded as $500k, for example – allowing the individual investor the ability to manage the additional cash on their own terms and in the way they want to.
But things are a little different when we’re talking about commodity pools and managed futures funds. In that case, the full amount of the minimum investment is turned over to the manager, meaning the manager of the fund has to decide what to do with 50% or more of the capital which isn’t being deployed directly by the strategy.
That’s where things get a little interesting. You see, in the past, most fund managers simply parked the excess cash in interest earning T-Bills in the futures trading account. But with T-Bills earning close to zero for several years now, many managers have branched out looking for other sources of yield for that idle cash. We’re talking money markets, agency debt, corporate bonds, and the like – which are all decidedly not the type of markets managed futures specialists are used to looking at.
How important is this cash management? 92% of managers and investors in a survey last year by London based Autumn Capital Partners said effective cash management is an important part of being a good CTA manager, but only 11% of investors though the CTAs they see have impressive cash management protocols and systems. You can see the full survey results here.
Which brings us to….
This year’s survey by Autumn Capital. They want even more insight from managers and investors alike, and asked for our help in spreading the word and getting the survey into the hands of CTAs and investors. They are even sweetening the pot, a bit, giving away an iPad mini to a randomly selected survey participant.