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Copyright 2009 Opalesque Ltd. All Rights Reserved.

SECTION NAME

Why Did People ShunManaged Futures?A veteran investor I know used to talk about how he controlled the riskin the fund of hedge funds he managed. He invested in as many as 100

hedge funds at a time, across a wide range of strategies and styles.

Managed futures was not among those. It was possibly the only hedge

fund sector he avoided on principle.

Were talking about a seasoned pro. After several decades of

experience, he had developed his own diversication tactics and

analytical devices. The latter gave advance warning of rising correlation

among strategies so that the allocations could be changed to keep the

portfolio diversied and losses at a minimumor so his robust track

record suggested.

The credit crisis was not kind to my friend. While fund of funds generallylost less than 20% in 2008, the loss in one of his pools was more than

double that. Part of the reason was that the portfolio was levered,

which magnied the losses made by the underlying funds. Another

reason emerged last month. He had a long-standing allocation to

Bernard Madoff. It was not a big part of his fund, but still large enough

to add a signicant amount of red ink.

Heres a knowledgeable person who gave money to Madoff, about

whom there were doubts for many years, but avoided managed futures

as too risky. What is it about managed futures that turns off investors?

Does it carry special risks not found in other strategies? How do long-

time managers control the risks? This issue explores those questions.

AHL, part of Man Group, is one of the largest and longest-runningfutures trading programs. Tim Wong, chief executive of AHL, tells us

how they keep improving the system. Jon Knudsen of Tapestry Asset

Management presents the investors point of view, explaining whats

attractive about managed futures, whats not and what to watch for

when investing.

Cont. on page 2

In This Issue

Founding Father Q&ATim Wong, Chief Executive of ManGroups AHL, talks about howthe firm continues to improve itstrading approach...........................3

News BriefsManaged Futures Shareof Industry Assets ........................5

Insider TalkSeasoned hedge fund investorJon Knudsen, co-chief investmentofficer of Tapestry, discusses whathe looks for in CTAs ................... .7

Futures LabLearn about ways to control therisks associated with managedfutures .........................................9

Manager Profiles

Up-and-coming managerscomment on their strategy andthe markets. ..............................12

Regulators & CourtsFutures-related fraud casescontinue to pile up .....................14

Top TenThe most recent ranking fromAutumn Gold .............................15

ISSUE 2 24 FEBRUARY, 2009

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EDITORIAL

Notwithstanding the complexities of investing in the strategy, managed futures assets

have grown rapidly in the past 10 years and especially after 2002, as the graph below

shows. Last year the hedge fund industry as a whole shrank substantially due to acombination of heavy losses and redemptions. By contrast, managed futures had double-

digit gains and assets were at.

Since other hedge funds contracted while managed futures remained stable, the latter

now account for a signicantly larger share of the industry. For details, see News Briefs.

To say that were living in difcult and uncertain economic times is an understatement.

Under these conditions an accurate appreciation of the risks and benets of managed

futures may be more important than ever for successful investing. We hope this issue

contributes to a realistic view.

Chidem Kurdas

Editor

[email protected]

Source:BarclayHedge

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Opalesque Futures Intelligence: How did you move

into futures from engineering?

Tim Wong: I stumbled into managed futures quite

by chance. My main interests have always been

the sciences, and I originally wanted to become

an engineer after I completed my degree. Having

been brought up in Hong Kong I was mildly aware

of the nancial markets, but I never aimed to be the

investment banker type. After I graduated I applied

for a few nancial positions alongside a number of

engineering opportunities. I was lucky to have found

AHL, which allowed me to combine my love ofscience with the study of the nancial markets.

OFI: Whats interesting about this market?

TW: Futures markets are often viewed as more

complicated and risky than stock or bond markets.

In my view, this is more due to the misuse of the

inherent leverage of futures through margining and

the unfamiliarity with managing short positions.

Futures allow investors to express their bullish or

bearish views of markets simply by going long or

short, respectively. In addition, trading is carried

out on a regulated exchange, which provides price

transparency, centralized clearing and liquidity.

Unlike equities or bonds there are no dividends

or coupons, which is perfect for trading strategies

based on forecasting market directions across a

diverse pool of markets.

OFI: Why did AHL do so well in 2008, a very difcult

year for almost all other investments?

TW: If you look at the performance of our

Diversied fund in 2008, what you see is that

all sectors traded contributed positively to

performance. Energies were the stand-out

performer, with long and then short oil positions

later in the year driving returns. Currency trading

was also extremely protable, with long US dollar

FOUNDING FATHER Q&A

Research as Strategy Mainstay

Tim Wong, chief executive of AHL, provides insight into the performance of

managed futures. He began his career doing statistical research in nancial

markets with AHL after nishing an engineering degree at Oxford University.

He has developed systematic trading models at AHL for over 18 years, during

which time he contributed to AHL becoming one of the worlds largest and

most successful managed futures managers, currently with $24.4 billion under

management. AHL, part of Man Group, returned over 30% in its agship

Diversied program in 2008.

Mr. Wong sees AHLs research ethic and commitment to research as the key driver

behind its success. This has resulted in Man Group, along with AHL, establishing

a collaborative relationship with Oxford University through the creation of the

Oxford-Man Institute of Quantitative Finance. AHL has a research laboratory

located on the same premises as the Institute, with high performance computing

and micro-structure modeling among the areas being researched. It is planned

that this laboratory within Oxford University will play a key part in driving AHLs

research efforts in 2009 and beyond.

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FOUNDING FATHER Q&A

positions adding to performance in the nal

quarter.

While on face value this sounds good, itmust be acknowledged that 2008 was an

extremely challenging year for the nancial

markets. We saw volatility increase substantially

throughout the course of the year, while

at the same time counterparty exposure

became a key focal point. Our robust and

adaptive risk management systems, diverse

trading relationships and advanced electronic

trading platform ensured that we were able

to successfully navigate our way through the

challenging year that was 2008.

OFI: Which markets offer promising trading

opportunities this year?

TW: From my experience, one important thing

that I have learnt is that it is difcult to predict

which markets are going to perform over the

next year, let alone over the following few

months. If you look back at sector attribution

of our Diversied program over the past ve

years, what you see is that markets and sectors

do not perform consistently over time. For

example, energy trading led performance in

2008 however in 2006 it actually generated a

loss. By taking a highly diversied approach, by

both sector and market, you have the potentialto prot from trends developing in only a

handful of markets.

Concentrating on the year ahead, economic

uncertainty will continue to have a dominant

impact on market performance, just like in

2008. Based on our past experience, we are

condent that, given clear trends, AHL will

continue to perform well. However, given the

current high volatility environment, it must be

emphasized that risk management will continue

to play an important role in AHLs day-to-day

operations.

OFI: Whats the main advantage of managed

futures over other investments?

TW: 2008 really highlighted the benets of

managed futures, especially as a complement

to traditional investments or even other

hedge fund strategies. With global equity

markets falling 40% over the last calendar year,

managed futures really proved that they can

provide absolute returns with little or even

negative correlation with the broader markets.

This was not unique to the current credit crisisand history shows that managed futures have

achieved this during other difcult equity

market environments.

The highly diversied nature of managed

futures portfolios is one of the primary factors

explaining how managed futures have been

able to deliver uncorrelated returns over time.

For example, currencies, bonds, interest rates,

stocks, metals and agricultural markets are

all normally traded within a highly diversied

managed futures portfolio.

Trading futures has a number of advantages,especially in the current uncertain climate.

Their use allows managed futures managers

to take advantage of both rising and falling

markets, enabling managers to be exible

and react quickly to price moves. Another

important feature is that futures are traded

on highly regulated exchanges that offer

transparent pricing and centralized clearing,

which mitigates counterparty risk. Margining

also results in managed futures being very cash

efcient and therefore liquid, an extremely

important characteristic given the illiquidity

problems that other hedge fund styles arecurrently experiencing.

OFI: Whats the main risk? How can it be

reduced?

TW: For trend-followers, range-bound price

activity or short-term reversals are market

conditions that can have a negative impact on

performance. While this can happen over the

short term, over the longer term a decrease in

power of the inefciency exploited can pose

a greater risk to managed futures managers.

Since we began trading in 1987, AHL has

continually researched and rened its tradingsystems in order to enhance its systematic

trading approach and therefore counter these

and other risks. Our emphasis on research and

development, in particular the establishment

of the Man Research Laboratory in Oxford,

puts us in an even stronger position to manage

these risks both now and in the future.

Since we

began trading

in 1987,

AHL has

continually

researched

and refned

its trading

systems

in order toenhance its

systematic

trading

approach

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NEWS BRIEFS

Managed Futures Gain Asset ShareManaged futures assets were at last year while hedge fund industry assets were decimated

by redemptions and trading losses. The latest data from Barclay Hedge has commodity trading

advisor assets at $206 billion at the end of 2008, about the same as in 2007. Meanwhile, totalhedge fund assets shrank from $1.9 trillion in May 2008 to $1.1 trillion in December, according to

Barclay Hedge.

That means managed futures assets are at 19% of hedge fund assets. In 2002, by contrast, the

ratio was close to 6%. The managed futures sector may get an even larger percentage share

of the shrinking asset pie, but how much additional money that would bring is unclear. With

managed futures the top-performing strategy after short selling in 2008, many CTAs hope to gain

assets in 2009.

Investors continued to redeem heavily from hedge funds in January, according to press

reports. Because databases contain different groups of managers and use different criteria in

extrapolating industry assets, the numbers vary across data sources. For instance, HedgeFund.

net estimated that hedge fund assets fell to $1.84 trillion in December, down from a peak of

$2.97 trillion in the second quarter of 2008. This estimate is larger than the Barclay number due tothe application of different criteria, among other reasons.

Despite the disparity in the numbers, the growing size of managed futures relative to the rest of

the industry shows up in different databases. The exact percentage varies, however.

CTAs Slip in January, Discretionary Beats SystematicManaged futures ended a successful run in 2008 with a loss in January, while other hedge fund

styles recovered. Depending on the database you consult, the CTA January loss varied from 0.1%

to 0.56%. But Managed Futures Europe posted a gain, while the larger Barclay database shows

that discretionary traders made money during the month (Table below).

January Returns, Various Indexes

Barclay CTA Index (-)0.13%

Barclay Discretionary Traders 1.28%

Barclay Systematic Traders (-)0.36%

Managed Futures Europe 0.48%.

EDHEC CTA Global (-)0.29

Greenwich Futures (-)0.1

Credit Suisse/ Tremont Managed Futures (-)0.56%

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NEWS BRIEFS

Global Advisors Eases Redemption TermsGlobal Advisors LP, a specialist commodity hedge fund manager located in London and Jersey,

agreed to remove all gating provisions contained in the terms and conditions of its Global

Commodity Systematic Fund.

Daniel Masters, who co-founded Global Advisors in 1999 with Russell Newton, says GCS is a

highly liquid program that trades the largest of the exchange-listed physical commodity futures

contracts.

In the current investment climate we are passing on our underlying liquidity to investors in our

fund, he says. This action is in response to demands from investors globally, that we feel are

justied, that hedge fund managers should always be able to meet redemption requests.

The Global Commodity Systematic program has returned a compound annualized rate of 19%

since its inception in 2005.

In the past year or so many funds used gates to delay withdrawals by investors, often arguing that

this was necessary to avoid selling the funds assets at extremely low prices under crisis conditions.

Traders Plan to Increase Option UseUS options industry commissions totaled an estimated $2.6 billion as increased volume and

participation by asset managers drove brokerage commissions to new records in 2008, according

to a study by TABB Group.

Trading volumes are expected to decline 17% in 2009 but rise again in 2010. Andy Nybo, senior

analyst at Tabb and author of the study, says the future looks bright because nearly 70% of

the traders interviewed expect to increase their use of options as normalcy returns to the

marketplace and they deploy strategies suspended amidst 2008s market volatility.

He found that despite the growth in the options market, traders leading complaint continuesto be liquidity, which favors bulge-bracket dealers delivering a full suite of services. Traders

are willing to use the phone if they can get a better price by talking with a dealer, but for

tight markets with sufcient size, electronic trading will provide the biggest bang for the buck

especially when commissions are factored into the equation.

TABB Group interviewed 54 traders at asset managers, hedge funds, market makers and

proprietary trading rms with combined assets under management of $4.9 trillion, trading an

average 15.7 million contracts monthly.

CME Introduces Forex E-MicrosCME Group plans launch a series of smaller-sized foreign exchange contracts, called Forex

E-Micros, in the rst quarter of this year. The new contracts will be one-tenth the size of the

corresponding regular CME FX contracts, making them cost-effective for individual traders orsmaller Commodity Trading Advisers.

Derek Sammann, head of FX Products at CME, says that individual traders looking to participate

in the global FX market or small businesses seeking a cost-effective hedging tool for their FX risk

can choose Forex E-micro futures as a versatile and accessible new instrument to manage their

exposure.

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INSIDER TALK

Opalesque Futures Intelligence: Whats the

advantage of investing in futures markets?

Jon Knudsen: The three huge advantages tofutures are the liquidity, the ease of marking

positions and minimizing your credit risk by

using clearing houses.

OFI: Whats the biggest risk?

JK: Probably the most immediate danger to

an investor is a manager violating agreed-

upon limits on positions and losses because

he is unable or unwilling to get out of a

position. The risk is not catching this soon

enough to mitigate most of the loss.

OFI: How do you get around that?

JK: You minimize the chance of something

like that by staying in touch with the clearing

houses and knowing the manager well. We

track our managers positions and compare

their returns to what we expect them to be

on the basis of market movements. If theres

a discrepancy between what we expect and

whats being produced, thats a cause for

investigation. Also, you diversify the portfolio

so as to get away from single manager risk.

OFI: Whats the basics for allocating to

managed futures?

JK: Broadly, you make the most returns

with trend followers but you have to decide

how much volatility you want to take. There

are enough managers with different return

streams that you can construct a diversied

portfolio.

OFI: How would you diversify among CTAs?

JK: CTAs are becoming more specialized.

You might get one that specializes innancials, another that primarily trades

agricultural commodities. There are very

long term trend followers and others who

have a short time horizon. Some put on

trades lasting only hours or even minutes.

These have different returns from most

trend followers. Others put on relative

value trades, taking advantage of seasonal

What Do Investors Look For?We have a seasoned investor to tell us what characteristics of

managed future attract/ deter investors. Jon Knudsen has been

allocating money to hedge funds for around 20 years and has in-

depth experience with futures. Among the positions he held at

Goldman Sachs was portfolio manager of the Goldman Sachs Tactical

Trading Fund, a multi-advisor macro and futures fund.

He started his career in futures as a runner for a Chicago commodity

house, muscling his way into the trading pit. Currently he is co-chief

investment ofcer of Tapestry Asset Management LP, where he helps

design and manage portfolios for institutional investors.

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INSIDER TALK

changes or other variations in markets. Much like you

blend stocks in an equity portfolio, here you have

long-term, short-term and relative value traders.

OFI: Is there anything specic about doing due

diligence on CTAs versus other hedge funds?

JK: With a systematic CTA, you need to look at how

the system was constructed and the idea behind

it. Equity managers tend to tell you exactly what

they do and the metrics they use, but may not

want to show their positions. Its the opposite with

CTAstheyll give you the details of their positions

but might talk only vaguely about how the signals are

generated!

OFI: How do you get a handle on those signals?

JK: It helps to have both some technical analysis-

statistical background and trading experience in

order to understand whether a CTA really has

insight into how markets function. Some people

can construct models but do not really understand

markets. You have to see whether they have market

knowledge to match their modeling skills.

OFI: Dont investors complain that CTAs rely on

unfathomable black boxes?

JK: Investors fail to understand the systematic

managers, largely because the CTAs themselvesmake the process too opaque. Many managed

futures strategies are simple, though applied in a

very precise way.

OFI: Why do some funds of funds not invest in

managed futures?

JK: If you look at the past few years, until relativelyrecently managed futures returns were by and large

not as attractive as returns from other hedge fund

strategies like long/short equity. A second barrier is

that CTA and macro returns tend to be lumpyyou

can have a period of substantial returns followed by

a period of at or negative returns. By comparison

arbitrage strategies were yielding consistent returns.

If people just followed the numbers and did not look

ahead, they saw no reason to invest in managed

futures. A third factor is some CTA returns are very

volatilebut not all of them are, and recently we saw

how volatile other strategies can be.

OFI: What would you advise a would-be investor?

JK: While its a good idea to analyze the numbers

using quantitative methods, you need a lot of

qualitative work to see where the returns came

from and what one can expect in different market

conditions.

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FUTURES LAB

Managed futures have historically provided

excellent diversication, strong returns and good

downside protection. As with all investments,

however, there is the possibility of loss.

A future or forward contract is a derivative

instrument, the value of which depends on the

value of an underlying asset. Trading in futures

is a speculative activity and futures prices can

be highly volatile. Market prices are difcult

to predict and are inuenced by many factors,

including changes in interest rates, weather

conditions, government interventions and

political and economic events.

Variations and VolatilityThe managed futures style is generally

characterized by wide variations in returns.

We see this in the monthly distribution of theStark 300 Trader Index, compiled using the top

300 trading programs from Starks database of

CTA programs. For the period January 1994 to

November 30, 2008, the monthly distribution of

returns for this index ranged from (-)6.39% to

8.16%.

That does not capture the entire range of

possible returns that are typical for a single

CTA manager. When we applied Monte Carlo

modeling, we found a probability distribution

showing expected annual returns ranging from

around (-)30% to over 50%.

Moreover, variation across managers may

grow. Managed futures managers continuously

research new technologies and trading

approaches in order to identify and prot

from these trends. The scientic approach to

managed futures trading has spawned a wide

variety of different trading strategies, which

today allow certain traders to capture even small

trends.

The introduction of electronic trading allowed

managed futures managers to execute their

trades efciently and, when needed, generally

reduce their positions quickly, thus making

shorter-term and smaller-scale opportunities

accessible. It thereby expanded the investable

universe for the investment approach.

This combination of market growth, persistent

trends and ongoing research means that there

is still substantial room for development in the

managed futures industry. However, as strategies

become more sophisticated and the race to

develop new techniques and trade infrastructure

heats up, the gap between the most developed

trading managers and the following pack may

widen further.

The wide range of possible returns is indicative

of CTA managers high volatility targets.

Compared to other hedge fund styles, managed

futures have the highest return potential but

also high volatility and downside deviation.

They have lower Sharpe and Sortino ratios than

other hedge fund styles, reecting their greater

volatility.

However, as managed futures typically have a

low correlation to other hedge fund styles,

the strategy tends to enhance the overall Sharpe

and Sortino ratios of a diversied fund of hedgefunds portfolio.

Investors might note that Sharpe and Sortino

ratios are not the only statistical measures one

should look at. As managed futures are not

normally distributed, these statistical gures may

not correctly capture the complete risk/return

prole of this style. Hence higher moments such

as skewness should also be taken into account.

An important point to keep in mind is that

the distribution of managed futures returns is

positively skewed. This is an attractive feature of

trend-following CTA programs.

LeverageFutures and forwards are traded on margin

meaning that only a small deposit is required

to take a position. Depending on the volatility

of a commodity, margins can vary between

0.05% and 5% of the notional value of the

commodity. One can therefore achieve 100%

investment exposure with just a fraction of the

capital required through the inherent leverage

of futures contracts. This frees up capital, which

can be invested elsewhere or used to adjust the

leverage of ones portfolio to match the clientsrisk appetite.

Because margin requirements are low, there is

inherently a high degree of leverage, which will

increase returns but will also magnify losses.

A relatively small movement in the price of a

futures contract may result in immediate and

substantial loss or gain to a fund holding a

position in such contract.

A fund may also invest in forward contracts,

options, swaps and over-the-counter derivative

instruments, among others. Like other leveraged

investments, trading in these securities mayresult in losses in excess of the amount invested.

There is also the risk that counterparties will be

unable to fulll their obligations, whether due

to insolvency, bankruptcy or other causes, which

could result in losses. If a Futures Commission

Merchant retained by a manager were to

become bankrupt, it is possible that the fund

We present a review of certain risks associated with managed futures and ways of monitoring

and controlling these risks. This discussion summarizes part of a longer and more detailed study

by Man Investments, an arm of Man Group. The terms managed futures and commodity trading

advisors are used interchangeably.

Risks and Controls

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FUTURES LAB

would be able to recover none or only part of its

assets held by that FCM.

Risk Measures

Risk management is crucial and increasinglymore complicated, requiring a signicant portion

of a managers time. To mitigate the dangers

CTAs apply risk controls and mostly trade with

counterparties on risk-averse nancial exchanges.

At the end of the day a CTAs infrastructure is

key. Only managers that stay at the forefront

of new research and trading ideas will be able

to cope with the challenges of monitoring and

limiting risk.

Todays trading systems are complex and rely on

different techniques to analyze the vast

quantities of data available. The zero-sum game

of futures trading forces all participants to

continuously research the behavior of their peers

and to adapt their strategy in an effort to stayahead in the pursuit of excess returns.

In many respects research and risk management

go hand in glove, as new trading ideas will

often require new or additional risk monitoring

tools. Of course, there is no guarantee that a

managers risk controls will be successful.

Diversified TradingThe increasing liquidity of new instruments and

markets such as credit derivatives, emerging

markets, exchange-traded funds and swaps has

generated many more trading opportunities for

CTA managers, emphasizing the importance of

strong research capabilities. In order to detect

new trading opportunities CTAs must constantly

develop their systems.

Exposures across a wide range of sectors may

help to smooth returns, as individual sectors

often tend to exhibit different behavioral

characteristics. The factors affecting the world

commodity markets, for example, differ from

those inuencing nancial futures. While in both

cases long-term trends are usually driven by

economic growth and stability, short- or medium-

term movements in commodity markets aresensitive to seasonal effects as well as sudden

changes in supply or demand that result from

environmental or political factors.

Hence there is a high degree of uncertainty

in commodities markets and futures trading

allows investors to reap gains (or experience

losses) from the sometimes fervent upward and

downward price movements that result from the

uncertainty.

Geographical diversication can help reduce

risk. The signicant growth in the number and

diversity of futures markets in recent years hasfacilitated a broadly diversied approach across

regions and asset classes. This approach aims to

control risk by avoiding over-concentration within

particular sectors and markets.

(See next page.)

Understanding the StrategySome people call managed futures black box

trading. A black box is an input/output device

such as a transistor. Many users are not familiar

with the logic inside a black box. The term blackbox suggests that investors cannot understand

CTA trade strategies. This criticism is misleading.

CTAs are characterized by rule-based investment

strategies. Trading strategies are hard coded and

often programmed into computer algorithms. To

prevent their proprietary ideas from being stolen,

managers are typically reluctant to divulge the

exact composition of their trading models.

However, while a managed futures manager will

not be asked to reveal the exact programming

for his trades when being screened by a fund

of hedge funds manager, it is crucial that the

developer understands and explains the trading

strategy and the associated risks. Investors can

have comfort in evaluating past performance

only when the manager adheres to a predened

strategy and explains that strategy to investors.

Compared to managed futures, most traditional

equity portfolio advisors such as mutual funds

make their investment decisions from a changing

mix of fundamentals, news and technical data.

To this end, their cause and effect may be much

more unpredictable than systematic CTA models,

which are not based on ad hoc trading decisions.

Thus the systematic approach, if properly

explained and adhered to, gives investors a

better basis for estimating future returns and risk.

The major risk monitoringmeasures and focus areas are:

Stress testing - measures current

market positions against historical

price data. This allows the CTA to

see how his current position sizes

would have performed historically,

especially during periods of

market stress.

Implied volatility - is a forward-

looking measure of potential risk

that is analyzed for each market

Leverage - if levels approach

certain multiples of prevailing net

asset value, a review is triggered.

Margin-to-equity ratios if initial

margin requirements relative to

prevailing net asset value reach

pre-dened levels, a review is

undertaken that may result in a

reduction in positions.

Net exposures to sectors and

different currencies.

Value-at-Risk (VaR) - measures

the expected maximum loss from

an investment portfolio when

futures markets conditions are

similar to those in the model. The

value is determined for a specic

time interval and certain level of

condence.

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FUTURES LAB

Top 30 Derivatives ExchangesRanked by Number of Contracts Traded and/or Cleared

Rank Jan-Oct 2008 Change from 2007

1 CME Group 2,901,709,573 9.91%

2 Korea Exchange 2,343,607,538 (-)2.03%

3 Eurex 1,907,749,030 18.50%

4 Chicago Board Options Exchange 1,033,816,153 33.40%

5 Liffe 915,891,375 14.63%

6 International Securities Exchange 883,864,868 35.66%

7 BM&F Bovespa 642,499,555 (-)8.80%

8 Philadelphia Stock Exchange 472,640,506 45.52%

9 National Stock Exchange of India 467,212,144 48.75%

10 JSE (South Africa) 409,534,082 64.58%

11 NYSE Arca Options 368,630,879 42.39%

12 Dalian Commodity Exchange 258,453,517 95.85%

13 Russian Trading System Stock Exchange 208,858,253 93.83%

14 IntercontinentalExchange 201,193,121 22.18%

15 American Stock Exchange 181,632,092 (-)9.60%

16 Zhengzhou Commodity Exchange 168,556,419 144.66%

17 Boston Options Exchange 152,666,603 47.27%

18 Osaka Securities Exchange 138,099,321 58.69%

19 Moscow Interbank Currency Exchange 128,008,861 74.48%

20 OMX Group 124,575,959 3.18%

21 Taiwan Futures Exchange 114,452,854 19.66%

22 London Metal Exchange 94,713,908 23.05%

23 Shanghai Futures Exchange 94,442,774 44.90%

24 Hong Kong Exchanges & Clearing 89,384,940 24.92%

25 Australian Securities Exchange 83,840,354 (-)13.01%

26 Tel-Aviv Stock Exchange 78,334,573 (-)8.53%

27 Multi Commodity Exchange of India 75,373,290 32.49%

28 Mercado Espaol de Futuros Financieros 68,089,896 75.31%

29 Mexican Derivatives Exchange 62,282,005 (-)69.38%

30 Tokyo Financial Exchange 59,400,463 (-)9.86%

Source: Futures Industry Association

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MANAGER PROFILES

David Mousseau of Lone Wolf Investments LLCDavid was the head trader for a subsidiary of Northern Indiana Public Service Corporation, where he was

responsible for the risk-management of existing physical electricity positions and proprietary trading. He

has worked for various other energy businesses.

2008 return for Carbon Emissions Instrument Program: 15%

Comments: Our proprietary model was designed to systematically trade the European Union Carbon

allowance emissions futures market in Europe. The carbon emission markets are quite new but offer

the opportunity for tremendous growth. This model is designed to capture the movements that energy

products generally display. The program trades both the current years emission vintage and the next years

emission vintage. The contracts call for physical delivery/receipt of emission credits but all positions will be

liquidated prior to the month of delivery.

Gabriel Pellegrini of Global Edge Capital ManagementBased in Sao Paolo, Brazil, Gabriel has worked at Bolsa de Mercadorias & Futuros after an earlier career as

a teachers assistant.

2008 return: 23%

Comments: Our investment approach is diversied among 13 strategies simultaneously to generate

both short-term and long-term gains. The strategy further diversies across different trading time frames

ranging from four to 90 days. We trade more than 100 futures contracts on agricultural products, metals,

energies, currencies, interest rates and stock indices on US, European, Asian, African and Australiaexchanges.

January was a good month for our short term strategies, which showed prots in both stock

indexes and currencies. The volatility in equities markets around the world contributed to the months

performance, however we experienced some losses in the xed-income sector where the rise in interest

rates negatively impacted sector returns.

Tim Pickering of Auspice Capital AdvisorsBefore founding Auspice, Tim was Vice President of Options Trading at Shell Trading Gas and Power

in both Houston and Calgary. Prior to that, he traded for TD Securities in Toronto in a wide range of

instruments including foreign exchange, bonds, money markets and exotic derivatives. In addition to

Auspice he currently manages an exchange-traded fund for Claymore.

2008 return in Diversified Commodity Fund: 44%

Comments: The portfolio is diversied across global commodity and nancial futures and invests

only in liquid exchange traded futures contracts. Auspice derives its edge in the markets from a deep

understanding of the correlations and volatility of the individual assets and sectors. The at return in

January illustrates the funds ability to be a store of value in periods of continued equity weakness.

Up-and-coming managers with diverse approaches describe their strategy and what they see

happening in the markets. Their comments have been edited.

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MANAGER PROFILES

Douglas Bry of Northfield Trading LP

In his early career, Doug was a trial attorney. In 1987 he and Philip Spertus formed Technical TradingStrategies Inc. to apply computer technology to the creation of quantitative models for trading global

futures markets and in 1989 they formed Northeld.

2008 return for Diversified Program: 14.3%

Comments: Northeld is a 100% systematic Commodity Trading Advisor that evolved from a software

rm. The Diversied Program is an absolute return strategy that seeks to prot from both up and down

price movements in the global nancial and commodity markets. Designed specically not to be trend

dependent, the Program trades a diversied portfolio of up to 50 of the most liquid and transparent

global markets, with a primary focus on stock indexes, interest rates, currencies and energy markets.

2008 was a tumultuous year for most asset classes and investments. However, through this

difcult period, Commodity Trading Advisors handled the risk and volatility well. After posting a 24%

return in 2007, the Northeld Trading Diversied Program continued to perform well in 2008 and is up

46% over the past 36 months ended December 2008.

Charlie & Jes Santalauria of Parrot Trading Partners LLCJes is an experienced real estate developer who along with his son Charlie manages several portfolios

employing their unique Calendar Condor hybrid options and futures strategy. Charlie recently spoke

at a hedge fund incubation conference held at the Harvard Club of New York. Both Jes and Charlie were

featured emerging money managers at the MFA Chicago conference the year before last.

2008 return: 11%

Comments: We are in a trading environment that has never been seen before. Markets have becomenumb to grim economic reports. The US economy has lost approximately 1.5 million jobs over the past

three months and another 2 million since the recession began in Dec. 2007 (3.5 million total). We expect

the economic data to surprise both on the upside (sparking rallies) and downside in coming months.

Our strategy for the upcoming months will be to add positions throughout each move and to

take prots accordingly. We will be more conservative than we have been in the past, but expect that we

can generate returns similar to those in past years relative to the S&P 500.

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OPALESQUE FUTURES

REGULATORS & COURTS

It looks like there is an epidemic of futures-related scams, with

new ones coming to light every week. But the large number

of incidents may be a result of regulators becoming more

aggressive in investigating and taking action.

Since the last issue of OFI two weeks ago, the US Commodity

Futures Trading Commission announced the following

enforcement actions:A federal court froze the assets of an Illinois Commodity

Pool Operator run from Toronto, Canada. CFTC charged

that Brookshire Raw Materials Management LLC and its

Canadian managers John M. Marshall and Stephen Z.

Adams took more than $4.6 million in a Ponzi Scheme

from September 2006 to December 2008. They were

supposed to invest client proceeds in a portfolio of

commodity futures and forward contracts designed to

replicate the investment methodology of corresponding

indexes developed by another Brookshire rm. According

to the CFTC, in December 2008 Messrs. Marshall and

Adams closed their ofces, destroyed company data

stored on computer servers and failed to acknowledgeredemption requests. The Ontario Securities Commission

worked with the CFTC on the case. Regulators are seeking

further penalties.

CFTC charged Hawaii-based Marvin Cooper and Billion

Coupons Inc. with defrauding deaf people in a $4.4

million foreign currency scheme. Mr. Cooper allegedly

attracted customers with promises of 15% to 25% monthly

returns from foreign exchange trading. He lured 125 deaf

Americans and Japanese, using his own deafness to relate

to them. The CFTC says he spent more than $1.4 million

of client money for such items as ying lessons and a $1

million home and used $1.6 million to pay out fake prots

as well as commissions. A court froze his and the rms

assets and appointed a temporary receiver.CFTC sought to freeze the assets of Mark Trimble of

Edmond, Oklahoma, and his company, Phidippides Capital

Management LLC, for deceiving some 60 investors in the

Phidippides hedge fund. Mr. Trimble allegedly operated

the $34 million fund from 2005 on and since at least

October 2007 issued false account statements to cover up

multi-million trading losses while paying redeemers from

other investors money. In addition, he is charged with

taking over $1 million in management fees based on false

reports of prots.

Stephen Obie, acting director of the CFTC enforcement

division, says The CFTC continues to zealously prosecute

these lecherous schemes, so that as many assets can be

preserved as possible as we fulll our vital mission to

protect customers from fraud and abuse.

Frank Anthony DeSantis III of Florida was sentenced to108 months in prison and over $2 million in tax penalties

for wire fraud and conspiracy to defraud the Internal

Revenue Service while operating and having a stake in

several commodity investment and telemarketing schemes

in Southern Florida. He misrepresented material facts to

potential customers in order to convince them to invest

in foreign currency options and deliberately failed to tell

customers that more than 95% of customers lost money

and that he was previously barred by the CFTC from acting

as a commodities broker.

CFTC ordered a former employee of the Bank of America

to pay a $360,000 penalty for false trading reports he

submitted to the bank, in addition to a restitution of the$12 million loss he caused. Michael Moster, currently

of New York, was a proprietary trader for the Bank of

America in January 2004, when he falsely reported that he

purchased 4,000 Treasury futures contracts. This concealed

the risk associated with large unauthorized positions in

Treasury bonds that he had established, by making it

appear as if the long futures position hedged the Treasury

bond risk. By the following week, the ctitious trades

inated the value of his trading book by over $12 million.

The sale of the unauthorized Treasury bond position

caused a loss of $12.2 million. In the criminal case against

him, he is required to compensate the bank for the loss.

On a separate matter, the CFTC seeks public comment on aproposal to change the requirements for Acknowledgment

Letters. These are letters that a futures commission merchant

or derivatives clearing organization must obtain from any

depositor holding segregated customer funds or funds of

foreign futures or foreign options customers. The proposal

can be obtained from the website www.cftc.gov and those

interested can submit their comments via email to secretary@

cftc.gov. All comments are to be posted on the website.

Futures Ponzi SchemesContinue to Emerge

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TOP TEN

The list below comes from Autumn Gold, a commodity trading advisor information service founded by Kim Avery. This is one

of several types of rankings available from the service.

Ms. Avery has been involved in the futures industry since 1977. She has worked for E.F. Hutton, Merrill Lynch, Balfour Maclaine

Futures, Price Group and Futures Asset Management. From 1992 through 1998 she was European marketing consultant to

Renaissance Technologies in marketing the Medallion Fund to European investors.

Autumn Gold January 2009 Top Ten Funds

Program Company Last Monthly

Return

12-Month

Return

Silver Conservative Pearlman CTA 24.7% (-)60%

Aggressive Growth Madgroup Invs. 18.4% 80%

Ultra S&P (Proprietary Trading) Paragon Capital Mgt. 13.1% (-)30%

Stairs Program White Indian Trading Co. 10.6% 55%

VCM-Global Futures 2X Vision Capital Mgt. 10.3% 136%

Trading Edge Stein Inv. Mgt. 10.2 (-)14%

Standard Growth Madgroup Invs. 10% 33%

FX Global Yield Waypoint Capital Mgt. 9.9% (-)4%

Option Selling Strategy Financial Comm. Invs. 9.2% (-)19%

Diversied Futures Program Marchese Capital Mgt. 8.4% 62%

We will feature top managers from a

different database every month.

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PUBLISHERMatthias Knab - [email protected]

EDITORChidem Kurdas - [email protected]

ADVERTISING DIRECTORDenice Galicia - [email protected]

EDITORIAL ADVISORTim Merryman - [email protected]

CONTRIBUTORSBucky Isaacson, Frank Pusateri, Pavel Topol, Ty Andros,

Walt Gallwas.

www.opalesque.com

ofi24feb2009

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