SECTION NAME

ISSUE 14 September 29, 2009

In This Issue
Founding Father Q&A
Ken Steben of Steben & Co. describes a rigorous CTA screening process .............. 2

Futures Lab

Client Communications
In the past, soaring stock markets tended to take investors attention away from other strategies. This time it may be different. 2008 left strong impressions on peoples mindssuch as the importance of liquidity, the advantages of separate accounts and the great returns from managed futures at a time when almost all assets classes went down precipitously. The best is in front of us, says Adam Rochlin, who heads MF Globals new asset management division. The futures brokerage built this business, focused on commodity trading advisors and global macro investing, in the past couple of years, as Adam explains in Insider Talk. Ken Steben, who has been investing with CTAs since the 1980s, has a similar observation. Weve seen increased investor interest, he says in Founding Father. The catch is that people see managed futures as riskier than it really is. Futures Lab presents research from Steben & Co. showing that the risk is less than the stock markets in the long term. But it has been difficult to change perceptions. The onus is on us and other product providers to learn to communicate better, Mr. Rochlin argues. One change that favors macro and managed futures is clients interest in separate accountssomething that CTAs have offered for many years. In Practitioner Viewpoint, youll find comments on separate accounts from the executives of investment platforms including Lighthouse Partners. The pros and cons of investing via a separately managed account are among the many issues to be discussed with clients. The private investor who contributed this issues Top Ten says good communication is now more essential than ever. Chidem Kurdas Editor kurdas@opalesque.com

Comparing returns for long holding periods reveals an interesting difference .................5

Insider Talk

Adam Rochlin of MF Global talks about the brokerages new investment platform for CTAs and global macro ............................ 7

Practitioner Viewpoint

Executives from Lyxor, Lighthouse Partners and other firms discussed managed accounts at an event. We bring you the highlights .............................................. 11

News Briefs

Trend follower gains, CTA at SEC, high frequency trading, new quantitative index and more ..............................................13

Top Ten

A global macro lineup that includes Bridgewater .............................................14

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OPALESQUE FUTURES

ISSUE 14 September 29, 2009

FOUNDING FATHER Q&A

How to Choose CTAs

Trading advisors are not all the same. Thats what you hear again and again from long-time investors. Because there are big variations, good advisor selection is essential to the success of an investment. Were asking industry veterans how they asses managers. Ken Steben, a pioneer in the commodity pool business, developed his approach starting in the 1980s. Here he discusses the extensive search and selection process his group uses and how it has changed over time.
Ken Steben

Mr. Steben is the founder and chief executive of Steben & Company Inc. The firm oversees $1.1 billion in managed futures and additional assets in other investments. It has a high-net-worth client base.
Opalesque Futures Intelligence: How did you get into this business? Ken Steben: I started as a stockbroker in 1981 and became a licensed commodities broker in 1983, when I realized the value of adding managed futures to clients portfolios. I researched this area and began to place my customers money with commodity trading advisors. Then in 1989 I formed my own company and started a fund to invest in CTAs. That first fund is still operating. OFI: Who are the clients? KS: My firm introduced managed futures to independent broker-dealers over the 1990s and into the 2000s. Today we do business with more than 120 broker-dealers across the US as well as hundreds of investment advisory firms. We currently have over 12,000 investors in our funds. OFI: Do you see yourself as a fund of funds manager? KS: We are not a fund of funds in the sense that we never invest in commingled pools, only in managed accounts. We are a manager of managers. Because we hire advisors to trade money in our funds accounts, we see what they do every day and can monitor them very closely. OFI: How do you find managers? KS: We search repeatedly, every quarter. We comb through databases, look at the materials advisors send us and keep our ears to the ground in the industry There are a couple of thousand companies registered as commodity trading advisors in the US alone. But even with all the searching, the list of advisors we consider doing business with is always very short. For one thing, firms must have at least a five-year track record so that there are enough data points for our quantitative analysis, which is the first step in the screening. OFI: How do you assess a CTAs track record? KS: Our quantitative analysis is not about picking the highest past returns. We have found that annual profit has no statistical significance for predicting the future. However, there are elements within the track record that are statistically significant for future performance. In the past several years weve isolated some ratios that are very helpful for understanding

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OPALESQUE FUTURES

ISSUE 14 September 29, 2009

FOUNDING FATHER Q&A

how a managers returns compare to the risks taken. We look deep into the track record, not just at the profit numbers. CTAs that are promising by our measures are put through the qualitative review. We meet the principals, learn their history and understand how they make money. We look at their operational capabilities and talk with their customers. the concern. OFI: How would you assess an emerging manager? KS: We do not invest with emerging CTAs because you cant measure their probability of success. We want a reliable, proven track record.

KS: It is very short sighted to say, theyre not doing well this year, theyve lost their edge. It is normal to have down years. As a professional investor, you think in terms of the long-term horizon, dont allow short-term results to influence your view. Overwhelmingly, the data shows that managed futures adds to portfolio performance and is one of the best diversifiers. OFI: Isnt short selling a good diversifier? KS: Historically, over the long term equity markets go up, so short sellers lose money. But CTAs can go long & short, not just in stock markets but many markets. They can make money in bear or bull markets, whereas short sellers lose in bull markets. OFI: What about trend followers drawdowns? KS: In my opinion people need to understand that systematic models work in the long run because long-term trends do appear, usually when you least expect them. Good managers keep their powder dry, attempt not to lose too much during difficult periods, then try and take advantage of trends. Managed futures is misunderstood by a large percentage of the financial community. It is seen as riskier than it really is. Although futures trading is speculative and volatile just like stocks can be and not suitable for everyone, used properly it is a risk reduction technique. 2008 showed that it complements stocks and bonds in a portfolio. Weve seen increased investor interest. OFI: What mistakes do investors make when investing in managed futures? KS: You need someone with experience to screen managers and watch the trading. To get in with the largest CTAs, in many cases you have to be a large investor. For instance, some CTAs require a $100 million investment for a separate account. An individual investor may not have accesswhich we provide.

We have found that annual profit has no statistical significance for predicting the future.
OFI: How many managers have survived this screening process? KS: We are currently using seven trading advisors, with whom we feel comfortable. A very large number of advisors are screened out by our quantitative analysis of the track record. We look for consistency in how much profit they can produce relative to their ability to control risk. This is a very stringent screen. We like our analytical approach because we have found it to be a meaningful indicator of future success. OFI: What other factors make you decide not to proceed further with a manager? KS: Many of those that get through our quantitative screen dont meet other criteria. There are a whole range of issues. Key personnel may have left the firm, which means that the track record no longer indicates what the team can do. They may not have the operational capability to handle an influx of additional money. Some managers have compliance or legal issues. Sometimes we find they use instruments were not comfortable with. For instance, in early 2008 we found a CTA that otherwise looked very good but was trading swaps. We want trading limited to exchange traded futures and currency forwards, with no over-thecounter derivatives. Because of our concern with the swaps market, we did not invest with that CTA. As it turned out, the crisis that came later in 2008 justified OFI: Are you still invested with some of the managers you found 20 years ago? KS: You cant stay with same CTAsthey change, markets evolve. Weve changed our whole portfolio completely over the years. Not that we invest short term. Weve used some CTAs for 10 or 12 years, others for five years. But we do switch managers. Some of them do not keep up with markets or lose personnel. Other managers come up with more sophisticated systems. OFI: Has you screening process changed over time? KS: Our search became more global and our analysis of track records became more sophisticated. These days we search all over the world. Of the seven advisors were using, five are overseas, two are in the US. By contrast, seven or eight years ago we were investing with only US trading advisors. Weve done research to improve our selection process and overall weve done very well for our investors over the years. OFI: What styles do you prefer? KS: We have used a wide range of CTAs over time but found that the most reliable are systematic trend followers. So the bulk of our money is with trend followers. OFI: Managed futures dont seem to be doing well this year. Have many CTAs lost their edge?

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CME Group is a trademark of CME Group Inc. The Globe logo, CME, Chicago Mercantile Exchange and Globex are trademarks of Chicago Mercantile Exchange Inc. CBOT and Chicago Board of Trade are trademarks of the Board of Trade of the City of Chicago. NYMEX, New York Mercantile Exchange and ClearPort are trademarks of New York Mercantile Exchange Inc. COMEX is a trademark of Commodity Exchange Inc. References to CME Group products include references to exchange-traded products on one of its regulated exchanges (CME, CBOT, NYMEX, COMEX). Products listed in these exchanges are subject to the rules and regulations of the particular exchange and the applicable rulebook should be consulted. S&P 500, S&P MidCap 400 and S&P SmallCap 600 are trademarks of The McGraw-Hill Companies, Inc., and have been licensed for use by Chicago Mercantile Exchange Inc. NASDAQ-100 is a trademark of The Nasdaq Stock Market, used under license. Dow Jones Industrial Average is a registered trademark of Dow Jones & Company, Inc. and American International Group, Inc. (AIG). Nikkei and Nikkei 225 are trademarks of Nihon Keizai Shimbun Inc. and have been licensed for use by Chicago Mercantile Exchange Inc. Copyright 2009 CME Group. All rights reserved.

OPALESQUE FUTURES

ISSUE 14 September 29, 2009

FUTURES LAB

Consistent Returns
Look at CTAs monthly returns for 2009 and you notice some big ups and downs. But take five-year averages and you find that managed futures returns are a lot less volatile than stocks. This fascinating piece of analysis comes from Steben & Company. We thank Michael Bulley, senior vice president for research and risk management at Steben, as well as Ken Steben see Founding Father.
Managed futures has been in the limelight due to last years stellar returns. However, the benefit of managed futures in an investors portfolio can not really be measured by its short-term potential. Rather, it is long-term historical performance that should be considered to understand the effect of investing with commodity trading advisors. .

Stock Market vs. Managed Futures

Five-year periods, January 1990-May 2009 S&P 500

Avg. Compounded Return Maximum Minimum 12.58% 29.26% -6.64%

CISDM CTA Index

11.06% 19.85% -0.24%

Measured over longer holding periods such as five years the average returns of managed futures investments are less volatile that traditional investments. As the data shows, a managed futures index has more consistent returns than the stock market. Moreover, CTA performance is not correlated with other asset classes.

Comparisons
We compare returns from the S&P 500 index and managed futures as measured by the CISDM CTA Equal Weighted Index. In order to be included in this index universe, a trading advisor must have at least $500,000 under management and at least a 12-month track record. Lets begin by looking at five-year holding periods from January 1990 through May 2009. The S&P 500 has a slightly higher average compounded return for these intervals (table). However, the range of returns was significantly wider for the S&P 500 than for CTAs. This means that there was more risk to stocks than managed futures for the same holding intervals during this time. To get a better idea of the historical impact of long holding periods, we calculated the distribution of five-year rolling period returns from Jan 1980 through May 2009. Figure 1 demonstrates the tighter clustering, i.e., greater consistency, of managed futures returns compared to the stock market.

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OPALESQUE FUTURES

ISSUE 14 September 29, 2009

FUTURES LAB

FIGURE 1

CISDM CTA Equal-Weighted Index vs. S&P 500 Total Return

The average five-year return for the managed futures index is slightly less than the average for the S&P 500, but it has significantly lower volatility.

Another consideration is that investments with less correlation make better portfolio diversifiers. Although the correlation coefficients of some alternative strategies have increased over time, the correlation between managed futures and common market indices remains low (Figure 2)

FIGURE 2

We conclude that if the objective is to diversify a portfolio over longer investment horizons, managed futures is a superior choice. For the longer holding periods, managed futures have historically shown highly stable return characteristics and compared to equities pose lower risk for similar return.

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OPALESQUE FUTURES

ISSUE 14 September 29, 2009

INSIDER TALK

MF Global Tailors Strategies for Global Investors

MF Global Ltd., the futures brokerage that was spun off Man Group, has been building an asset management business. Its brokers are introducing pre-screened commodity trading advisors and global macro managers to clients. People on both the buy and the sell sides of the investment market are much intrigued by this development. On the investor side, the safety and convenience of a managed account platform is appealing. On the manager side, many are eager to be on the platform so as to meet clients. In view of the extensive interest, we wanted to learn more about the operation. Adam Rochlin, senior vice president and head of MF Global Alternative Investment Strategies, answered our questions. Mr. Rochlin previously worked for Genworth Financial and spent five years at Oppenheimer Funds, where he headed the $40 billion fixed income product management unit. The MF Global AIS team includes portfolio manager Mitchell Nathanson, who formerly created hedge fund portfolios and traded global macro strategies at Arctos Capital, and product development chief Russ Rubino, who was responsible for product launches at Genworth Financial.
Opalesque Futures Intelligence: How did this venture start? Adam Rochlin: In 2007, I was brought in to figure out how to best leverage MF Globals longstanding relationships with CTAs, our expertise in the futures space and the global reach of our firm, in order to build a managed futures business. Over the past year, Bernie Dan, our chief executive officer, nurtured this new initiative as part of the firms goal to diversify revenues. There are a few critical components when youre building a business for investors. First, you need a clear vision of what type of products you will offer and what type of clients you want to serve. The second stage is to build the team, putting the right people into the right jobs. OFI: What kind of skills did you look for? AR: People with a depth of experience in managed futures and global macro and the entrepreneurial spirit to want to build a new business, as well as a track record demonstrating that they can execute against the business plan. What made it possible to build the group was that our CEO embraced the vision of what this business can be and drove resources and organizational commitment to see it through. Without top leadership support in an organization, a new business does not have much of a chance to succeed. OFI: Whats the next stage? AR: In the past nine months or so, weve been executing the plan. We built architecture for a rigorous manager selection and due diligence process. Given the international operating footprint of MF Global, we have unique access

Adam Rochlin

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OPALESQUE FUTURES

ISSUE 14 September 29, 2009

INSIDER TALK
to managers around the world. We operate in 14 countries, have brokerages in Europe, Asia and Australia as well as North America. OFI: Does that make a difference? AR: Yes. Its not just a matter of screening managers in Chicago and New York. Sure, you can send someone on a threeweek mission around the world to find good managers. Many firms do that. Our advantage is that were already operating as a futures commission merchant in just about any region. This enables us to move quickly with on-site due diligence and keep an eye on managers. It is a significant advantage to feel the rhythm of a local business rather than send people to visit once a year. We have a senior executive, in fact the regional head of risk, sitting in Singapore. He can visit managers if our team in New York cant get there for the quarterly check. Similarly we have senior executives in other regions, from Australia and Taiwan to France and Switzerland. Our people have been working with traders in an area, know the community and are among the first to get calls from emerging managers who want to set up their own shop. OFI: Do you see a significant number of managers in Asia? AR: There is an increasing number of CTAs in Asia, though not as many as in Europe. Weve met a lot of great managers from Europe. There is a fair number of managers in Australia, which is very exciting. OFI: How many managers have you looked at? AR: We have a big pipeline of managers globally coming into due diligence. So far weve done quantitative and qualitative due diligence on about 125 managers. Of those, weve done on-site visits and third party background checks for 45 managers. Before we put a CTA on the platform and in front of one of our clients, we need to see the manager and have a third party do in-depth background checks. Each manager must have a thirdparty administrator, auditor or accounting firm to help us validate their performance. Otherwise, we will not move forward with a manager. OFI: Are you in touch with the people in the geographically far-flung offices? AR: I speak with our colleagues in other parts of the world at least once a week about what they see going on in their region. One of the topics we discuss is regional investors preferences and behavior. We get real time feedback from our associates on the ground to test our ideas and tailor an offering to regional needs. OFI: Do regional investment tastes vary with respect to managed futures? AR: It is fascinating to understand global investor patterns. Compared to the US, in Asia and Europe there is much greater interest in futures. In Europe the culture is more open to a technical style of trading, provided it comes with a good explanation and timetested data. Other differences show up in the types of managers investors want. With relationships in so many countries, we learn what is important for investors in a certain market in terms of managers characteristics, in particular range of experience and assets under management. It is not guesswork for us what clients want in, say, Tokyo vs. Hong Kong, because our people on the ground tell us. OFI: Would you give an example of an international difference? AR: In certain parts of Asia, people like managers that have at least a couple of billion dollars in assets. By contrast, in the US, seasoned investors want the next great managerthat does not mean emerging managers but those with a three-year track record, proven business model and say between $50 million to $250 million in assets. I cant tell you how many indications of interest were getting from US investors looking for that type of manager. The fun thing for us is to find managers with different experiences and track records to fit investors with different preferences.

8
OFI: Is there interest from institutional investors? AR: Were seeing more interest from family offices, consultants and pensions than weve seen before, and a lot of interest from ultra-high-net-worth clients. Investors are now showing a greater sense of urgency about getting into managed futures and global macro. OFI: What about the retail market? AR: On the retail side there is interest but the question is which product structure will work. Individual retail investors typically do not meet the minimums necessary to set up separate accounts. Were discussing fund structures that will best meet the needs of that part of the market. Already we have a program that gives retail investors and brokers access to CTA strategies and extensive information. They can combine managers and do hypothetical scenarios with historical data to see how such a portfolio performed. Were constantly enhancing this program and looking for managers to put on it. OFI: Investors became more interested in separate managed accounts after the experience of 2008. Is that the best way to invest? AR: It is nothing new for us. As a futures commission merchant, weve been doing managed accounts for many years. As long as your investment meets a certain minimum, you can get a managed account on our FCM platform But investors do need to be mindful that if they get a managed account with a small amount of money, the manager may not be able to replicate the benchmark funds performance in that account. OFI: In the past, many investors avoided managed futures. Why is that? AR: We need to demystify the strategies. There is a wrong perception that managed futures consists of long-term trend followers and theyre all the same. In fact, there is tremendous diversity. Its a huge disservice to the industry to let the investing public believe managed futures is one single thing. There are some very good futures traders that are not trend

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OPALESQUE FUTURES

ISSUE 14 September 29, 2009

INSIDER TALK
followers, like many FX traders or global macro managers. These have different riskadjusted return profiles and help diversify the portfolio. OFI: What bothers investors about trend following? AR: People complain that the trends turn before the models catch on, but there are trend followers who leave some money on the table by getting out early to make sure theyre not hit by the trend reversal. Other traders wont leave money on the table because they believe their program will retain a net gain by staying with the trend until it reverses. Which approach is right is not the issue here; what matters is that the investor understand these approaches. The client does not have to know the algorithms but does need to know the traders approach and feel comfortable with it. OFI: How much do managers have to reveal? AR: Managers can keep their secret sauce but investors need to know the risk theyre taking. People have a choice of investing with someone who makes outsized returns with huge volatility or someone with possibly lower return but also lower volatility. If the client can tell us what their acceptable limits are, we can search for managers whose past performance fits that profile. OFI: Why do people misperceive managed futures? AR: There are proven benefits to adding a well-constructed managed futures investment to a portfolio of stocks, bonds and some hedge funds. So why arent people flocking to the strategy? I think the difficulties are mostly self inflicted. We dont do a very good job explaining how futures work, because we talk like financial engineers. Take the technical language we useit is not familiar to mainstream investors. In long-only asset management, you dont hear terms like drawdown and VAMI (value-added monthly index). Also, the nature of some of the strategies where there is a technical black box makes traditional US investors uncomfortable. In the US, people like stocks in part because a company has a story. In managed future its harder to tell a story that people can relate to. True, there is the commodity story with global growth and demand from China and India. That is a great theme but only part of what CTAs do. A big challenge were taking on as MF Global is to try to de-mystify managed futures. The onus is on us and other product providers to learn to communicate better. OFI: What do you say to an investor whos seen CTAs have big drawdowns and believes that futures trading is very risky? AR: Old notions of uncontrolled risk and massive volatility are a thing of the past for top-shelf managers. One of the untold stories that needs more attention is the incredible use of modern technology to the benefit of investors. Compared to even 10 years ago, there is now much greater computing power, ability to process vast numbers of data points and better analytical tools for risk management. Its like the difference between todays microscopic surgery for a knee injury vs. traditional open surgery. New technology can be used to run much better risk controlled trading programs than before. OFI: Doesnt that require special skills? AR: Due diligence is essential to determine how a manager is using technology to control risk. For instance, to catch significant developments, a manager should use daily data to do risk analysis. Without a doubt there are higher-caliber managers who are better at applying technology and have a keen sense for tight risk management. You have to do in-depth due diligence to pick those. OFI: With equity markets recovering, has managed futures missed its chance to attract capital at this point in the business cycle? AR: We havent missed anything. The best is in front of us. But we have to earn it with properly tailored products and good explanations of both the benefits and the risks. There is a lot of money in motion, with $3.5 trillion still sitting in money market funds, earning only a few basis points. Probably $1.5 trillion will be moving. Given that there are amazingly high-quality futures managers, I think were at the early innings of this business.

Given the international operating footprint of MF Global, we have unique access to managers around the world.

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We dont believe in one-size-fits-all.

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OPALESQUE FUTURES

ISSUE 14 September 29, 2009

PRACTITIONER VIEWPOINT

11

Ins and Outs of Managed Accounts

Investors became more interested in separately managed accounts after last years asset freeze by many hedge funds and the Bernard Madoff scandal. Managed accounts are rare in certain hedge fund sectors and require a large minimum investment. But futures commission merchants have been offering them for many years, for minimums that in general are much smaller. Hedge fund administrator GlobeOp brought together a number of industry people, including executives from top investment groups like Lighthouse and Lyxor, to discuss the topic. Below are highlights from this event, which took place in New York on September 17th. By investing through a separate account, the client retains control of the assets and sees whats going on in the account. The manager trades in the account, typically following the strategy of a benchmark fund. A third-party administrator performs functions such as accounting and collateral management. This structure not only helps prevent fraud and misappropriation of assets, it gives the customer control over the investment program, costs and liquidity. While all that is reassuring, managed accounts have their own complications.
One large set of investors, namely funds of hedge funds, are increasingly using managed accounts. This is particularly the case when it comes to investing with commodity trading advisors. Lighthouse Investment Partners CTA fund invests only in separate accounts, as do several other Lighthouse funds. Sean McGould, president and chief investment officer at Lighthouse, says the structure allows a better understanding of risks and more robust position-level analysis. Having your own account gives you transparency. But to benefit from the trading data, an investor needs to have ways of analyzing it and acting on the findings. It takes human and intellectual capital to make meaningful use of the transparency, said Mr. McGould. One issue that has been raised about separate accounts, namely tracking errors between an account and the benchmark fund, did not arise in his experience. In other words, the accounts did successfully replicate the desired strategies. Lighthouse currently has 80 accounts with managers in various strategiesthe number is expected to grow to 100 by 2010. For individual investors, there is a danger is that the manager may not be able to reproduce the benchmark funds performance because an account has too little money. Gary Goldstein from the prime brokerage division of Newedge suggests that a group of investors

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OPALESQUE FUTURES

ISSUE 14 September 29, 2009

PRACTITIONER VIEWPOINT
can share an account if each investors assets are not enough for a separate account. generate an independent risk report. Some administrators can use the information to provide scenario analysis, showing what will happen to the account under certain market conditions. But the best practices with respect to managed accounts, including daily trade position and cash reconciliations, require a very deep level of service from an administrator, he said. Given the additional work involved in managing separate accounts, managers have mixed feelings. Martin Kalish, chief operating officer of Waterstone Capital Management, a convertible bond hedge fund manager, says a managed account is not for every manager or investor. The manager and investor need to negotiate to make sure that it works for both parties. One sensitive question: how long will the investor stay with it? There are costs to setting up a system to run accounts and if the customer is going to close the account when there is a loss, its not worth the effort. The manager needs to decide if it fits the business model and whether the client can deal with the information in the account, Mr. Kalish said. We dont want to spend our time answering questions all the time about what were doing. Despite the challenges, there are indications that separate accounts are popular. Some 50% of Newedge prime brokerages revenues come from managed accounts, said Mr. Goldstein. For a look at another managed account platform, see Insider Talk on MF Global.

12

Secret Sauce
John Brunjes, partner at law firm Bracewell & Guiliani as in Rudy Guiliani, the former NYC mayor, who did not attend the event says the challenges for the manager include lower fees, the effort to ensure trades are in line with the guidelines and the risk of disclosing the secret sauce by allowing the customer to see the trading in the account. For the client, there are set-up and administrative costs and the regulatory reporting required because the investor directly owns the securities in the account. Another challenge is to make sure the account is treated fairly compared to the funds, but Mr. Brunjes noted that there may be differences in performance because the same securities were purchased at different times and prices. Nathanal Benzaken, a managing director at Lyxor Asset Management, which oversees a big managed account platform, says managed account providers are not all equal and investors need to do due diligence on the platform before doing due diligence on the hedge fund. A big benefit to investing via a separate account: you can use the transparency to optimize entry and exit into markets. An investor might want to liquidate the assets even if the manager is holding them in the benchmark fund or, conversely, may decide to hold the assets even if the fund is being liquidated, Mr. Benzaken pointed out. Of course, there is a cost to each of these courses of action, but an investor could be better off by bearing that cost. Being in a managed account rather than commingled pool permits such choices. Administrators can help investors make sense of the data accessible in a an account. Vernon Barback, president of GlobeOp, said a fund administrator can track every trade and

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ISSUE 14 September 29, 2009

NEWS BRIEFS
Trend Followers Gain in August
Manages futures was up in August but returned less than hedge funds as whole0.92% vs. 1.53% according to the Credit Suisse/Tremont index. Five of BarclayHedges eight managed futures indices were profitable for the month. Some of these benchmarks, including the agricultural traders index, are positive year-to-date, while others remain in the red despite the recent gains. Certain large funds, including Winton Capital, have pared their loss for the year. Some trend followers had a great August. For instance, Dunns Insurance Dedicated Futures Fund, a multi-advisor pool which allocates its assets to five systematic trading programs, made 5.33% for the month. This vehicle returned 73% in 2008. (An interview with Bill Dunn is in the May 5, 2009, Opalesque Futures.) While the exact share of high frequency volume is uncertain, no one disputes its dominance or importance to the equity market, they say. The trend is driven by low commission rates, small contract sizes, increasing number of market participants and in particular inexpensive and fast networking and connectivity. High-frequency traders can capitalize on inefficiencies that eluded traditional traders and this advantage will only become larger, the Tabb report suggests.

13

Barclays Capital Offers Quant Index

Barclays Capitals new Aristo Index combines quantitative strategies in equities and commodities. It blends three separate quantitative investment indices through an algorithm that determines the allocation based on an optimal risk/return profile. Jose Mazoy of Barclays says the index is transparent, rule based and tradable.

Former CTA to Advise SEC

The US Securities and Exchange Commission named Gregg Berman a senior policy advisor in its new Division of Risk, Strategy and Financial Innovation. Previously he was at RiskMetrics Group, where he recently headed the global risk business. Before that he co-managed multi-asset hedge funds at New Yorkbased ED&F Man. Mr. Bermans hedge fund career started in 1993 as researcher for Mint Investment Management Corp., at one time a $1billion commodity trading advisor. Earlier he conducted research in experimental nuclear physics. I much look forward to using an interdisciplinary approach, one involving economics, finance, and law, in a way that fairly addresses the needs of Main Street as well as Wall Street, he said, regarding his SEC appointment.

Gensler Claims Carbon Trading Role

I believe that the CFTC is best equipped to regulate the larger carbon trading markets that would be created as a result of cap-and-trade legislation, says Commodity Futures Trading Commission chairman Gary Gensler, following up on his predecessors push to become the regulator of these developing markets. He pointed out that the Commission already oversees trading and clearing of futures and options contracts based on sulfur dioxide, nitrogen oxide and carbon dioxide allowances and offsets listed on the New York Mercantile Exchange and the Chicago Climate Futures Exchange. During the same speech to a meeting of the CFTC Energy and Environmental Markets Advisory Committee, Mr. Gensler emphasized the regulation of energy markets. The top seven energy contracts that we regulate have a notional value of nearly $700 billion. It is essential that this agency continues to police the energy markets for fraud, manipulation and other abuses by promoting market integrity and enhancing transparency, he said. The CFTC is in a turf battled with the SEC about regulatory authority over various markets. There were proposals earlier this year that the two agencies should be merged, but that appears unlikely now.

High-Frequency Trading to Spread

Even as the SEC moved to ban flash trades, the future of high-frequency trading looks bright, according to a new study from Tabb Group. Authors Larry Tabb, Robert Iati and Adam Sussman say high-frequency trading, already present in more liquid contracts and instruments such as equity options, futures and FX, will become as dominant in global markets and other asset classes as it has become in US equities.

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OPALESQUE FUTURES

ISSUE 14 September 29, 2009

TOP TEN
We feature top managers from a different database every issue.

14

This line-up of global macro funds is from a private investor who searches worldwide for managers. The ranking for August includes large funds such as Bridgewaters along with much smaller ones and diverse investment styles.

Best-Performing Global Macro Funds for August 2009

Fund CAAM Invest VaR (US dollar class) Harmonic Alpha Plus Macro Armor Qualified Bridgewater All Weather GAM Selection Hedge Friedberg Global Macro Graham Global Investment Absolute Macro Diversified Global Undervalued Securities Balestra Capital Partners August Return 9.2% 4.1% 3.6% 2.5% 2.4% 2% 1.5% 1.5% 1.3% 0.8% Year-to-Date 68% -0.7% 37% 6.3% 48% 3% 9.4% 20% 9.4% 4.2%

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No wonder that each week, Opalesque publications are read by more than 600,000 industry professionals in over 160 countries. Opalesque is the only daily hedge fund publisher which is actually read by the elite managers themselves
Alternative Market Briefing is a daily newsletter on the global hedge fund industry, highly praised for its completeness and timely delivery of the most important daily news for professionals dealing with hedge funds. A SQUARE is the first web publication, globally, that is dedicated exclusively to alternative investments with "research that reveals" approach, fast facts and investment oriented analysis. Technical Research Briefing delivers a global perspective / overview on all major markets, including equity indices, fixed Income, currencies, and commodities. Sovereign Wealth Funds Briefing offers a quick and complete overview on the actions and issues relating to Sovereign Wealth Funds, who rank now amongst the most important and observed participants in the international capital markets. Commodities Briefing is a free, daily publication covering the global commodity-related news and research in 26 detailed categories. The daily Real Estate Briefings offer a quick and complete oversight on real estate, important news related to that sector as well as commentaries and research in 28 detailed categories. The Opalesque Roundtable Series unites some of the leading hedge fund managers and their investors from specific global hedge fund centers, sharing unique insights on the specific idiosyncrasies and developments as well as issues and advantages of their jurisdiction.

Opalesque Islamic Finance Briefing delivers a quick and complete overview on growth, opportunities, products and approaches to Islamic Finance. Opalesque Futures Intelligence, a new bi-weekly research publication, covers the managed futures community, including commodity trading advisers, fund managers, brokerages and investors in managed futures pools, meeting needs which currently are not served by other publications. Opalesque Islamic Finance Intelligence offers extensive research, analysis and commentary aimed at providing clarity and transparency on the various aspects of Shariah complaint investments. This new, free monthly publication offers priceless intelligence and arrives at a time when Islamic finance is facing uncharted territory.

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PUBLISHER Matthias Knab - knab@opalesque.com EDITOR Chidem Kurdas - kurdas@opalesque.com ADVERTISING DIRECTOR Denice Galicia - dgalicia@opalesque.com EDITORIAL ADVISOR Tim Merryman - tmerryman@opalesque.com CONTRIBUTORS Bucky Isaacson, Frank Pusateri, Pavel Topol, Ty Andros, Walt Gallwas. FOR REPRINTS OF ARTICLES, PLEASE CONTACT: Denice Galicia dgalicia@opalesque.com

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