Weekend Reads

Does anyone think history is repeating itself far too often in the past couple of weeks? Another announcement from “The Bernank” alters the markets, Congress is once again bickering over the budget, and the media is speculating how it will affect GPD and quarterly returns. In managed futures space, the only noticeable move was in Wheat quietly moving up 6% this week (past performance is not necessarily indicative of future results). Outside of the markets, some members of the Attain team had the pleasure of attending the Alternative Investments Conference here in Chicago (our coverage here), and we called out the malaise of managed futures in our most recent newsletter for its current drawdown period (past performance is not necessarily indicative of future results). We even got a response from one of our readers, with a nice chart. Happy Friday, and enjoy some weekend reads.

  • CFTC Said to Plan October Votes on Client Funds and Speculation – (Bloomberg)
  • The Journey of ‘Taper’ From Old English to the Fed – (The Wall Street Journal)
  • Don’t feel bad, the pros can’t managers either – (The Reformed Broker)
  • Commodity Trading Advisors, puzzled by Fed, head for third year of losses – (Reuters)
  • Federal Debt Held by the Public under CBO’s Long Term Budget Scenarios – (Zerohedge)

Just for Fun:

  • Yearbook Photos of Wall Streeters – (Business Insider)
  • Breaking Bad Dead or Alive Pick ‘Em Sheet – (Twitter)
  • The Privilege Tournament – (Gawker)

One comment

  1. Thanks for the weekend reads each Friday.

    I took a look at the third one down in your list. It’s the article by Joshua M. Brown dated 09/23/2013. He cites research out of Oxford’s business school, which I have not taken the time to look at yet. Joshua Brown states that research concludes that institutions have wasted billions of dollars on the advice of manager picking consultants. I think the research is referring to US equity fund picking and not hedge funds, private equity, or alternatives. You’ll want to look at the original article to confirm.

    I wonder what the dispersion of returns is among the funds picked by these consultants and similar funds? That is, if we looked at the top and bottom quartile of funds within each strategy type, could we even justify manager selection – that is, could we justify even using consultants in the first place?

    I comment on this since the CAIA curriculum teaches that in the hedge fund world, the most important decision is manager selection. An article by Reddy, Brady, and Patel (2007) suggest that manger selection impacts hedge fund performance to a greater degree than strategy selection, reflected in the large degree of dispersion of returns between the top quartile and bottom quartile of managers in their study within a specific hedge fund strategy category. The research by Reddy, Brady, and Patel (2007) says that investors gain about 183 basis point per year in performance if they are able to, with perfect foresight, invest in the best performing hedge fund sectors (strategies). In contrast, they are able to add 630 basis points if they are able to move from 50th percentile managers to 30th percentile managers and 290 basis points from 50th to 40th, etc.

    Thus, manager selection is paramount for hedge fund investing according to the research in the CAIA curriculum. The research from the CAIA curriculum tells us we should focus on manager selection. That is different from saying “is the price we pay for consultants to perform manager selection worth it?” But, if we are adding 630 basis point, for example, then that’s paying for consulting fees I would imagine.

    We know for portfolios of traditional assets that asset allocation is the key driver of return – not manager selection. Just want to point out that this is different for hedge funds.

    Related to this is similar research on whether the best performing general partners in private equity tend to be top performers over time – another paper in the CAIA curriculum. The conclusion is a line that runs opposite to what you hear in managed futures all the time that “past performance is no indication of future performance.” In private equity, a research article that is part of the CAIA curriculum finds that past performance among GPs in PE does indicate future performance looking at results derived from Markov Transition matricies in an article by Aigner, et al.

    I thought I would make this comment to spur interest in the CAIA curriculum readings as well as to say thank you to the folks over at Attain for their blogging.

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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.