managed futures and systematic strategies

January 2015

CTAs and the value of portfolio diversification

Managed Futures and Systematic Strategies

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© HedgeFund Intelligence4 Special Report January 2015

MANAGED FUTURES & SYSTEMATIC STRATEGIES

This report was researched and written by Beverly Chandler, special reports writer for HedgeFund Intelligence

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05 BACK ON TRACK: CTAs SHOW THE VALUE OF PORTFOLIO DIVERSIFICATION AGAIN AS 2014 REVERSES MULTI-YEAR DOWNTURN

22 RETURN TO FORM: INVESTORS REWARDED FOR THEIR FAITH AS MANAGED FUTURES FUNDS ROAR BACK IN 2014 TO SHOW THEIR BEST PERFORMANCE SINCE THE BANNER YEAR OF 2008

27 CALLING THE PERFORMANCE TURN: WHAT HAPPENED TO END THE DOWNTURN AND BEGIN THE RECOVERY FROM MID-2014?

Introduction

Contents

In this special HedgeFund Intelligence report, Beverly Chandler charts the history and evolution of the managed futures industry; investigates the drivers behind the performance downturn and the dramatic recent revival over the last several months; examines the way in which systematic

managed futures trading has changed and developed over the years; and outlines the reasons for investors to remain committed to a strategy that has proved over the long term – through thick and thin – its ability to produce non-correlated returns and a valuable degree of diversification to investor portfolios, particularly in times of equity market stress.

© HedgeFund Intelligence January 2015 Special Report 5


The history of the managed futures, or commodity trading adviser (CTA), indus-try is almost as long as that of the financial industry itself. And coping with volatility has always been a key part of its DNA – with many of the longest-running CTA

operators able to point to superior long-term perfor-mance records despite occasionally long periods of under-performance.

Having shot the lights out in the 2008 financial industry meltdown, CTAs then entered a multi-year downturn – with central bank-dominated market conditions and global QE policies appearing to make life acutely difficult for trend-following systematic traders.

But just as many investors were starting to give up on managed futures, the sector bounced back spectacularly in the second half of 2014 – with many CTAs producing their best performances in years, and with the quant trading community far out-performing most of their peers in the discretionary trading space.

By the end of 2014, the sector was enjoying its position again as the top provider of diversification in a portfolio in the investment world.

For many managed futures funds, 2014 was their best year on record – better even than in their wonder year of 2008, when they were about the only hedge fund investment strategy to produce strongly positive returns in the maelstrom that struck global markets that year.

And, in the eyes of many of the industry’s most experienced practitioners and supporters, the events of recent months have served to underline once again

the durability and resilience of trend-following systematic trading strategies, the ability of CTAs to deliver superior long-term performance records despite occasionally lengthy periods of under-performance, and the capacity of managed futures strategies to provide non-correlated returns and portfolio diversification to investors, particularly (and arguably most valuably) in times of global equity market weakness.

The managed futures industry has enjoyed a long and distinguished history of suffering extended periods of non-performance followed by periods of stellar uncorrelated returns.

There is an irony that the foundations of the volatile managed futures and CTA strategy lie in the futures industry, which was designed to even out volatility.

Futures were invented to smooth out fluctuations in commodity market prices – before later being rolled out to financial products as well – and to ease the commodity producer’s burden as prices rose and fell, driven by the sometimes extreme and even cruel exigencies of supply and demand.

Whether it was 16th-century Japanese rice contracts, 17th-century Dutch tulip bulb mania or the mid-19th-century foundation of the Chicago Board of Trade (CBOT) above a flour store on South Water Street in Chicago, the worldwide financial industry all over the globe and for many centuries has been trying to commoditise commodities.

The first centralised commodities market in the UK was founded by Sir Thomas Gresham and opened by Queen Elizabeth I in 1565. Based in the Royal Exchange, a location which subsequently became the

Back on track: CTAs show the value of portfolio diversification again as 2014 reverses multi-year downturn

first home to the London International Financial Futures Exchange (LIFFE), spot commodity trading in the London has an ancient history.

1888 saw a crucial plank arrive in the structure that was to become the modern derivatives industry, with the launch of an independent clearing facility which provided a system of guarantee against default. Named the London Produce Clearing House, it also balanced the buyers and sellers in the fledgling derivatives markets – clearing equal and opposite contracts.

In the US, CBOT and the Chicago Produce Exchange – later to become the Chicago Mercantile Exchange, the CME – were becoming arenas where hedgers and speculators met to deal with their very different approaches to risk.

The next development of importance for the managed futures industry was the arrival of futures prices for financial instruments. The 1972 collapse of the Bretton Woods Agreement allowed foreign exchange rates to float freely and with that came an opportunity for those hedgers and speculators to expand their activities into the interest rate and foreign exchange markets. Investment in derivatives moved beyond live hogs and sugar and into the world of interest rates and foreign exchange.

THE ORIGINS OF MANAGED FUTURESThe first managed commodity fund is believed to be Richard D Donchian’s Futures Inc, established in 1949, just a couple of years after Alfred Winslow Jones’ landmark article in Fortune magazine specu-lating on creating a long/short investment strategy that was the prototype of the modern hedge fund.

Donchian was a broker at Hayden Stone and developed a system, based on the application of moving averages that he applied to managing a futures portfolio. This first systematic approach to finding and following trends in the futures markets was just the first step in an industry that

Donchian would still recognise today – the managed futures industry.

1965 saw Dunn & Hargitt registered as the first Commodity Trading Adviser for a managed commodity account, trading $2,000 with a management fee of $175 per year. Dunn & Hargitt created a commodity price database and by 1967, futures managers could create trading simulations based on different trading styles. 1969 saw the establishment of Commodities Corporation in Princeton, New Jersey, a firm that went on to manage some $2 billion in assets and be bought by Goldman Sachs in the late 1990s.

Direct investing in futures by private investors was routinely seen as a hiding to nothing. Data researched by Morton S Baratz, one of the founding fathers of the managed futures industry, reported that even back in 1949, a study had found that using data covering 1924 to 1932, 75% of 8,800 individuals trading futures for their own accounts were net losers.

Access to the futures markets for investors, both private and institutional, seeking a return on their money, was to come through funds or managed accounts, run by professional investors in these markets. And all investors wanted a little access to futures as, from the very outset, their great strength was that they appeared to aid diversification – the principle at the heart of Dr Harry Markowitz’s modern portfolio theory, which was first posited in 1952.

CTA Expo’s Frank Pusateri can claim one of the longest careers in managed futures. He started working with a US brokerage house in the late 1970s and remembers that the total industry size then was about $42 million in assets under management. “It was very small and if you had held a conference, you could have done it in a phone booth,” Pusateri says.

As a financial analyst at EF Hutton through this period, Pusateri saw the managed futures and CTA


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community grow. “CTAs then were mainly long-term trend-followers,” he says. “Working on a lot of early computers and done on all sorts of strange equipment that no longer exists. Getting daily data was a problem – there were many barriers to entry that we no longer have.”

Performance through the 1970s was just positive in the strategy, characterised by long broad trends that were perfect for trend-following systems. The early 1980s saw a more difficult patch in terms of performance, but also the publication of a seminal piece of research into the managed futures strategy, which is still referred to today.

In 1983, the Financial Analysts Federation invited Professor John Lintner of the Harvard Graduate School of Business to look at ‘other investments’ that could act as diversifying agents in a traditional portfolio. He chose futures and his study, presented in 1983, found that the introduction of managed futures into a portfolio of stocks and bonds had a dramatic effect, lowering risk in all cases.

This was very much a first study from Lintner – and sadly his last, as he was killed in a car accident shortly afterwards. Lintner’s work looked only at performance data for managed futures from mid-1979 to the end of 1982 and was based on the composite performance of 15 trading advisers. However, other academics took up his research and added to it and the argument that managed futures aid diversification in a portfolio was born and sustained from that point onwards.

October and November of 1987 saw the world’s equity markets collapse. To this day, Monday, October 19, 1987 saw the largest one day percentage decline in the Dow Jones index – and what shocked investment professionals at the time was that the equity collapse was, for the first time, widespread, what we would now call ‘systemic’ and spread out across the globe as each market opened for its trading day.

By the end of October, stock markets in Hong Kong had fallen 45.5%, Australia 41.8%, Spain 31%, the UK 26.45%, the US 22.68%, and Canada 22.5%.

During those two months, Systemtrend, a small London-based managed futures fund achieved performance of 14% and the global managed futures industry’s average performance in that tumultuous year was just over 60%.

It was a moment when people began to take managed futures as an investment style seriously. The hedge fund industry with its roots in fixed income and equities was in its infancy – at that time managed futures was the dominant alternative investment strategy.

Founded in 1990, the Alternative Investment Management Association, the trade body for the hedge fund industry, was originally called the European Managed Futures Association – reflecting the strength of the managed futures sector in alternative investments at the time.

Later developments saw hedge funds in other areas such as long/short equity, global macro and relative value arbitrage start to dominate the industry and overshadow CTAs to some extent – fuelled by the ever-growing range of investment pools in which to operate, and also driven in part by the ready access to cash and leverage provided by the rapidly growing prime broker community.

From the outset, the managed futures industry grew most swiftly in the US where the principle of trading and futures exchanges was more deeply developed than in either Europe or Asia.

An early pioneer of managed futures is California-based Patrick Welton of Welton Investment Management, who comments on the difference between US and European managed futures managers: “There is no generalisation by geography between US and European CTAs, but there is a historical difference – the earliest CTAs were in the US because that’s where the markets were and they

CTA funds as a total percentage of the European hedge funds universe by AUM

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had simpler technical techniques. Second generation CTAs became more statistical, scientific and math-based and when European CTAs came in, everyone adapted a more sophisticated approach.”

Pusateri agrees: “The amazing thing is that the major source of new traders is still America and in America it’s always been that everyone wants their own business. They are more entrepreneurial than Europeans. In the US new traders are doing it on a wing and a prayer whereas Europeans tend to wait for a solid financial base. In the US you expect to succeed but don’t have a fear of failure and it doesn’t carry such a stigma.”

THE TURTLE TRADERS IN THE 1980sThe early 1980s saw celebrated commodity trader Richard Dennis accept William Eckhardt’s bet that after just two weeks of training with him, he could create successful futures traders. The new students he called Turtles, after a Singaporean turtle farm, and took only 14 with him on the first Turtle programme.

These traders and others associated with the programme, went on to found many of the managed futures firms that exist in the US today. Jerry Parker, founder of Chesapeake Capital, was an original Turtle. ““I had a lot of fun being a Turtle, learning a lot of stuff,” he says. “Rich Dennis and Bill Eckhardt are geniuses. I learned from the very best. They were the intellectual inspiration for a lot of traders and the idea of spending four years with those guys as mentors provided a lot of good experience and trading.”

Meanwhile in the UK, what is now the Man Group, originally a sugar broking house in London, had already dabbled in managed futures, launching the Mint funds with Larry Hite and Peter Matthews and then in 1987 buying AHL, founded by Michael Adam, David Harding and Martin Lueck.

AHL – and the development of guaranteed funds based on its performance – became the performance engine that drove a great deal of Man’s early success and extraordinary growth as it went on to become the largest listed hedge fund operation in the world.

The Man Group was originally listed in the food sector, due to its sugar and other commodities broking past. Food analysts were perplexed by the small but hugely profitable fund management business within the group, a business that would grow to become the driving force of the company and subsequently see it moved to the financial sector.

In the UK, the AHL principals set up again independently and separately from the Man Group with David Harding founding his Winton Capital Management in 1997. Harding launched with $2 million and now manages $25.5 billion – having enjoyed annualised returns of almost 15% since launch. He famously styles himself not as a CTA but a quantitative mathematical modelling investment manager and now manages long-only money with equal success.

Martin Lueck and fellow AHL principal, Anthony Todd established Aspect Capital in 1997. The firm has $4.6 billion under management. With his lengthy experience of the industry, Todd recounts the varying fortunes of the managed futures strategy back over the years and draws parallels with its more recent history, where that famed volatility has made life over recent years extremely uncomfortable in the sector.

Todd looks back to the 1987 stock market collapse which produced such notable returns for the managed futures industry, but led to a global recession from 1989 to 1990 and a US banking crisis, which resulted in a huge amount of government intervention in the markets and a corresponding amount of uncertainty.

Those types of environments led, understandably, to risk aversion by investors, and the loss of the persistent themes and trends that the managed futures managers needed to trade profitably. And then when a persistent theme did emerge, investors tended to take profits and move to the sidelines for safety.

1994 saw the Federal Reserve put up interest rates more sharply than expected which was difficult for CTAs at the time but was then followed by strong trends with CTAs enjoying good positive years through the second half of the 1990s.

Todd argues that all of these scenarios through the late 1980s and early 1990s are not that dissimilar to what we have been seeing over more recent years.

But whatever dramas the managed futures industry had previously faced in terms of a search for performance or limit on growth were as nothing compared with the difficult times the sector has experienced over the years since 2008.

THE UPS AND DOWNS OF THE GLOBAL FINANCIAL CRISISThe global financial crisis was briefly a very good thing for the sector but over the long term proved almost a death blow to the strategy. Famous names, all those Turtles and Man connections and some very smart investment managers nearly hit the wall.

The figures and the stories tell their tale across the board. 2008 saw a collapse in the financial markets way beyond the scale of 1987 but the CTA industry had one of its best years ever.

Beach Horizon is part of Beach Capital Management which was launched by David Beach in the early 1980s. Originally a discretionary program with manual implementation, Beach had enjoyed steady, strong returns but needed to modernise and automate. Paul Netherwood and Sanjeev Lakhanpal joined the firm in 2001 and helped it evolve into a systematic firm, Beach Horizon.

2008 saw the firm return almost 60%, on the back of high volatility and strong and persistent directionality which enabled the firm to capitalise, shorting equities and having a large weighting in commodities.

As for many other CTAs, this dramatic burst of

Anthony Todd, CEO, Aspect Capital

Jerry Parker, founder, Chesapeake Capital

[email protected] +46 8 566 214 80brummer.se


performance was actually a gateway to a long period of underperformance, driven largely by the dampening effects of quantitative easing on the world economies.

Netherwood says: “One of the difficulties post-2008 was that many of the markets we had traded became much more correlated with each other – and trends became shorter and fewer, with many occurrences of sudden trend reversals which made it difficult for our models.”

Dr Ewan Kirk is chief investment officer, chief executive officer and founding partner of Cantab Capital, a $3.7 billion systematically traded fund bristling with PhDs, which achieved a 49% return in 2008, having only launched in 2006 and starting to trade in 2007.

Kirk believes passionately in the application of science to finance. “We can’t see into the future but we can be good at science and technology and we believe that this pays off for investors,” Kirk says. Like many, the glory days of the 2008 high spot were followed by more difficult times.

“Some events which happen are amenable to intuition and analysis,” Kirk says. “Reaction to events as they happen is a good example and models are not necessarily as good at that as humans. However, other effects require a lot of diversification and sophisticated implementation to harvest them which cannot be easily achieved by people. They require technology and complex statistics but I don’t think it is incredibly controversial to say that trading should not be just the domain of humans.”

Having launched on such a high and having started so well, his fund lost 27% in 2013. “We explained to investors that losing 27% in a year is not something we would expect to happen frequently but it is perfectly possible with a 20% volatility,” Kirk says.

But 2014 saw the firm on its way back up again, with returns of 39% in its flagship CCP Quantitative Fund. “The space has gone through a very difficult period,” Kirk says. “But the argument for CTAs is not purely a return argument, it’s also a diversification argument and that’s what sophisticated investors value.”

Beach’s Netherwood agrees. Beach Horizon also suffered with a large weighting to commodities which proved very difficult as commodities remained more correlated to the S&P since 2008. “What was difficult was that a lot of markets were moving sideways – a trend would start and quickly revert and it would whipsaw your trading models” Netherwood says.

“You’d get in, the trend would reverse and have to get out again. David’s Pattern Recognition methodology looks for turning points and points of inflection in the market and has a more predictive element to it than a traditional CTA. Most CTA models tend to follow trends whereas pattern

recognition detects turning points around the point when a trend is about to start or, crucially, about to end.” In 2014, Beach Horizon also benefited dramatically – up just under 40% for the year.

Aspect’s Todd points out that over 2011 to 2012 many seemingly uncorrelated markets were moving in lock-step, while what trend followers thrive on – and need to generate performance – is a large number of uncorrelated returns.

“There are 190 different markets worldwide and they were all highly correlated,” he says. Aspect also enjoyed an annual return of more than 30% in 2014 and is rebuilding its investor base, where the firm had experienced a series of redemptions across the board as the more difficult period of performance hit.

“We have seen some redemptions and some erosion of our asset base. It’s inescapable that a number of investors lost patience with the strategy,” Todd says. At its peak in 2012, Aspect managed some $7 billion and saw assets diminish across the board to $4.6 billion – broadly in line with the fall across the sector in recent years from the earlier peak in assets under management.

The firm has three blocks of investors. Roughly 50% is drawn from institutions, while 25% each is represented by funds of funds and distribution partners. The firm is also spread globally across Asia Pacific, the US, Europe and the Middle East. What was noticeable was that redemptions were evenly split across each geographic area and each type of investor as the ‘ATM’ effect clicked in.

Managed futures funds are liquid, there are no assets to unwind and they can offer swift redemptions for those who want it. When portfolios are under strain, and cash becomes king, it is often the managed futures fund holdings that are the first to be cashed in, causing complications to the managed futures fund manager.

Todd says: “The good thing is that the majority of our clients have been invested with us for a long time and understand the returns from managed futures are episodic and unpredictable.”

LONG-TERM PERFORMANCE TRACK RECORDSWhat investors in managed futures like is the persis-tent source of diversification in their portfolios, and diversification that comes with liquidity. The ATM phenomenon may hit CTAs more than most other types of investment manager, but the concurrent li-quidity also acts a benefit and advantage for investors.

Aref Karim is founder and chief executive officer of Quality Capital Management, a firm that experienced one of the harshest losses of assets during the recent period of underperformance.

At its peak in 2012, the firm had $900 million under management and now sits at $55 million. Despite this, Karim says: “Our vision is unchanged, we believe that in terms of wealth creation what we do in the long run is greatly beneficial to investors.”

Dr Ewan Kirk, founding partner, CEO and CIO, Cantab Capital


Paul Netherwood, partner, Beach Horizon

For Karim, 2008 was extraordinary in terms of attractive performance triggered by high volatility. “But post the global crisis we saw a really challenging period for the industry and for all of us,” he says.

“The Fed’s move of introducing and maintaining a zero-rate policy together with quantitative easing for such an extended time was also followed by other monetary authorities. The length and breadth of this were far beyond anything we had seen.”

This artificially-induced market trading environment posed all sorts of difficulties for long volatility strategies, says Karim. “Excess liquidity in the system resulted in a large-scale shrinkage of market volatility. Most CTAs are net long volatility – we need some directional moves,” he explains.

“The only major directional moves we saw were in equities which have been on the rise since 2009, performing particularly strongly in 2012 with low volatility. Most CTAs have a good part of their portfolio in commodities for diversification and this asset class has lost considerably, but in a slow and grinding fashion. With low intermittent volatility, commodities resulted in costly whipsaws for CTAs.”

Karim believes that if one looks back at this quasi-deflationary period, one would find that the bulk of the losses have come from small losses in commodities that have added up. “But as diversified managers you need to trade these markets,” he says.

On the upside, Cantab’s Kirk agrees – citing the belief of Sir David Brailsford, the British cycling team coach, that performance is the aggregation of marginal gains.

Karim has a very long history in the CTA industry as he was originally an investor in alternatives with one of the earliest institutional investors in managed futures. He was formerly the senior investment manager of the Alternative Investment Department at the Abu Dhabi Investment Authority from 1982 to 1995, looking after the investment policies, strategies

and asset allocation for a multi-billion dollar alternative investment portfolio before returning to the UK to found QCM.

“While I was at ADIA, we focused as a sovereign fund on the long term,” says Kadim. “We were prepared to ride out short-term non-performing cycles so long as the strategy was not broken or largely deviated from. With directional strategies and particularly trend-following, not much can go wrong if trends exist.”

Some of the oldest names in the managed futures industry in the US had a very tough time during those difficult years of managed futures performance. Some extremely well-known firms such as John Henry and FX Concepts have disappeared completely, while firms such as Campbell & Co and Chesapeake Capital, established in 1988 by Jerry Parker, whose experience as an original Turtle is recounted above, have regrouped.

William Andrews is chief executive officer of Campbell & Co, the 40-year-old firm founded by Keith Campbell. Even back then, the firm prided itself on using technology to implement scientifically tested, systematic strategies and continues with the reinvention of strategies today. 2008 saw a regroup as the firm underperformed in 2007 and assets have reduced over the years from a high of $8.5 billion to a current figure of $4 billion.

However, 2014 saw a return to performance with a gain to end November of 15.62% adding to the 2013 figure of 12.58%. Andrews says: “We are very proud of our performance over the past few years. During significant challenges for the industry we were able to produce positive annual returns in our flagship fund for four of the last five years. We’re excited now to see the industry as a whole gaining some traction.”

EDUCATING INVESTORS ON CTAsEducation has been a key route to explaining the drawdowns to investors. “Our primary objective in


William Andrews, CEO, Campbell & Co

Aref Karim, founder and CEO, Quality Capital Management

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HFI Global Managed Futures Index vs HFI Global Indices: Performance over 10 years


investor communications is to educate,” Andrews says. “That education is even more important dur-ing challenging times. We spent a great deal of en-ergy highlighting the importance of true diversity in a portfolio and contextualising some of the short-term challenges in our space.”

Campbell has a broad investor base with roughly 60% of assets coming from institutional investors, with the other approximately 40% coming from private wealth channels. Education and communication has helped to keep them happy.

Andrews says: “While other managers may tend to shy away from conversations with clients or prospects during difficult times, we continue to show up to answer questions and to educate. When times are good, clients tend to remember how you operated when times were not so good.”

Andrews finds that while there were many allocators who simply were not considering the CTA space over the past few years, some are now open to fresh discussions.

Chesapeake has endured a substantial fall in assets, having managed $2 billion at its peak in 2007 and seen that reduce to $200 million in the last year despite the good long-term performance. Dating back to inception in 1988, the firm has achieved annualised returns of just over 12% and 2014 saw the firm return 13.8%.

Parker says: “Like the industry in general, we lost a lot of assets with clients leaving and doing things in-house and then we suffered from lack of performance, caused by a lack of trends and the QE stuff which has an impact on trends and CTAs in particular.”

The firm had a strong history of trading commodities, which proved to be a drag in the difficult years. In January 2013, they switched the commodity holdings from 50% to 25% and moved 25% into stocks and saw a 25% return in that year, followed by a positive year again over 2014.

Of performance, Parker says: “A lot of it is dependent on the markets and whether they will keep trending but it is a major improvement to reduce our commodity exposure to 25%. This should give us a better chance of making money more frequently.”

However, it remains something of a holding game as investors are not flooding back yet. Parker says: “I think people need to see some more performance and readjust their opinion on CTAs which has been negative for so long.”

Clayton Cheek, head of investor relations and marketing at the firm, expresses his frustration with raising investments. “Among many institutional investors there is a definite preference for finding the new, new thing. There is a bias or unwillingness to re-evaluate a manager with a long history. It is kind of ironic since we have been doing this for 26 years, have learned a thing or two along the way,

and essentially provide more data points for analytical models.”

Parker expresses the emotional relationship with the trading that is often reflected in the managed futures industry. “Psychologically we would rather have a thriving business but at the same time as we lost assets, our performance improved and it’s more fun to have good performance and feel positive about how you are trading. There were times when I had many more assets under management and I wasn’t very happy with the trading.”

As mentioned above, Welton Investment Partners specialises in scientific, quantitatively-driven investment programs and has a history that spans over 25 years.

At its peak in 2010, the firm had $900 million under management, while assets now total some $500 million. Patrick Welton, the firm’s chief investment officer and chief executive officer, says: “I think that the last three or four years have pointed out both the advantages and disadvantages in CTA/macro strategies – because we have visited some economic policy and market extremes.”

For Welton, the CTA community thrives on differences, a hard thing to achieve when many central banks were all doing the same thing at the same time. “For those who aren’t sure about investing in managed futures, education is the only thing that’s effective. CTA returns provide returns from the sources of risk you have in the other parts of your portfolio – if they understand that then that is a powerful lesson,” he says. Welton’s fund was up 28% in 2014 to the end of November.

New York-based R.G. Niederhoffer Capital Management is another US firm with a lengthy history in the managed futures sector, having been managing money for some 22 years. Of the recent tough times, Roy Niederhoffer says with admirable candour: “It’s been an achievement still being in business.”

2008 saw the firm achieve returns of between 50% and 60% on an asset base of over $2 billion. That AUM figure has now reduced to $580 million but performance is on the mend with their programmes achieving strong returns in 2014. The firm offers effectively a computerised model of a discretionary trader with short-term trading of just a day or so – a programme designed to provide consistent negative correlation to equities and one that was inevitably vulnerable during the rising equity markets of the last few years.

Niederhoffer says: “Managed futures offers as an asset class an uncorrelated diversfiying strategy from equity investment. It has a 40-year track record so is a vital addition to any well-constructed portfolio.”

Another victim of the ATM phenomenon outlined by other systematic trading managers was New York-based Nigol Koulajian’s Quest Partners operation.

Roy Niederhoffer, founder, R.G. Niederhoffer Capital Management

Clayton Cheek, head of investor relations and marketing, Chesapeake Capital


January 2015 Special Report 13January 2015 Special Report 13

ABOUT SYSTEMATICA INVESTMENTS Systematica Investments launched in January 2015, after a decade of experience within BlueCrest Capital Management, to focus on rigorously applying science and technology to the investment process. The firm was founded by Leda Braga and manages approximately $8.5bn (as at 1 January 2015) across a number of futures and equity based strategies. The philosophy of the firm is one of innovation, excellence in research and a commitment to fostering strong alignment with investors. Systematica Investments has a global presence with offices in Jersey, Geneva, London, New York and Singapore.

INVESTMENT STRATEGIESSystematic Trend Following StrategyA global systematic trend following strategy that trades in excess of 150 liquid markets covering asset classes including equities, fixed income, foreign exchange, energy, metals and agricultural commodities.

Systematic Equity Market Neutral Strategy A global systematic equity market neutral strategy that draws upon a wide variety of fundamental and technical inputs, as well as other sources. The portfolio construction process incorporates a sophisticated in-house risk model which seeks to maintain market neutrality at the regional level, as well as limiting exposures to other factors such as size or liquidity.

CONTACT

Systematica Investor RelationsE [email protected]

This document is issued: (i) for all purposes, except for issue into the United States or issue to U.S. persons, by Systematica Investments Services Limited (“SISL”), as an appointed representative of BlueCrest Capital Management (UK) LLP (“BCM (UK) LLP”); and (ii) only for the purposes of issue into the United States or issue to U.S. persons, by Systematica Investments Limited (“SIL’) acting solely in its capacity as general partner of Systematica Investments LP (“SILP”). SISL is an appointed representative of BCM (UK) LLP which is authorised and regulated by the Financial Conduct Authority of the United Kingdom (the “FCA”). SIL is registered with the U.S. Securities and Exchange Commission (the “SEC”) as an investment adviser under the U.S Investment Advisers Act of 1940, as amended, and with the U.S. Commodity Futures Trading Commission as a commodity trading advisor and a commodity pool operator and is a member of the U.S. National Futures Association in such capacity. SIL is licensed and regulated by the Jersey Financial Services Commission (the “JFSC”) under the Financial Services (Jersey) Law (the “FSJL”) to conduct fund services business in and from within Jersey. The JFSC does not take any responsibility for the correctness of any statements made or expressed herein. The JFSC is protected by the FSJL against liability arising from the discharge of its functions under that law. To the extent that this document is issued by SISL, the following applies: This document is issued in the United Kingdom by SISL on the basis that it is issued by an exempt person in accordance with Article 16 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005. This document is being issued inside and outside the United Kingdom only to and/or is directed only at persons who are professional clients or eligible counterparties for the purposes of the FCA’s Conduct of Business Sourcebook. This document must not be relied or acted upon by any other persons. SISL is not acting for, or advising, recipients of this document, and is not responsible for providing such persons with the protections available under the UK regulatory system. To the extent that this document is issued by SIL, this document has been prepared in accordance with the requirements of the FSJL and any other legislation, regulations and orders which may be applicable from time to time, together with the requirements of any relevant codes of practice and guidance issued by the JFSC from time to time (the “JFSC Regulatory Requirements”). The information contained herein is directed by SIL exclusively at persons who are professional clients or eligible counterparties for the purposes of the JFSC Regulatory Requirements, or, if to U.S. persons (as defined under Regulation S promulgated under the U.S. Securities Act of 1933, as amended (the “Securities Act”)), to U.S. persons who are accredited investors (as defined under Regulation D promulgated under the Securities Act) and to qualified purchasers, as defined in the U.S. Investment Company Act of 1940, as amended. This document is being issued only available to the persons referred to above and other persons should not act or rely on the information contained herein. The information contained herein is intended only for the person or entity to which it is addressed and may contain confidential and/or privileged material. Any dissemination or other unauthorised use of this information by any person or entity is strictly prohibited. The distribution of this document may be further restricted by law. This document may not be used in any jurisdiction except under circumstances that will result in compliance with any applicable laws and regulations. Persons to whom this document is communicated should inform themselves about and observe any such restrictions. PURSUANT TO AN EXEMPTION FROM THE COMMODITY FUTURES TRADING COMMISSION IN CONNECTION WITH ACCOUNTS OF QUALIFIED ELIGIBLE PERSONS, THIS BROCHURE OR ACCOUNT DOCUMENT IS NOT REQUIRED TO BE, AND HAS NOT BEEN, FILED WITH THE COMMISSION. THE COMMODITY FUTURES TRADING COMMISSION DOES NOT PASS UPON THE MERITS OF PARTICIPATING IN A TRADING PROGRAM OR UPON THE ADEQUACY OR ACCURACY OF COMMODITY TRADING ADVISOR DISCLOSURE. CONSEQUENTLY, THE COMMODITY FUTURES TRADING COMMISSION HAS NOT REVIEWED OR APPROVED THIS TRADING PROGRAM OR THIS BROCHURE OR ACCOUNT DOCUMENT. The information contained in this document may relate to the “spin out” of the Systematic business of the BlueCrest group of companies into a business to be operated by SIL acting solely in its capacity as general partner of SILP (SIL together with SILP and each of their subsidiaries and affiliates, the “Systematica Group”). This information is therefore subject to updating, completion and amendment. In particular, this document may refer to certain events as having occurred which have not occurred at the date hereof but which are expected to occur prior to publication of the prospectus in its final form. This document is not intended to constitute, and should not be construed as, investment advice. Recipients of this document should seek their own independent financial advice. This document has been provided to you for informational purposes only and may not be relied upon by you in evaluating the merits of investing in any securities or interests whatsoever. This document is not intended as and is not to be taken as an offer or solicitation with respect to the purchase or sale of any security or interest, nor does it constitute an offer or solicitation in any jurisdiction, including those in which such an offer or solicitation is not authorised or to any person to whom it is unlawful to make such a solicitation or offer. Any person subscribing for any investment must be able to bear the risks involved (including the risk of a total loss of capital) and must meet the suitability requirements relating to such investments. Some or all alternative investment programs may not be suitable for certain investors. Although the information in this document is believed to be materially correct as at the date of issue, no representation or warranty is given as to the accuracy of any of the information provided. Furthermore no representation or warranty is given in respect of the correctness of the information contained herein as at any future date. Certain information included in this document is based on information obtained from third-party sources considered to be reliable. Any projections or analysis provided to assist the recipient of this document in evaluating the matters described herein may be based on subjective assessments and assumptions and may use one among alternative methodologies that produce different results. Accordingly, any projections or analysis should not be viewed as factual and should not be relied upon as an accurate prediction of future results. Furthermore, to the extent permitted by law, SISL, SIL, SILP, and their affiliates, agents, service providers and professional advisers assume no liability or responsibility and owe no duty of care for any consequences of any person acting or refraining to act in reliance on the information contained in this document or for any decision based on it. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. The actual performance realised by any given person will depend on numerous factors and circumstances.

EXCELLENCE IN SYSTEMATIC INVESTING

Systematica Advert - Hedge Fund Intelligence - January 2015 [FINAL 205 x 272mm].pdf 1 16/01/2015 11:29Systematica Advert - Hedge Fund Intelligence - January 2015 [FINAL 205 x 272mm].pdf 1 20/01/2015 12:38Managed Futures_SS _2015.indd 13 20/01/2015 12:52


“It’s been an interesting period,” he says. “We had given 90% capacity rights to one fund of funds and they redeemed in 2009/2010 and our assets went from $640 million to $40 million. They had their own issues – in 2008 we were up 56% but still they needed cash and we were able to provide that cash.”

Quest hit 2010 with few assets and a difficult time to raise money but the firm is now up again in terms of assets under management, recovering to $750 million.

“Basically the environment has been very tricky and you don’t expect clients to behave rationally and from an internal perspective you don’t know what guidelines they have,” Koulajian says. “Assets have been volatile, so building an infrastructure is more difficult and you have to be very efficient.”

It has been a steady slope up for the firm in recent years and Koulajian feels that although the firm hasn’t been through what the rest of the industry has been through, they haven’t made as much in terms of performance – in 2009 they were down 11% and 2011 down 4% but this year saw a return of 12.87% to end November.

“A lot of large CTAs do the same thing and the alpha they generate is based on style drift and the focus for us is to generate as much alpha as possible in the short term,” Koulajian says.

“We very specifically went into the replication of the industry and then to explaining specific factors and style drifts and the impact of those style drifts so investors could see the value of what we do more and more. We are able to replicate broad indices and specific CTAs and in replication we use moving averages with numerical optimisation and think a bit more qualitatively rather than quantitatively.”

DEALING WITH DIFFERENT MARKET REGIMESThe European experience for the managed futures industry has been no less harsh. Lynx Asset Management AB is a Swedish-based investment firm with $5.3 billion under management in a long-running model-based trend-following programme. The firm is part of the $17 billion Swedish multi-strategy group, Brummer & Partners, which targets absolute return through a portfolio of different alternative investment managers.

Brummer offers an asset management environment which is attractive to skilled fund management teams, who are able to continue as ‘entrepreneurs’ in the hedge fund industry, where the barriers for entry are increasingly high, but within a group that offers significant experience and solid infrastructure.

June 2014 saw Brummer acquiring a stake in the Singaporean based fund management company which manages an equity-oriented systematic hedge fund with a market-neutral investment strategy which invests in the US and Japanese markets.

Lynx portfolio manager and founding partner Svante Bergström says: “We have been lucky that we haven’t really had as bad a time as some of our peers in the industry with a 7% average return over the past five years. We have held onto assets pretty steadily over the last four years.”

2008 was the year that people noticed it was a good idea to have CTAs in the portfolio, Bergström says. “People had some patience even though 2009 was a difficult year. You need the CTAs to be ready for tough times but for the past three years, with steady returns in equities and bonds, people haven’t had to use that hedge or diversification and have now lost their faith in the CTAs with a tendency to say it doesn’t really work anymore.”

The firm has struggled a little because trends have not been so strong in recent years, but the Lynx team believes that it has helped up better than the industry generally because of the diversification of its portfolio models.

Henrik Johansson, portfolio manager, head of research and partner, says: “At Lynx we have put a lot of time and money into research and chosen to direct our research into trying to improve what we are – trend-followers. Given the last few years of performance, people could be tempted to divert from trend-following but that is what we are at heart.”

Johansson admits that the firm has been tempted to tilt the portfolio to other types of longer-term trend-following and other strategies. “But we wanted to stay as true to our heritage as possible – it didn’t seem to be a smart move until this year when the older, shorter, faster models have paid off.”

Bergström says that execution research is crucial. “It’s very important especially when you grow as a CTA and you face more slippage and trading costs which can affect your net performance. You need to make sure you leave as little a footprint in the market as possible when you trade,” he says.

“We have put a lot of money and time into researching into how markets behave.”

In terms of how investors have dealt with the period of underperformance from the firm, Filip Borgeström, Lynx’s head of business development, says that people have generally been pretty understanding of the difficulties that systematic investment managers have faced.

“They have seen the market environment, but they have been worried that it would be long in continuation along with the central bank-driven market environment. Most institutions understand that in a market environment driven by traditional human behaviour there should be uncorrelated returns available.”

Bergström describes the post-financial crash environment as one that was designed by central banks to maintain smooth market conditions, with decreasing and limited volatility. “And that is not something that works well for CTAs. We like market

Filip Borgeström, head of business development, Lynx Asset Management

Nigol Koulajian, partner, Quest Partners


Svante Bergström, partner and portfolio manager, Lynx Asset Management



New name in the CTA space as $8.3 billion Systematica firm spins out from BlueCrestOne development that underlines the growth in systematic trading in recent years, and the emergence of some powerful new operators in the space, is the arrival this month of Systematica Investments as a new name in the industry.

The transition involves one of the most successful hedge fund houses in Europe, with Leda Braga’s $8.3 billion BlueTrend strategy splitting from Mike Platt’s $27 billion BlueCrest Capital Management and evolving into the new standalone firm called Systematica Investments. The move marks a formal split between BlueCrest’s discretionary and systematic trading activities.

BlueCrest will retain a substantial equity stake in Systematica. However, the new firm will be controlled and managed by Braga, who will be the firm’s CEO, and her 100-strong trading team within the new firm will initially have offices in Jersey, Geneva, New York, London and Singapore.

In addition, the two organisations “will continue to co-operate in areas of mutual benefit and where operating efficiencies can be achieved”, according to a statement announcing the split towards the end of last year.

One of the highest profile systematic trading managers, Braga and her team have achieved 10.9% annualised returns since launch in 2004, and enjoyed a steady line of positive ends of year figures until 2013 – when BlueTrend endured its first and only loss of 11.5%, having already suffered a couple of years of nearly flat performance.

Against the backdrop of highly volatile performance in the managed futures space over the past decade, the firm’s numbers stand up well – with annualised volatility for BlueTrend since inception standing at just over 14%. In 2014 the fund returned 12.7%.

The launch of Systematica could not come at a better time, with the managed futures industry enjoying something of a rebirth. Braga says: “We are excited about the prospects for Systematica, which we believe is launching at a propitious time for systematic trading.”

Braga’s vision is that investment management activity generally is on a march towards being dominated by the systematic, technology-driven approach. She says: “The reasons for that trend are principally related to fees, accountability and transparency.”

In terms of fees, Braga believes that the systematic approach is more scalable and more flexible in designing products for different fee schedules. Accountability and transparency are also naturally at the heart of a systematic portfolio, she believes.

Braga says: “The systematic approach is objective and auditable at a time where regulators need reassurance. In terms of transparency, in systematic trading positions are less concentrated, meaning it is more feasible to offer a high level of disclosure to investors.”

Braga also notes that her new firm arrives with its systems, team and technology resources already in place. “We launch with a powerful suite of systems to support our investment activity,” she says.

“It will not be difficult to launch new products or, if it makes business sense, to customise existing ones. We are also actively thinking about utilising technology to communicate more effectively with our investors and add value by sharing some of the research findings that drive our model improvements.”

The relatively weak performance that BlueTrend – in common with many of its systematic peers – underwent in the 2011-2013 period has meant that the firm has had to expand its communication with investors, like most other CTAs.

“We have been open and honest with our investors. We have shared the logic behind the moderate changes we introduced into the models as a result of recent market characteristics, while also sharing the belief that this tough period will come to an end,” she says.

Like many of her peers, she lays the cause of the poor performance period for systematic traders at the door of QE. “The forecasting power of some of the core signals we rely on has decreased under the recent regime of central banking intervention because intervention inhibits normal market participation,” she says.

“To make matters worse, the same intervention has caused occasional breakdowns in long-term

correlations, thereby challenging our risk management techniques. The combination of the two has resulted in drawdowns.”

She believes that the recovery of CTAs in 2014 was mostly due to being able to stay long fixed income, despite the contrarian nature of that view. “In the meantime, we can see improved forecasting power in the signals that suffered in the last three years, so perhaps market activity is normalising with participants acting on their own risk preferences, as opposed to betting on the central bank’s next move,” says Braga.

Looking forward, with a new business and a newly revitalised

performance pattern, Braga is philosophical. “I believe that what doesn’t kill you makes you stronger. We have improved every aspect of our investment process and we have been forced to deepen our understanding of the models we run. We are probably not alone in that effort. If markets normalise a bit, every surviving CTA will have become a bit better than they were a few years ago. So, yes, the recovery should continue.”

Like many of her peers in the CTA space, Braga remains firmly committed to the principles of systematic trading – which will remain the core driver of everything that Systematic does – and its benefits for investors over the long term.

“For an investor able to take a truly long term view, what is there not to like?” she says “CTAs remain the hedge fund style with the longest and most widely documented track record. They are a powerful diversifier to most portfolios and they are remarkably liquid strategies. The sector has also responded positively to fee pressures, making the price of diversification more attractive.”

As far as the new business is concerned, she also sounds a positive note: “From our side, we have been encouraged and gratified by the level of support from our existing investors through a period of difficult performance and hopefully those who stuck with the strategy have already started to feel justified.”

Leda Braga, CEO, Systematica Investments

ETFS & INDEXING • ABSOLUTE RETURN & SOLUTIONS • ALTERNATIVES & MULTI-MANAGEMENT

Lyxor’s absolute return strategies allocate globally to highly liquid asset classes. Depending on the product, long only or long & short strategies are implemented. Such multi-asset strategies seek to deliver absolute returns within strict risk limits. In doing so, the multi-asset investment team taps Lyxor’s expertise in risk budgeting and diversification, portfolio construction modeling, trend following, cross asset and macroeconomic research, as well as volatility management.

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The products presented on www.lyxorfunds.com and developing notably absolute return strategy may be subject to restrictions with regard to certain persons or in certain countries according to national regulations applicable to these persons or in these countries. In addition, some of these products are registered for public marketing only in some countries. It is each investor’s responsibility to ascertain that it is authorised to subscribe, or invest into these products. Lyxor AM recommends that investors read carefully the risk factors sections of these products’ documentation (prospectus and KIID) which is available free of charge on www.lyxorfunds.com or upon request sent to [email protected]. Lyxor Asset Management (Lyxor AM), Société par Actions Simplifiée, Tours Société Générale, 17 cours Valmy, 92800 Puteaux (France), 418 862 215 Nanterre, is authorized and regulated by the French Autorité des marchés financiers according to the European directives UCITS (2009/65/EC) and AIFM (2011/61/EU).

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ETFS & INDEXING • ABSOLUTE RETURN & SOLUTIONS • ALTERNATIVES & MULTI-MANAGEMENT

Lyxor’s absolute return strategies allocate globally to highly liquid asset classes. Depending on the product, long only or long & short strategies are implemented. Such multi-asset strategies seek to deliver absolute returns within strict risk limits. In doing so, the multi-asset investment team taps Lyxor’s expertise in risk budgeting and diversification, portfolio construction modeling, trend following, cross asset and macroeconomic research, as well as volatility management.

ABSOLUTE RETURN BY LYXOR

T H E P O W E R T O P E R F O R M I N A N Y M A R K E T

The products presented on www.lyxorfunds.com and developing notably absolute return strategy may be subject to restrictions with regard to certain persons or in certain countries according to national regulations applicable to these persons or in these countries. In addition, some of these products are registered for public marketing only in some countries. It is each investor’s responsibility to ascertain that it is authorised to subscribe, or invest into these products. Lyxor AM recommends that investors read carefully the risk factors sections of these products’ documentation (prospectus and KIID) which is available free of charge on www.lyxorfunds.com or upon request sent to [email protected]. Lyxor Asset Management (Lyxor AM), Société par Actions Simplifiée, Tours Société Générale, 17 cours Valmy, 92800 Puteaux (France), 418 862 215 Nanterre, is authorized and regulated by the French Autorité des marchés financiers according to the European directives UCITS (2009/65/EC) and AIFM (2011/61/EU).

This communication is for professional clients only and is not directed at retail clients.

WHEN ACTIVE RISK MANAGEMENT MAKES PERFORMANCEenvironments where things are stressed and people don’t know where markets are heading,” he says.

He adds: “Also we have had an environment where all parts of the world have been facing the same kind of difficulties in terms of economics – normally there are different cycles in different parts of the world which create some tension and you can make a relative value play. But this has changed this year as the US is doing better than Europe and Asia, so that is partly why markets are trending.”

COPING WITH THE DOWNTURN, RIDING THE UPTURNThe Amplitude Capital Group is a regulated CTA with operations in Switzerland, UK and the Cay-man Islands. Established in 2004 it currently man-ages about $1.7 billion in three global, diversified and fully systematic short-term CTA programmes for institutional investors, including pensions, in-surance companies, endowments and sovereign wealth funds.

Head of investor relations, Heiko Zuehlke, explains what the downturn was like for the firm and how it has impacted on their growth.

“It’s not been that easy over the last couple of years for the whole space, but what has helped us treble our assets over the last five years is that we did not necessarily have much better overall returns than anyone else but the way we positioned ourselves made our lives easier,” he says.

The firm has a concentrated client base of 11-12 investors that represent more than 98% of its assets under management. Zuehlke says: “We provide them with the specific building blocks and return streams that they need from us, offering diversification and downside protection if their traditional portfolios of long equities and long bonds do not perform.”

Zuehlke has specific views on how CTAs achieve success. “When you look at CTAs and see where they have been successful in building a business and raising assets, it’s not just absolute performance numbers but also delivering what you proposed to investors when they got into your programme,” he says.

“You have to give people absolute clarity about what market environments you will perform well in and what market environments you will suffer in – you can give people that clarity in a dialogue only if you focus on a few clients. Sticky tickets from sophisticated and highly knowledgeable clients are our secret to success in this industry.”

However, he warns that things may not be plain sailing for the managed futures industry from now on. “Looking forward, if people are communicating to their clients that now the US has stopped quantitative easing, markets will behave more naturally and go back to pre-2008 – that is very dangerous as it will not be as straightforward and easy as this,” says Zuehlke.

“It will be less artificial and larger trends will occur

and the tendency of dampened volatility will be reduced, but the switch from tough to good is being exaggerated and is likely to take some more time.”

Zuehlke also has concerns for the medium to long-term trading space. “We operate on the short term end of the spectrum, so we turn around quite quickly but for a long-term trend-follower of three to six months, it will take him a longer time to change position and that will translate into large turnaround costs once one trend ends and another begins,” he says.

Dr Bruno Gmür is a founding partner and chief executive officer and chief investment officer of Quantica Capital, a Swiss-based CTA with $600 million under management. The firm’s investor base is drawn from CTA funds of funds and institutions from Europe and the US. The Quantica Capital Managed Futures Fund has enjoyed fairly steady returns since launch in 2005, with that year producing a 26.7% return. A down year came in 2012, with a loss of 4.4% but other years showed positive figures. 2008 came in at 18.8% and 2014 also produced a strong positive result, with Quantica Managed Futures up 14%.

“We always say that our approach to trend-following is more risk-based, and we have a multi-dimensional approach, so we can protect the downside better,” Gmür says, explaining the relatively smooth path that the firm has enjoyed during a difficult investment climate for other CTAs.

“In our case, performance was well in line with statistical expectation and since we have mostly institutional investors and are long-term orientated, we were actually able to significantly increase our assets under management over the last four years, also because we have outperformed our peers in this more difficult period.”

Gmür places responsibility for the difficult trading environment squarely at the door of the central banks’ attempts to support their economies. “The last four years had explainable underperformance because the global market environment was not in favour of trend-following for some understandable reasons, but overall it’s just statistical noise so I am not surprised by the strong recovery over last three months,” he says.

MAINTAINING A LONG-TERM PERSPECTIVE1991 saw the launch of Estlander & Partners, a sys-tematic futures trading firm founded by Martin Est-lander that has $480 million in its CTA programmes and offices in Helsinki, Vaasa and Munich. CEO Mathias Österberg comments on the firm’s experi-ence over the past few years.

“Having been in the CTA business since 1991, we have seen tough periods for CTAs before,” he says. “Arguably, the last few years have been tough for the space, but I think our long experience in the CTA business has really helped us to stay focused

Dr Bruno Gmür, founding partner, CEO and CIO, Quantica Capital

Heiko Zuehlke, head of investor relations, Amplitude Capital Group


Mathias Österberg, CEO, Estlander & Partners

on our core strengths: researching and trading systematic futures strategies.”

The firm endured two negative years in the whole performance period since 1991, with losses of 12.31% in 2011 and 8.53% in 2012. 2013 saw a return to positive performance with 1.33% growth and the 2014 figure for its Estlander & Partners Alpha Trend Program was just over 10%.

Estlander’s experience of drawdowns was relatively short-lived. Österberg says: “Being a relatively small organisation we have been able to adapt to the difficult environment smoothly. We have focused all our efforts on research and development of our current and new investment models while adapting our sales and marketing strategy to the difficult environment. Again, I think our 20-plus years of experience in the business with both ups and downs has helped us maintain our long term perspective during the drawdown.”

The theme of education of investors is important to Estlander, as it is to others in the industry. “I think it is very important to educate your investors prior to them investing with you, to make sure they truly understand and are comfortable with what they are buying,” Österberg says.

“We have continuously strived to provide as much support and transparency as possible into our models. I think this really helps during drawdown periods like this one, as investors are more comfortable knowing what to expect from the programme.”

Estlander’s investors are drawn from a diverse group, including large institutional investors and retail investors, a factor that Österberg believes has helped them as a firm. “We really appreciate the confidence that our investors are showing in us and our investment programmes,” he says.

Looking forward, he is confident that the imbalances that have been built up in the global economy since the financial crisis are starting to move markets and he also sees volatility picking up.

“Our CTA programmes have been designed to capture certain market moves that are caused by irrational human behaviour. While CTA performance is cyclical, we strongly believe that human nature hasn’t changed and we will see continued great opportunities for CTAs going forward,” he says.

CHANGING MARKETS, CHANGING MODELS...?Another trend that becomes apparent, if you ex-amine the managed futures field over the past 10 years, is that some firms have taken the shock of under-performance post-2008 on board and exam-ined whether their models needed updating in light of the changing economic and financial world.

Could models that were developed before the notion of a worldwide climate of quantitative easing still function in very different market conditions? How could models that were developed to find

trends work in a world where central banks sought to smooth out trends and minimise market volatility?

One firm that went back to the drawing board is the Paris-based €250 million Lyxor Epsilon Managed Futures Fund, managed by Guillaume Jamet. The fund is a mid to long-term trend-following strategy which, since 2005, has enjoyed a mixture of stellar returns and a few drawdowns – 2008 saw it achieve 23.28%, 2010 saw a 17.32% return but 2012 saw a drop of 14.98%.

2014 was a good year of performance, gaining more than 30%, while the fund also performed very much better than many of its peers in 2013 – returning over 15% in a year when many managed futures funds were negative.

Jamet recalls that 2012 was a hard year for the fund as they were working through a new research programme, started in 2011 and concluding with a new model which they paper traded throughout 2012 to see how it worked and confirm its qualities. At the end of 2012, the firm began to trade with the new model and Jamet feels that the 2013 return of 15.54% reflects that.

The research was mostly to do with the impact of correlation and allocation in a trend-following strategy, looking specifically at the high correlation markets that were the feature of risk on/risk off resulting from global monetary policy – the worst situation for CTAs.

“In trend-following you try to have some predictive ability of the markets but to maximise this you diversify the approach to have as many markets as you can, but it is a false diversification if all markets are correlating,” Jamet says. “You need a better understanding of correlation as it impacts all the markets you trade.”

Jamet examined the correlation interplay between markets. For his fund, the 2012 drawdown came from a different part of the cycle, driven by a downturn in commodities. With a recovery in commodities and a new model, performance has since returned to the Epsilon fund.

Jamet says: “The CTA strategy is a very old strategy with more than 20 years of data to assess the effectiveness of the approach.” What Jamet points to is that CTA performance is uncorrelated with other markets.

“What is important is that it is de-correlation not a hedge,” he says. “People have been trying after 2008 to time investment in CTAs which is not a good idea - they have a dynamic which is different from other strategies which are more like carry or arbitrage. Non-CTAs have lots of small positive returns and then you have a period where things occur dramatically – whereas CTAs have high volatility most of the time and lots of small losses and when they gain they gain fast and with high returns.”

Concurring with most of the other investors and managers interviewed in this report, Jamet


Henrik Johansson, portfolio manager, head of research and partner, Lynx Asset Management


concludes: “It is very hard to time entry into the CTA strategy.”

Philip Stoltzfus, partner and chief executive officer of Thayer Brook Partners LLP, is another CTA manager who falls into the reinvention camp. Thayer Brook was founded in 2005 and runs a systematic, static and adaptive strategy focusing on fixed income and foreign exchange, using a combination of trend-following and risk management methodologies.

The Thayer Brook Global Diversified Strategy has endured an up and down time since 2009 in similarity with many of its peers, mixing some negative annual returns with positive years in 2010 (with a return of 7.99%) and 2014, with the fund up almost 20%.

The focus on fixed income and foreign exchange means that the fund been particularly vulnerable to the long period of monetary policy between central banks that was pretty much constant, with all of the main central banks in the major economies operating highly accommodative policies with no divergence.

“Our experience was not as tough as some others, but the space has been fairly barren until recently,” Stoltzfus says. “Our focus on risk management helped us preserve capital, but I think our main achievement has been our resourcefulness in terms of evolving the strategy over time.”

While they waited for the US to increase interest rates, a development that should give this strategy its day in the sun, the firm focused on developing other models with strategies that could improve performance, including short term trading models, pattern recognition and techniques involving machine learning adaptive technologies.

“We came to the conclusion that it is easy to say to investors you need to be patient because you will get outsized returns periodically, but the reality is that investors get frustrated waiting for an eventuality that is on some indeterminate horizon,” Stoltzfus says, an experience which must be familiar to many in this sector.

“We felt it was essential to invest our full resources in figuring out a way to make the strategy as a whole more effective, and able to perform in conditions that do not favour momentum models.”

2012 saw the firm entering into a joint venture, QuantBridge, with Titian, a financial technology development firm focusing on machine learning with a five year track-record in operating quantitative multi-asset strategies.

This provided access to collaborations with other quants, academics, and individuals who have a methodology, based on adaptive methodologies. These are not just the static rules which dominate trend-following, Stoltzfus says – which is, by and large, heavily influenced by

static rule sets and whose very nature means that it does not necessarily respond to changing market conditions.

The QuantBridge development has proved fruitful with Titian bringing machine learning models to the table. Stoltzfus says: “What I have learned is that we have to continuously evolve here, and that our investment methodology has to evolve. It’s not enough to put out static rules based strategies that primarily work in a restricted set of circumstances; rather we need at a minimum to combine these with more adaptive technologies that can both improve what we already do and create something new, different and profitable for investors.”

Using a new asset allocation methodology, Thayer Brook has created stand-alone models with their own track records.

Performance has returned for Thayer Brook, with the October announcement that the Federal Reserve would terminate quantitative easing – and earlier, the ECB indicating it would be more proactive in monetary policy going forward – propelling the fund into a profitable year.

CENTRAL BANKS AND OIL SLUMP FUEL THE RECOVERYThese developments proved to be a boost for the CTA business generally, acting rather like a switch being suddenly thrown. Factor in catalysts such as the dramatically falling price of oil, the appreciation of the dollar and further aggressive easing action from the Japanese government and the sector is now finding some trends from which to profit.

One firm that is full of managed futures pedigree is the International Standard Asset Management (ISAM) operation established in 2008 by Lord Stanley Fink, who, as CEO of The Man Group, oversaw that company’s growth to become the largest quoted hedge fund manager in the world.

2010 saw Fink bring into ISAM the trading system developed by Larry Hite, whose Mint Investment Management Company was the first CTA to reach $1 billion under management during its 15-year joint venture with Man Group. The marriage of the two houses in 2010 brought a proven trading system and a 30-year track record to a combined entity within ISAM.

Alex Lowe, ISAM’s managing director, and Darren Upton, ISAM’s chief investment officer explain that Man’s DNA runs through the firm, with both Lowe having moved from Man to ISAM in 2011 and Upton following him, moving from Man’s AHL to ISAM in 2012.

The original Mint trading system, developed by Larry Hite, was to undergo something of a wash and brush up under the new guard at ISAM. It was an old system and had been developed in New York, for the Hite family office, rather than being part of the cross-pollination and mass hiring of PhDs in

Philip Stoltzfus, partner and CEO, Thayer Brook Partners LLP

Darren Upton, CIO, ISAM



the so-called CTA arms race that other trading firms had gone through. The system is now heavily developed, scaleable and diverse but its heritage is still traceable back to 1981 and the foundation of the Mint funds.

If Man’s DNA runs through the $700 million ISAM, then the DNA of the managed futures industry is running through it too, as it has seen the best and worst of performance over recent years.

ISAM Systematic is a trend following CTA and started trading ISAM money in May 2010. It achieved a return of 17% in that year but then endured three years of losses, the worst of which was a 17.47% loss in 2012.

However, 2014 turned into something of a glory year for the firm, with a complete turnaround marked by a stellar return of over 60% for the year.

Lowe says: “We were a pure trading trend-following medium term CTA, but over the period post the financial crisis markets have experienced high correlation which has made it difficult for all CTAs. Most have responded by going more multi strategy and we have responded by diversifying heavily the types of trend systems, time frames and markets we have traded.”

Upton also points to recent changes in the markets as drivers for performance. “Large market themes have come back, such as oil as a significant driver of returns but we also profited earlier in the year because we have a broad market set so some of the European bonds and energy markets have provided us with good diversification,” he says.

The firm has a broad set of investors, but Lowe says that the firm tended to target and be attractive to institutional investors. “We are very transparent and one of the few CTAs which is a pure trend play,” he says. “Many CTAs, particularly over the last few years, have diversified their fund into other things such as mean reversion, relative value or cash equities but it does mean you reduce the non-correlation of the performance to other strategies and betas and reduce the chance of crisis alpha.”

Upton, who has been the principal architect in the renovation of the trading model, explains that the firm trades futures markets and over the counter foreign exchange as a pure trend manager, which means that they won’t trade against the market.

Lowe says: “We felt that one of the reasons that institutions were underinvested in CTAs was that CTAs hadn’t been very good at explaining what they do and we have set about changing that and it has helped us. We are very transparent about the system and what we were doing sticking with our knitting, and we have stuck to our knitting.”

Looking forward, ISAM remains confident that the newly improved trading system will continue to perform. Upton says: “We can’t predict performance but what we can see is that our portfolio is showing encouraging signs with an average signal strength

which is high and averaging at a much more attractive level.”

Another firm with an ancient history that had to re-think its trading style is Beach Horizon. The firm has endured one of the most severe drops in assets under management of any of its peers. At its peak in 2012 assets under management had been over $1 billion but they now sit at just $100 million.

2008 was an extraordinary year for the fund, which clocked in with a stellar 59.82% return but following years saw a loss in 2009 of 4.62%, a gain in 2010 of 8.65%, and then losses for 2011 of 1.14%, for 2012 of 19.51% and for 2013 of 8.23% – triggering the dramatic reduction of investor assets.

The asset losses fed on each other as two institutional clients who could not hold investments with firms with under $500 million in assets were forced to cash in their holdings as that threshold was breached. The result threatened the very survival of the firm.

The principal problem that Beach faced was that David Beach’s original system – which had been so successful for the firm in the past – was a manual systematic pattern recognition system that required a great deal of physical input from its trader and could not easily be replicated. Beach had achieved annualised returns of 19% from 1989 to 2006.

It took up to 2013 for the firm to manage to automate his strategy and it is this commitment to reinvention that the 2014 performance reflects.

The final automation of Beach’s original strategy brought that combination of research and scientific style quantitative trading along with a more “human trader with a personality” approach to money management, according to Beach’s Netherwood.

Netherwood explains: “What we are trying to do is minimise our footprint as we don’t want to influence or direct the market. We have built our own trading screens which allow us to minimise error risk but also aggregate a lot of data sources and the broker environment into a single screen rather than lots of separate screens and systems.”

The key advantage that Beach has in building its own screens is the liquidity that it throws up. “Information is captured and fed back into our model, making the model “liquidity aware”. This helps us manage size and ensure that our trades will not influence the market,” Netherwood says.

“One of our beliefs is that trends have always been there but that smarter trading and risk management are vital when times are more difficult – our pattern recognition software has been key in making us smarter.”

Netherwood comments that CTAs rely on directionality and the persistence of directionality that comes from change. “And one of those things that you can always rely on in this world is change. So even if we go through a weaker period it’s unlikely to persist forever as recent performance has shown.”


Alex Lowe, managing director, ISAM

Georg Wessling, deputy head of alternative investments and head of advisory, Harcourt Investment Consulting

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Martin Fothergill, managing director, head of hedge funds, Deutsche Asset & Wealth Management

Confirmation of the remarkable recovery in managed futures strategies in 2014 came in the closing weeks of the year with the publication by Newedge – the prime services division of Societe Gen-erale and a long-standing specialist in

the CTA space – of the November performance data for its CTA performance indices.

The figures showed that a stellar month in November had meant that CTAs had finally exited their extended multi-year drawdown – setting new high watermarks by the end of November, in what was for many individual managed futures strategies their best monthly performance in six years since the height of the global financial crisis in late 2008.

Trend-followers were out in front, posting their largest monthly gain of 7.29% in the largest monthly gain since 2008, but all of the Newedge CTA indices posted their fourth consecutive positive monthly returns.

The Newedge CTA Index, with a performance of 5.62% for November, posted a new high watermark during the month, reversing an underwater trend since May 2011. The Newedge Trend Indicator also had another positive month, showing a gain of 10.40% for November, bringing 2014 year-to-date performance to 32.79%.

Data from the Newedge Trend Indicator showed that the main performance drivers during the month of November were the currency, bond and commodity sectors, with currency exposure boosting performance by 4.21%, while bonds accounted for 3.40% of returns posted.

By year-end the Newedge CTA index was showing a calendar year gain of some 15.5% –

better even than the same index’s 13.07% return in 2008 and the best annual performance for the firm’s CTA index since its 15.75% showing in 2003.

Investors, who had stuck with CTAs through the long earlier period of disappointing returns, were finally rewarded for their loyalty and confidence as trading performance in the systematic space underwent a dramatic revival in 2014.

Martin Fothergill, managing director and head of hedge funds at Deutsche Asset & Wealth Management, reflected on the earlier disappointment experienced by investors during the long period of underperformance by CTAs.

“The industry as a whole, looking at the strategy-level index, has been disappointing for a number of years,” he says. “High expectations were put in place in 2008 – investors inferred from the 2008 CTA negative correlation that it would happen all the time, so there has been some genuine disappointment.”

The subsequent CTA performance problem lay, he believes, in the lock-step nature of post-financial crisis markets. “One of the main problems CTAs have had is a lack of dispersion of markets since 2008 and so many have moved to the shorter term space and idiosyncratic strategies,” says Fothergill.

For Fothergill, bigger managers have been adapting and diversifying to find performance in recent years. “Large trend-followers are not exclusively doing trend-following – particularly those with expansive research teams, who can look at new sub-strategies,” he says.

However, it is his observation that emerging managers have also adapted – bring new techniques and approaches to the systematic

Return to form: investors rewarded for their faith as managed futures roar back in 2014 to produce their best performance since 2008



Mick Swift, deputy CEO, Abbey Capital

trading space. “Emerging managers have come through looking at the managed futures space in a different way,” he says. “We have had a lot of investors interested in that.”

For some established operators, adapting has been key too. “A number of managers have managed to perform, being able to invest in research and being willing to add to strategies and to change strategies,” he says.

Scout Financial is a CTA-focused fund management group owned by a family office that has a long and successful history of investing in systematic traders. Oliver Alliker, fund manager with Scout Financial, says: “We only look at systematic traders – the reason for that is that we have built tools to evaluate systematic trading and our process has been developed around analysing systematic managers.”

The firm has enjoyed consistently good performance, on track to annualise at 18% since inception with a Sharpe ratio of 1.49. “For an emerging manager to be noticed, they generally have to be doing something different from the rest of the established CTA world and the strategies we invest in tend to be shorter term in terms of their trade holding period,” Alliker says. “We believe you get more diversification across short term strategies and more data points in which to evaluate the strategy.”

The firm’s research covered some 100 strategies last year. “This gives you an idea of how many new managers are around,” Alliker says. “We feel it is an incredible time to invest in emerging managers, partly because the industry has been in such doldrums. High-level researchers and co-founders of established firms have left to set up on their own, so we have got some extremely good terms with what we feel are the highest-level emerging managers.”

For Alliker, avoiding correlation with general industry performance is also important. “We weren’t correlated with industry performance at the first half of 2014, and we aren’t expecting to be in the future – hopefully we can also continue to capture some of the good performance while the industry is performing well,” he says.

Dublin-based Abbey Capital, which was founded in 2000 and has some $2.2 billion under management, is another investor that is concentrated on the systematic trading space.

The firm focuses entirely on creating multi-manager products for investors, drawn exclusively from the managed futures area. “We believe very strongly in this industry,” says Mick Swift, deputy chief executive officer of the firm. “We are very much focused on building products for our clients around managed futures.”

The firm works with all sizes of managed futures managers and tends to have a low turnover in its

portfolios. “We believe that people should invest in managed futures because it’s a good diversifier against equities and bond portfolios over time,” Swift says.

“We believe it can capture moves in foreign exchange, commodities and energy systematically so there are a diverse number of potential drivers of returns and no bias to long or short and it can deliver in bear markets, as we saw most recently in 2008.”

However, since 2008 it has been difficult to maintain faith in a sector that consistently underperformed. “Certainly in recent years it has been challenging for many managers in this industry,” Swift says.

“Not the drawdown itself but the length of the drawdown which, we believe, has been a function of many factors, including the exceptionally low level of interest rates, quantitative easing, lack of trends – especially in commodity markets – and low volatility.”

Swift reports that up to the middle of 2014 there was widespread disappointment with the post-2008 returns from the managed futures sector. “A lot of investors rebalanced or went away but in recent months, the industry has seen a strong rebound in performance, taking many managers back to their high watermark. In the medium term view we believe managed futures has a role to play. It’s where we have our own money invested and we hope we bring that conviction and experience to our clients.”

Swift concludes: “Managed futures have been around a long time and while it’s been off the agenda in recent times, we believe the interest will now continue to grow. In 2014 it has delivered positive performance and diversification for investors, which is what it’s supposed to do – but the difficulty for investors is that it is very hard to predict the timing of performance.”

July 2014 saw Abbey Capital launch the Abbey Capital Futures Strategy which hit the ground at the same time as the results from the managed futures sector were beginning to turn dramatically for the better.

The result has been that the fund was one of the highest performers to the end of September, the institutional class up by 8.38% in the first two months of trading compared to the InvestHedge Managed Futures Index, which was up 5.80% for the same period.

The fund’s seven sub-advisers are categorised into diversified trend-followers, which include

>> Managed futures have been around a long time and while it’s been off the agenda in recent times, we believe the interest will now continue to grow. In 2014 CTAs delivered positive performance and diversification for investors >>


1 Investments may not be capital protected and investor capital is at risk. An investment in alternative products may go down as well as up. Liquid alternatives may not be appropriate for all investors and potential investors must ensure they understand the nature and risks associated with an investment in alternative products such as hedge funds.

2 Deutsche provides investors with the Managed Accounts Reporting Services, which provides transparency and risk reporting by portfolio, strategy and single manager.

* Passion to Perform is not a performance guarantee or promise.

This advertisement has been approved and/or communicated by Deutsche Bank AG, London. The services described in this advertisement are provided by Deutsche Bank AG or its subsidiaries and/or affiliates in accordance with appropriate local legislation and regulation. Deutsche Bank AG is authorised under German Banking Law (competent authority: European Central Bank) and, in the United Kingdom, by the Prudential Regulation Authority. It is subject to supervision by the European Central Bank and by BaFin, Germany‘s Federal Financial Supervisory Authority, and is subject to limited regulation in the United Kingdom by the Prudential Regulation Authority and the Financial Conduct Authority.subject to limited regulation by the Financial Services Authority.

Deutsche Asset & Wealth Management represents the asset management and wealth management activities conducted by Deutsche Bank AG or any of its subsidiaries. Clients will be provided Deutsche Asset & Wealth Management products or services by one or more legal entities that will be identified to clients pursuant to the contracts, agreements, offering materials or other documentation relevant to such products or services.

© 2015 Deutsche Bank AG. All rights reserved. AFS156296 (1/15)

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For more information, please talk to your Deutsche client contact. www.deutscheawm.com

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Cantab Capital and Graham Capital Management; global macro, which includes Trigon Investment Advisors; and value, which includes Harmonic Capital Partners.

The Abbey Capital ACL Alternative Fund was the leading performer in the managed futures fund of funds category. The fund, which has been managed by Abbey Capital since 2000, gained more than 10% in November alone for a year-to-date return in excess of 25%.

Switzerland-based Harcourt Investment Consulting has long had a relatively stable allocation of roughly 15% to managed futures and CTAs, while the firm’s discretionary funds of hedge funds also have a strong focus on macro and CTA funds with an allocation of around 20-25% to the managed futures strategy.

Georg Wessling, deputy head of alternative investments and head of advisory at Harcourt, puts the long period of non-performance by CTAs down to a couple of reasons.

“Firstly, it has to be recognised that trend-following strategies have shown similar periods of underperformance in the past,” he says. “The recent event is no outlier. Secondly, the period exhibited high correlations between different asset classes which are typically unfavourable for the strategy.”

For Wessling, the managed futures/CTA strategy tends to underperform in range-bound markets but generates strong positive returns in periods with strong up and down movements. “The strategy is a very good diversifier and might protect against extreme losses,” he says.

The three difficult years from 2011 to 2013 for the sector caused several practitioners to question whether the underperformance was just a cyclical pattern or the result of structural changes in the financial markets. “Our analysis and the analysis of other market participants led us to the conclusion that it was a cyclical pattern,” Wessling says.

Like Deutsche’s Fothergill, Wessling finds that CTA performance is a tough one to predict. Despite the firm’s fundamental belief that the lack of performance was cyclical, Harcourt felt that as the performance of managed futures/CTAs is difficult to predict, they should maintain their exposure to the strategy – for fear of missing out on the recovery when it came.

That patience was rewarded in 2014, when, according to Harcourt, correlations between asset classes reduced significantly. “I would argue that although central banks still provide a lot of liquidity to the markets and therefore support the general upward trend in many risk assets, their influence on market patterns has faded – announcements on central bank decisions now have less impact on financial markets than they had in the last couple of years,” Wessling says.

For Progressive Capital Partners, another Swiss-

based managed futures specialist, life has been challenging in view to their commitment to the sector. Despite suffering periods of drawdown in eight of the 11 years in which the firm’s flagship Tulip Trend fund has been going, the strategy is annualising at an impressive return of over 14%.

Founded in 2001, Progressive provides consulting and advisory services related to managed futures and hedge funds to institutional investors, banks, intermediaries, asset managers, family offices and high-net-worth individuals. With nearly $700 million under management the firm is focused on managed futures.

Daniel von Allmen, Progressive’s chief investment officer, says: “The foundation of our business is based on our Tulip Trend Fund, which we launched in 2003. We achieved an annualised return of over 14% with very low correlation to any other investments. Since then we launched three other single fund strategies and a fund of fund business. We have been very busy in the last six months as our latest launch, the Linden Core Strategy, is in a UCITS structure. Overall our assets under management are around $670 million.”

Tulip Trend provides access to the enhanced risk profile version of the Transtrend Diversified Fund, managed by long-standing Rotterdam-based managed futures manager Transtrend. Given that the underlying strategy is double-levered, the Tulip Trend programme’s performance can be particularly volatile.

“Our broad investor base in Tulip is actually reflected by the fact that we have 14 share classes, private and institutional classes each in seven different currencies. We have pension funds, family offices, banks and independent asset managers mostly from Switzerland and a substantial Asian investor base which is mainly financial advisers,” says von Allmen.

He explains: “Over the first six years we had returns of about 25% per annum and so our first six years were extremely profitable. Then we had five years of mixed returns and now a very strong 2014.”

2014 saw the fund up 35% to the end of the year, repairing a lot of the losses of the previous years. “We feel clients who invested with us before 2008 were really relaxed because they had enjoyed the strong performance of 59% in 2008, so they were calm from 2009 to 2013,” Von Allmen says. “Investors who came in after 2008 were much more nervous and some lost patience and redeemed unfortunately.”

Von Allmen’s colleague Christoph Beck says: “Once the investors have realised a loss from an investment, it is difficult to get them back. Therefore, we have to make sure that investors get as much transparency as possible. We explained and showed them how correlations worked against the strategy in 2009 to 2013 and we were able to show

Daniel von Allmen, CIO, Progressive Capital Partners

Christoph Beck, COO, Progressive Capital Partners


1 Investments may not be capital protected and investor capital is at risk. An investment in alternative products may go down as well as up. Liquid alternatives may not be appropriate for all investors and potential investors must ensure they understand the nature and risks associated with an investment in alternative products such as hedge funds.

2 Deutsche provides investors with the Managed Accounts Reporting Services, which provides transparency and risk reporting by portfolio, strategy and single manager.

* Passion to Perform is not a performance guarantee or promise.

This advertisement has been approved and/or communicated by Deutsche Bank AG, London. The services described in this advertisement are provided by Deutsche Bank AG or its subsidiaries and/or affiliates in accordance with appropriate local legislation and regulation. Deutsche Bank AG is authorised under German Banking Law (competent authority: European Central Bank) and, in the United Kingdom, by the Prudential Regulation Authority. It is subject to supervision by the European Central Bank and by BaFin, Germany‘s Federal Financial Supervisory Authority, and is subject to limited regulation in the United Kingdom by the Prudential Regulation Authority and the Financial Conduct Authority.subject to limited regulation by the Financial Services Authority.

Deutsche Asset & Wealth Management represents the asset management and wealth management activities conducted by Deutsche Bank AG or any of its subsidiaries. Clients will be provided Deutsche Asset & Wealth Management products or services by one or more legal entities that will be identified to clients pursuant to the contracts, agreements, offering materials or other documentation relevant to such products or services.

© 2015 Deutsche Bank AG. All rights reserved. AFS156296 (1/15)

Access a new frontier in liquid alternatives investingOur leading platforms provide professional investors and hedge fund managers access to the spectrum of liquid alternative solutions.1

With managed accounts, UCITS funds, onshore AIFMD and 40 Act mutual fund platforms we offer comprehensive global access integrated with our in-house advisory services and investor transparency technology.2

For more information, please talk to your Deutsche client contact. www.deutscheawm.com

*

them by the end of 2013 that this correlation issue was rapidly improving, laying the ground for a strong recovery.”

Beck continues: “As the strategy typically has 70% in cash, it obviously hurt that there was basically zero interest income.” In its efforts to engage with investors, the firm lowered its management fee on the programme and held an event in Rotterdam to display Transtrend and its team.

Progressive believes that the recovery in performance in the managed futures sector is here to stay. “Trends exist because people have fears and are greedy and act irrationally,” Beck says. “There will be other difficult periods as drawdowns unfortunately are part of trend-following strategies.”

Duncan Crawford, global head of alternative investment solutions at Newedge, has seen at first hand the effects of the long period of underperformance and the subsequent recovery on the managed futures industry. In some way, he believes, the huge returns of 2008 for managed futures managers did them no favours over the longer term.

“2008 was a fantastic year for CTAs. Pre-2008, if you looked at hedge fund investors, probably only 5-10% would allocate to CTAs,” he says. “Then post-2008, pretty much 100% of investors made the decision that they should have CTAs in their portfolio.”

With this sudden rush of enthusiasm for the sector, Crawford watched as investors put themselves on a steep learning curve. “Having not looked at them before, they had to catch up considerably to familiarise themselves with the players and to understand what they do; there was a broad perception that all CTAs were pretty much the same long-term trend-followers” he says.

“So if you wanted trend following, then you spoke to a few of the big managers, you decided which one you liked and you gave them some money. If you wanted more, you simply gave that manager more money, saving further due diligence.”

But the managed futures sector is more complicated than that, he says. “We spent a lot of the two to three years following 2008 educating institutional investors on the diversity of managers out there, the strategies they employ, and the benefits of allocating to a basket of uncorrelated managers,” Crawford explains.

He adds: “One of the key reasons for investing in CTAs is their diversification: they trade a broad universe of markets. Diversification is often described as the only free lunch. During the credit crunch, markets became highly correlated; and for a number of years post 2008, these markets have remained highly correlated – the free lunch was

being eaten by the central banks and their aggressive intervention. As this has calmed down throughout 2014, correlations have returned to normal, trends are being borne out, and trend-following CTAs are making money again.”

In defence of the managed futures strategy and its broader value to investors, Crawford says: “Investors invest in CTAs for their low correlation and their equity portfolios have been performing well, so the fact that their CTAs weren’t doing well shouldn’t be a big issue. With equities trading somewhat more precariously in these recent months, CTAs have been providing the comfort people invest for.”

Amundi Asset Management has $11 billion in alternative assets and has invested with CTAs and in the managed futures strategy for a number of years – but has always invested with CTAs with an established track record of some 20 years at least.

In terms of the recent performance history, Amundi analyst Gerald Gonzalez believes that momentum was broken with the intervention of the central bankers in supporting the economy and that, with normal market momentum being broken, CTAs could no longer manage to perform. However, he feels that interventions from central banks have affected all investment strategies to a greater or lesser extent.

“What has been difficult has been the frequency with which we saw those types of interventions and also the over-attention to those events by the market,” Gonzalez says.

“Risk on/risk off has been heavily used as a marketing tool to explain the under-performance of CTAs,” Gonzalez says. “This kind of ‘event’ generates a sharp market reversal that is usually painful for trend-followers as they may have to enter and exit each time the trend reverses.”

He also believes that continued low interest rates have benefitted CTAs – despite reducing the returns that futures trading funds have been able to generate on their usually substantial cash balances.

“We saw a lot of discussions about the low level of rates, which created concerns about the profitability of CTA’s long fixed-income (futures) positioning; this particular exposure has historically been a good source of profits for them,” he says. “The idea behind these concerns was linked to the probability of rates to go down – hence benefiting their long fixed-income positioning – while everybody was expecting them to go up.”

“Another source of concern was an expected difficulty of CTAs to reverse their long position to the short side. Looking at 2014, it seems that CTAs were the only strategy positioned to take advantage of lower rates and they benefited largely from it – accounting for around half of their overall profits for 2014,” he adds.


Duncan Crawford, global head of alternative investment solutions, Newedge

Gerald Gonzalez, analyst, Amundi Asset Management



It was around the summer of 2014 that a few sea-soned observers and practitioners in the man-aged futures arena began to speculate that there might just possibly be signs of the seeds of a recovery in the long-beleaguered managed fu-tures sector.Newedge’s James Skeggs, Tim Wrobel and Alex

Hill published a well-timed research note on exactly this subject in July last year, commenting: “Managed futures strategies may be finally emerging from their recession that has lasted since April 2011.”

However, the Newedge researchers – ever cautious in the light of their previous extensive experience of the sector – warned in their note that confidence could be premature, with plenty of potential headwinds for the strategy that could be capable of knocking it off an improved performance course.

At the time, despite low trading volumes in some of the instruments that CTAs focus on, particularly FX, the Newedge researchers found glimpses of green shoots of recovery in the performance of the Newedge CTA Index since March 2014.

The early findings have, of course, now been proved correct – with the year-end figures for CTA performance showing indeed that “mighty oaks from little acorns grow” – as the researchers described signs of the turnaround in CTA fortunes in their July piece.

At the time the Newedge research piece constituted a fairly brave call. In the first three months of 2014, the performance of CTAs had not improved on the sector’s travails in 2013, 2012 and 2011 – with the Newedge Trend Index of trend-following strategies down by more than 7% in the 12 weeks to March 21.

However, it was the performance from March 21 to mid-July – which had seen the Newedge Trend Index gain more than 7%, with positive returns in 11 out of 15 weeks – that led the Newedge team to consider that something fundamental had changed.

How right they seem to have been. By November, the recovery was in full-blown mode – with many European CTAs showing their best monthly returns for more than six years on the back of several consecutive months of positive returns.

In November, the median returns for both dollar-denominated and euro-denominated funds in the EuroHedge database constituted the highest monthly performance on record for both indices – at 7% and 7.7% respectively.

Further positive performance in December completed an unbroken streak of five positive months that had not been seen since the global financial meltdown of 2008 in the case of euro strategies, and since the 2002 equity bear market in the case of dollar-denominated funds.

The December performance brought the EuroHedge euro and dollar managed futures indices’ median returns to over 17% and almost 20% respectively on a full calendar year basis – not far short of the respective returns of 22.48% and 23.63% in the annus mirabilis of 2008.

June of 2014 saw another paper on the return to positive performance of managed futures funds. Guillaume Jamet, principal portfolio manager for Lyxor Epsilon, also speculated on a potential return to performance for trend-following strategies, announcing in an expert opinion paper that the potential of trend-following strategies

Calling the performance turn: what happened to end the downturn and begin the recovery from mid-2014?

Guillaume Jamet, principal portfolio manager, Lyxor Epsilon



Performance: Top CTA funds with assets of $100 million to $500 million Top 10 CTA funds over 12 months Management company Fund name Return over last 12 months*Abraham Trading Company Abraham Trading Company – Salem 2X Fund 53.41%Mulvaney Capital Management The Mulvaney Global Markets Fund 51.58%Progressive Capital Partners Ltd Tulip Trend Fund 43.96%Dunn Capital Management Inc Dunn Combined Offshore 40.06%Lyxor Asset Management S.A.S Lyxor Epsilon Managed Futures Fund 34.45%KeyQuant Key Trends Program 31.24%Beach Horizon LLP Beach Horizon Programme 30.67%Covenant Capital Management Covenant Capital Management – Aggressive Program 27.19%GSA Capital Partners LLP GSA Trend Risk Premia Fund 26.38%John Locke Investments Cyril Systematic USD Fund 25.06%

Top 10 CTA funds over a three-year period Management company Fund name Return over last three years*Progressive Capital Partners Ltd Tulip Trend Fund 57.43%Global Sigma Group Global Sigma Plus 50.29%Dunn Capital Management Inc Dunn Combined Offshore 47.11%Mulvaney Capital Management The Mulvaney Global Markets Fund 43.16%LJM Partners LJM Fund 41.58%Eclipse Capital Management Inc Eclipse Global Monetary Program 38.30%KeyQuant Key Trends Program 37.57%Heyden & Steindl GMBH TOMAC2 Fund 34.93%Abraham Trading Company Abraham Trading Company – Salem 2X Fund 32.59% Lyxor Asset Management S.A.S Lyxor Epsilon Managed Futures Fund 32.06%

Top 10 CTA funds over a five-year period Management company Fund name Return over last five years*Nesvick Trading Group LLC Global AG 153.73%Global Sigma Group Global Sigma Plus 122.75%Fort LP Fort Global Diversified 111.29%Dunn Capital Management Inc Dunn WMA Program 80.88%Mulvaney Capital Management The Mulvaney Global Markets Fund 80.09%LJM Partners LJM Fund 74.64%Covenant Capital Management Covenant Capital Management – Original Program 61.14%Campbell & Company Inc Campbell Global Assets Fund – Class B 51.04%Progressive Capital Partners Ltd Tulip Trend Fund 49.77%Lyxor Asset Management S.A.S Lyxor Epsilon Managed Futures Fund 41.23%

Top 10 CTA funds over a 10-year period Management company Fund name Return over last 10 years*Covenant Capital Management Covenant Capital Management – Aggressive Program 455.58%Mulvaney Capital Management The Mulvaney Global Markets Fund 331.42%Progressive Capital Partners Ltd Tulip Trend Fund 311.53%LJM Partners LJM Fund 302.81%Paskewitz Asset Management Paskewitz S&P 3X Contrarian S&P Program 218.05%Fort LP Fort Global Diversified 208.50%Dunn Capital Management Inc Dunn WMA Program 166.47%Lyxor Asset Management S.A.S Lyxor Epsilon Managed Futures Fund 164.33%Altis Partners (Jersey) Ltd Altis Master Fund ICC 114.41%Welton Investment Partners LLC Welton Global Directional Portfolio 100.87%

Top 10 CTA funds over a 20-year period (over $100 million) Management company Fund name Return over last 20 years*Eckhardt Trading Company Eckhardt Standard Plus Program 1895.71%Dunn Capital Management Inc Dunn WMA Program 1812.78%Man Investments Ltd Athena Guaranteed Futures 946.21%Abraham Trading Company Abraham Trading Company – Salem Global Opportunity Fund 658.55%Estlander & Partners Ltd Estlander & Partners Alpha Trend Program 498.58%Millburn Ridgefield Corporation Nestor Partners 366.64%Eclipse Capital Management Inc Eclipse Global Monetary Program 326.85%Hyman Beck & Company Hyman Beck Global Portfolio 322.03%Chesapeake Capital Corporation Chesapeake Diversified Program 259.00%

* Performance to November 2014 Source: HedgeFund Intelligence


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Performance: Top CTA funds with assets of more than $500 million Top 10 CTA funds over 12 months Management company Fund name Return over last 12 months*ISAM ISAM Systematic 45.26%Lynx Asset Management AB Lynx 30.11%AHL Partners LLP Man AHL Diversified Strategies PCC 29.81%Aspect Capital Aspect Diversified Fund 24.32%Graham Capital Management LP Graham Global Investment Fund (BVI) 24.20%Cantab Capital Partners LLP CCP Quantitative Fund 23.65%Man Investments AG Man AHL Evolution 23.22%Amplitude Capital AG Amplitude Klassik 21.83%R.G. Niederhoffer Capital Management Inc Roy G. Niederhoffer Diversified Program 21.01%Eckhardt Trading Company Eckhardt Standard Plus Program 20.07%

Top 10 CTA funds over a three-year period Management company Fund name Return over last three years*Campbell & Company Inc Campbell Global Assets Fund 40.13%Lynx Asset Management AB Lynx 38.06%Graham Capital Management LP Graham Global Investment Fund (BVI) 35.71%Amplitude Capital AG Amplitude Klassik 35.39%Crabel Capital Management Crabel Fund 28.30%Fort LP Fort Global Contrarian 23.16%AHL Partners LLP Man AHL Diversified Strategies PCC 22.76%Amplitude Capital AG Amplitude Sinfonie 22.74%Eckhardt Trading Company Eckhardt Standard Plus Program 22.29%Boronia Capital Boronia Diversified Fund 21.68%

Top 10 CTA funds over a five-year period Management company Fund name Return over last five years*Fort LP Fort Global Contrarian 83.82%Lynx Asset Management AB Lynx 45.80%Campbell & Company Inc Campbell Global Assets Fund – Class A 45.53%Winton Capital Management Limited Winton Futures Fund 41.12%Crabel Capital Management Crabel Fund 35.96%Quantica Capital Quantica Managed Futures 35.93%Renaissance Technologies Renaissance Institutional Futures Fund 32.89%AHL Partners LLP Man AHL Diversified Strategies PCC 28.19%Amplitude Capital AG Amplitude Klassik 26.57%Boronia Capital Boronia Diversified Fund 24.42%Cantab Capital Partners LLP CCP Quantitative Fund 23.07%

Top 10 CTA funds over a 10-year periodManagement company Fund name Return over last 10 years*ISAM ISAM Systematic 222.73%BlueCrest Capital Management LLP BlueTrend 208.12%Fort LP Fort Global Contrarian 165.28%Lynx Asset Management AB Lynx 163.14%Winton Capital Management Limited Winton Futures Fund 154.18%Man Investments Ltd Man AHL Diversified 116.92%Crabel Capital Management Crabel Fund 110.77%Transtrend B.V. Transtrend Diversified Trend Program 110.47%Eckhardt Trading Company Eckhardt Standard Plus Program 106.40%Quantitative Investment Management Quantitative Global Program 90.43%


* Performance to November 2014 Source: HedgeFund Intelligence


remained intact, despite the two years of overall negative industry returns in 2011 and 2012.

But looking at what had caused the crisis in the CTA industry, Jamet argues that the industry was penalised at the peak of the European debt crisis by highly correlated and non-trending markets.

Trend-following funds have retained their unrivalled ability to improve the efficiency of an investment portfolio, he claims. “Better consideration of the issues associated with risk allocation will strengthen these strategies’ potential going forward,” he says.

Analysing the period of underperformance, Jamet comments that 2013 saw relatively poor performance of the Newedge Trend Index, with a return of 2.67%. This, he argues, could reinforce the negative view that some investors have of the trend-following types of strategies.

Common criticisms thrown at CTAs included: “Models unsuited to the market paradigm that surfaced with the crisis, broken performance drivers and outdated strategies. There is quite a lot of criticism that trend-followers have had their hour of glory and now no longer belong in portfolio allocations.”

However, as Jamet pointed out that, as ever, the

reality is not so black and white. “Although the indices tracking trend-followers struggled to generate positive returns in 2013, the funds tracked by these indices also posted more varied returns than usual. Some even posted unprecedented gains,” he said.

He included, understandably enough, among the winners that year the 16% return in 2013 from his own fund Epsilon – which won the EuroHedge award for Managed Futures for its performance in 2013. Performance over 2013 was varied, he said, underlining the fact that a systematic investment approach still offers unrivalled diversification for investors.

In his paper, Jamet looked back to the founding principles of systematic and trend-following strategies. He points out that whereas traditional management relies on qualitative or quantitative analysis of asset prices, trend-followers take positions in markets solely based on the price trend, regardless of the intrinsic value of the underlying assets.

He claims that trends are the product of inefficiencies in the markets, originating in factors such as the difficulty some investors have in rebalancing their portfolios or the herd instinct of the markets. Trends, he says, lend themselves well

European-based CTAs vs US-based CTAs: Performance over three years


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to a systematic investment approach that allows them to be identified for the purpose of taking financial positions.

For trend-followers, the fundamental approach to investment goes out of the window as trend followers determine the statistical features of the behaviour of

each market in terms of volatility, correlation, average return the probability of a jump in the price level and so on that are likely to indicate a trend.

“Such a systematic approach, which does not require an in-depth knowledge of each market, enables them to expose the portfolio to a large




HFI Global Managed Futures Index vs HFI Global Indices: Performance over 12 months

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HFI Global Managed Futures Index vs HFI Global Indices: Performance over five years

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Our investment decisions are based on rigorous scientific analysis.

We call it intuition.

Founded in 2003, Quantica Capital AG is a leading Swiss alternative investment manager highly specialized in systematic Managed Futures strategies.

www.quantica-capital.com

Our investment decisions are based on rigorous scientific analysis.

We call it intuition.

Founded in 2003, Quantica Capital AG is a leading Swiss alternative investment manager highly specialized in systematic Managed Futures strategies.

www.quantica-capital.com


number of markets at the same time” he wrote. “This results in an investment strategy with an unparalleled degree of diversification capable of generating returns in both bearish and bullish market conditions if trends are present.”

Looking back over the history of the managed futures industry, even back to the early studies of Lintner and others as outlined in this report, the argument was formed and sustained that investment based on following trends in a huge pool of diversified assets offers investors diversified returns.

Like Aspect’s Todd, Jamet points out that the significant under-performance across the managed futures industry in 2011 and 2012 was not the first instance of this. “It is important to remember that trend-followers experienced difficult years in the past,” Jamet wrote. “In 2003 and 2004, at the end of a downward rate cycle that had put pressure on the fixed-income markets, an environment characterised by weak trends and a sharp rise in correlations among markets penalised model efficiency.”

At this time, the impact on performance was less severely felt, he observed, owing to the fact that money market rates were far higher than today.

Like others in the industry, Jamet also points out the importance of cash in the trend followers’ portfolio. “It is worth bearing in mind that most of the assets in a trend follower are composed of cash, only a fraction of which – generally 10-15% of the total – is used to manage margins required by [futures] counterparties.”

2011 and 2012 saw market trends dominated by a series of risk-on/risk-off movements that were very much dictated by the needs of central governments to stabilise the international financial system.

“By causing periods of flight to quality (sovereign debt, gold, silver) followed by periods of repositioning on risky assets (equities, emerging markets, commodities, currencies), political interventions invalidated a number of trends identified by the statistical models used by trend-followers. They also aligned all the markets which found themselves at the mercy of a single factor: political intervention,” Jamet wrote.

It was the 2012 banking union agreement that sparked an initial drop in correlation and breathed life into trend-followers, Jamet believes. “They performed well until 22 May 2013 when the Federal

Reserve announced the imminent tapering of the bond buying programme.”

This new direction plunged the markets back into a period of uncertainty, which immediately resulted in another risk-on/risk-off environment until a last-minute agreement was signed in Congress in the autumn.

Jamet believes that this extension of the transition to a new monetary policy regime explains the mixed returns of CTA funds in 2013. It was difficult for systems to capture trends in an environment that remained hazy.

The more recent reduced monetary support to the US economy and cessation of QE in October has had its own effect on the sector, sparking off a slow return to stellar growth.

Research lies at the heart of improving trend-following returns, Jamet believes. A number of the firms interviewed for this report have used their lengthy period out in the cold to further research and upgrade their systems.

Jamet writes: “The quality of the statistical models used to identify a market trend is the starting point for a trend-follower. The high level of correlation seen in 2011 and 2012 highlighted the importance of the allocation model, whose ability to sufficiently diversify a portfolio is a prerequisite for the long-term success of a trend-follower covering different market regimes.”

Jamet believes that a standard managed-risk allocation based solely on the know-how and experience of investment teams is not enough. “Formalising the problems associated with risk allocation provides a more documented view of a position’s impact on the portfolio’s overall risk.”

In terms of their comparison with other hedge fund strategies, Jamet believes that managed futures already display a better risk/return ratio than most of the other risky asset classes. “They also stand out for their lack of correlation to the major market indices, which currently makes them one of the most effective alternative investment instruments.”

Long/short hedge funds have performance which includes, depending on the strategy, an equity, credit or bond component – while, for their part, trend followers do not have any structural relationship with a specific market. This very lack of correlation can prove the strategy’s undoing, but in times of market stress, it does give it the chance to shine.

Going into 2015, the Newedge daily indices for CTAs show the Newedge CTA Index, the Newedge Trend Index and the Newedge Short Term Traders index all positive for the month with the CTA Index returning 2.31%, the Trend Index up by 3.75% and the Short Term Index sitting on a return of 0.36%.

The year has started with a continuation of positive performance and those in the managed futures industry and their patient investors will be all the happier for that.


>> It is important to remember that trend-followers experienced difficult years in the past. In 2003 and 2004, at the end of a downward rate cycle that had put pressure on the fixed-income markets, an environment characterised by weak trends and a sharp rise in correlations among markets penalised model efficiency >>

(1) AIFMD: Alternative Investment Fund Managers Directive which came into force on July 22, 2013. Aims to create a comprehensive regulatory framework for hedge fund managers that reconciles investors’ protection (mandatory segregation of administration/custodian and valuation duties from fund management, new prescriptive rules aiming to prevent excessive risk taking, such as on remuneration), while preserving the necessary � exibility in the “performance engines” with no prescriptive constraints imposed on investment guidelines, type of instruments used, level of leverage. Also, the AIF passport will allow to market alternative products within the EU for professionals investors, outside of the private placement regime. There is no capital or performance guarantee. This publication cannot be reproduced or passed onto third parties, in whole or in part, without our permission. Published by Amundi Alternative Investments, SAS - Simpli� ed Joint Stock Company with capital of €4,000,000 - Registered of� ce: 90, boulevard Pasteur, 75730 Paris Cedex 15 - Portfolio Management Company registered with the ‘AMF’ (French Financial Markets Authority) under no. GP 01.044. Paris Register of Companies no. 439 614 553. This publication is intended for professional investors only. The information contained in this publication is not intended to be distributed or used by any person or entity in a country or court where such distribution or use would be contrary to legal or regulatory provisions or which would compel Amundi Alternative Investments, SAS or its af� liated companies, to comply with the registration obligations of the said countries. The data and information contained in this publication are supplied for information purposes only. Nothing in this publication constitutes an offer or request by any member of the Amundi Alternative Investments group, to provide advice or an investment service or to buy or sell � nancial instruments. The information contained in this publication is based on sources which we consider to be reliable, but we cannot guarantee that it is accurate, comprehensive, valid or relevant. Photo credit: Corbis. |

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Main sponsors

Brummer & Partners Brummer & Partners is a leading European hedge fund group bringing together portfolio managers pursuing different investment strategies in a single corporate group. Brummer & Partners manage USD 17 billion within eight different strategies on behalf of private individuals, businesses and institutional investors. Brummer & Partners has offices in six countries and is headquartered in Stockholm, Sweden. The group has around 400 employees. Approximately half of the group’s employees are involved in the portfolio management and the other half offers support related to risk control, compliance and administration.

Brummer & Partners’ business model is based on entrepreneurship with independent fund management companies owned jointly by Brummer & Partners and the managers. The vision is to build a diversified hedge fund management business. The business model has proved attractive to skilled fund management teams who value Brummer & Partners’ experience and solid infrastructure.

Lynx Asset ManagementLynx Asset Management was founded in 1999 and is today one of the world’s leading firms in model-based asset management. From our Stockholm office we manage the USD 5 billion Lynx programme, a fully-diversified managed futures programme that aims to deliver high risk-adjusted returns that are uncorrelated to traditional asset classes.

Lynx’s business idea involves the use of statistical models, with the core in trend following, to predict price movements on the financial markets. This approach enables Lynx to make extensive analyses of market relationships, and have an opinion on the direction of a large number of different markets. It also ensures a consistent approach without the typical biases of human investors.

Lynx currently employs fifty people, which most are engaged in the development of new quantitative strategies. Lynx has since 2002 been part of the Brummer & Partners group and outsources several non-front office functions to the group’s service company.

For further information, contact:Brummer & PartnersNorrmalmstorg 14 P.O. Box 7030Stockholm, SE-103 86 SwedenTel: +46 8 407 1300Email: [email protected]: www.brummer.seWebsite: www.lynxhedge.se

Newedge is the fully integrated Prime Services division of Societe Generale Corporate and Investment Banking (SG CIB).

Newedge’s benchmark multi-asset Prime Brokerage platform, combined with SG CIB’s best-in-class equity derivatives, cross-asset secured financing and research capabilities, creates a compelling new proposition: top tier, front-to-back solutions, from futures to equities, for alternative managers and investors.

A world leader in execution and clearing, Newedge offers clients the opportunity to trade markets worldwide from one point of contact via our single global platform – which comprises more than 125 markets and exchange venues – and comprehensive suite of cross-asset clearing, prime brokerage and financing solutions.

Newedge’s agency business model, which has no traditional proprietary trading operations, means that clients can be confident we offer solutions that help only to drive their success.

Truly cross-asset We offer a full range of execution and clearing services, covering listed derivatives, money market instruments, bonds, FX, cash equities, commodities and other OTC markets.

Furthermore, Newedge provides a range of value-added services, including capital introductions, cross-asset financing, cross margining, the centralized reporting of client portfolios, and an electronic platform for trading and order routing.

Prime Brokerage solutions are built on three main pillars – Research and Indices, Capital Introduction, and Origination & Structuring – with full execution capabilities and post trade functionality. We work with a broad mix of Alternative Managers and Investors alike to help them focus on delivering returns, whilst using our top-level suite of services.

Overall, we are best known for our consultative approach to relationships. Many of our clients have been with Newedge from launch and now form a good percentage of the largest hedge funds in the industry.

For further information, contact:James ShekerdemianGlobal Head of Prime Brokerage SalesSociete Generale Newedge UK Ltd10 Bishop SquareLondon E1 6EGUnited KingdomTel: +44 (0) 20 7676 8497 Email: [email protected]: www.newedge.com



Associate sponsorsAmundi Alternative Investments (Amundi AI) is the specialised alternative boutique of Amundi, a global asset manager with $1.1 trillion in assets under management1.

With over $10 billion in assets, Amundi AI has a strong expertise in hedge fund selection, as demonstrated by the set-up of a Managed Account Platform in 2005, and in Funds of Hedge Funds engineering, with a track record that started more than two decades ago. Amundi AI provides alternative investment solutions across all asset classes with a strong focus on bespoke holistic consultative approach, rather than a one size fits all product offering.

Since mid-2010, Amundi AI has pioneered in EU-regulated alternative solutions, to better address the security, transparency and liquidity demands of its clients, obtaining its AIFM authorization on December 2013.

Today, all the managed accounts are registered as Alternative Investment Funds (AIF) with the Central Bank of Ireland, and two of them have obtained their EU marketing passports for a selection of countries, including the UK: Amundi Absolute Return Paulson Enhanced and Amundi Absolute Return TIG Arbitrage Associates Enhanced2. Both offer the replication of the leverage 2x version of their respective referenced fund. Our platform offers the highest standards in control of assets (independent depositary: BNY Mellon), valuation (independent administrator: SS&C GlobeOp) and transparency (reporting to the French regulator comprises more than 300 data points on leverage, exposures, etc.).

With $4.5 billion for the platform, Amundi AI is the 7th largest Managed Accounts provider worldwide3.

For further information, contact:Michael HartDeputy CEOTel: +44 207 074 9402Email: [email protected]

Gérald GonzalezDirector – Hedge Fund Investment AnalystTel: +44 207 074 9313Email: [email protected]

Bénédicte RabierSenior Product SpecialistTel: +44 207 074 9401Email: [email protected]

Website: alternatives.amundi.com


Deutsche Asset & Wealth Management strives to deliver leading investment strategies, a highly efficient investment platform and superior client services to institutional investors, private clients and intermediaries. With EUR 955 billion assets under management (as of 30 June, 2014), Deutsche Asset & Wealth Management (Deutsche AWM) is ranked amongst the top 10 bank-owned global leaders in asset and wealth management. With our scale and expertise we partner with our clients to find solutions for complex investment questions. We offer individuals

and institutions traditional and alternative investments across all major asset classes in all major financial centres. We also provide tailored wealth management. Collaboration is at the heart of everything we do. We connect leading investment professionals with deep experience from a broad range of educational and cultural backgrounds. We create value for our clients by unlocking the full intellectual potential of our organisation and operating as one team across all functions and regions.

For further information, contact:Martin FothergillHead of Hedge Fund Investment PlatformDeutsche Asset & Wealth ManagementWinchester House, 1 Great Winchester StreetLondon, EC2N 2DBTel: + 44 (0)20 7545 9287Email: [email protected]: www.deutscheawm.com

1 Amundi Group figures as of 31 September 2014 – Total AUM. 2 For professional investors. 3 On an assets basis – According to the HFMWeek 2014 Survey.


Associate sponsors

Founded in 2001 in the canton of Zug, Progressive Capital Partners Ltd (Progressive) is an independent Swiss investment boutique focusing on alternative investments.

Progressive is specialised in liquid managed futures strategies and multi manager strategies. The company aims to manage and create products uncorrelated to traditional investments.

From the very beginning Progressive’s goal has been to promote alternative investments and to make them available to a broader public.

Progressive has been operating for many years and has

consistently strived to enhance its product range to meet its clients’ needs.

As of December 2014 Progressive’s assets under management total approximately USD 670 million.

Progressive is an authorised asset manager of collective investment schemes and a representative of foreign collective investment schemes according to the Collective Investment Schemes Act (CISA) and is supervised by the Swiss Financial Market Supervisory Authority (FINMA). Progressive is a member of the Alternative Investment Association (AIMA).

For further information, contact:Progressive Capital Partners LtdChristoph Beck, COOTel: +41 41 561 40 80Website: www.progressivecapital.com


Lyxor Asset Management, the fully-owned Asset Manager of Societe Generale Group, was founded in 1998 and counts 600 professionals worldwide managing and advising EUR 96 billion* of assets. Lyxor offers customised investment management services in ETFs & Indexing, Absolute Return & Solutions, Alternatives & Multi-Management. Driven by acknowledged research, advanced risk-management and a passion for client satisfaction, Lyxor’s investment specialists strive to deliver sustainable performance across all asset classes. Lyxor Epsilon Managed Futures Fund seeks to generate positive returns over the medium to long term while maintaining an annualised volatility between 13% and 15% within a daily liquidity

framework. Based on price momentum signals, the fund invests in over 60 highly liquid futures contracts in equities, rates, commodities and currencies. This trend-following CTA strategy extracts values from both medium and long term price trends on the market, regardless of the market orientation thanks to its long and short positions.

Epsilon was awarded “Best Managed Futures 2013” – Euro Hedge Awards 2013 and “Best Managed Futures under USD 500 million” at HFM Awards 2014.

* Equivalent to US$ 120 billion – assets under management and advisory as of October 31, 2014.For further information, contact:

Lyxor Asset ManagementTours Société Générale17 Cours Valmy92987 Paris La Défense FranceTel: +33 1 42 13 31 31Email: [email protected]: www.lyxor.com


Associate sponsors


Founded in 2003, Quantica Capital AG is a leading, independent Swiss alternative investment management firm highly specialised in systematic investment management. The Quantica team consists of qualified investment professionals with strong academic records in quantitative fields.

The objective of the firm is to provide institutional and other qualified investors with high-quality systematic investment strategies to optimise long-term risk-adjusted returns.

All strategies are managed according to proprietary systematic and quantitative models with a focus on

sophisticated data analysis, portfolio construction, execution and risk-management techniques.Quantica Capital has more than USD 600 million assets under management, and offers its programs on institutional platforms, commingled products and in separately managed accounts.

Quantica Capital is a member of the NFA, and registered as a CTA and CPO with the CFTC. It is also a member of The Alternative Investment Management Association Limited (AIMA) and the Swiss Financial Services Standards Association (VQF).

Quest is a research driven investment firm founded by Nigol Koulajian in 2001. Quest distinguishes itself by its commitment to generate Alpha which is positively skewed and more valuable from a portfolio perspective. Quest employs a quantitative trading process across multiple asset classes in over 50 liquid global markets including commodities, currencies, equity indices and fixed income. Quest’s flagship program, AlphaQuest Original, has delivered +6% annual Alpha to the BTOP50 Index over its 15-year track record.

It won the CTA Intelligence US Performance Award for Best Trend Follower in 2014. The Quest Tracker Index is a low cost trend following replicator that has delivered +5% annual Alpha to CTA indices since its 2011 launch.Quest’s Equity Hedge and Fixed Income Hedge programs are designed to dynamically hedge exposure to the S&P500 and U.S. 10 Year respectively. Clients include family offices, foundations, fund-of-funds and some of the world’s largest pensions.

Systematica Investments launched in January 2015, after a decade of experience within BlueCrest Capital Management, to focus on rigorously applying science and technology to the investment process. The firm was founded by Leda Braga and manages approximately $8.5 billion (as at January 1, 2015) across a number of futures

and equity-based strategies. The philosophy of the firm is one of innovation, excellence in research and a commitment to fostering strong alignment with investors. Systematica Investments has a global presence with offices in Jersey, Geneva, London, New York and Singapore.

For further information, contact:Tel: +41 52 630 0070Email: [email protected]: www.quantica-capital.com

For further information, contactEela Dubey, Investor RelationsTel: +1 212-838-7222Email: [email protected]: www.questpartnersllc.com

For further information, contact:Declan Ryan, Head of Investor RelationsSystematica Investments US LLCTel +1 212 451 2571Email: [email protected]: www.systematica.com

A different kind of animal

Lynx Asset Management was founded in Stockholm in 1999. From day one we set out to build a diversified, fully-systematic investment process to identify trends and other patterns in financial markets.

Today, we are widely recognised as a top-performing CTA with over US$5 billion in assets under management and multiple EuroHedge awards to our name. To learn more, please visit www.lynxhedge.se.

Past performance is not necessarily indicative of future results. Systematic trading involves substantial risk of loss. Pursuant to an exemption from the U.S. Commod-ity Futures Trading Commission in connection with accounts of Qualified Eligible Persons and in connection with pools whose participants are limited to Quali-fied Eligible Persons, brochures, account documents or offering memorandums for the accounts and pools are not required to be, and have not been, filed with the U.S. Commodity Futures Trading Commission. The U.S. Commodity Futures Trading Commission has not passed upon the merits of participating in a trad-ing program or upon the adequacy or accuracy of commodity trading advisor disclosure. Nor has the U.S. Commodity Futures Trading Commission passed upon the merits of participating in a pool or upon the adequacy or accuracy of an offering memorandum. Consequently, the U.S. Commodity Futures Trading Commis-sion has not reviewed or approved the trading program, brochures, account documents, the offering or any offering memorandum for the accounts and the pools.

managed futures and systematic strategies

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