the Managed Futures mirage

[Chuck Krug]

I was thinking more of structure of a client's portfolio and communication of the structure to the client.
For example: 10% commodities, 30% bonds, 10% managed futures, ...
Investors should be explained that when 1 asset class perform worse the others performs better etc. Surprisingly not a lot of advisors do this.

 

[Chicago_CTA]

Quote from myhello2010:

Beside commission, what percent of the advisory fee a broker shares?

I would never share a penny of my Incentive Fees with a broker. They are mine and mine alone. Of course, I charge no management fees and feel comfortable eating only what I kill in battle.

To answer Promethesus' question, I think some brokers would be interested in recommending a good CTA program that's more than 7,000 R/T per $1mm, per year at a commission rate of: Between $5.00 and $10 per round-turn.

The brokers who are willing to refer me business are generally people I've known from my days as a broker with a big company.

But this is a growth industry.


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Obviously, a CTA who is comfortable with paying $25 per R/T might have many brokers selling his program...if he can keep money around.

 

[myhello2010]

Quote from Chicago_CTA:

I would never share a penny of my Incentive Fees with a broker. They are mine and mine alone. Of course, I charge no management fees and feel comfortable eating only what I kill in battle.

To answer Promethesus' question, I think some brokers would be interested in recommending a good CTA program that's more than 7,000 R/T per $1mm, per year at a commission rate of: Between $5.00 and $10 per round-turn.

The brokers who are willing to refer me business are generally people I've known from my days as a broker with a big company.

But this is a growth industry.


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Obviously, a CTA who is comfortable with paying $25 per R/T might have many brokers selling his program...if he can keep money around.

Do you intent to use introducing brokers?
If you do, do you have to share your advisory fee with your introducing brokers?

 

[Vulcan Trader]

Quote from Chicago_CTA:

Thanks for the heads-up, big shot. Like I said I'm emerging so my clients are accredited investors, for now, i.e. no pension funds, etc.

Regarding your second claim, you're wrong. You've probably never been a broker. There are a lot of gunslingers out there who frankly enjoy the emotional swings of trading on leverage.

Anything else to contribute, "Rodney King?"

He's right I had a client like that who was extremely wealthy and he admitted that he was only trading for fun and enjoyment and not to make money. So YES those clients do exist. I know because I WAS A BROKER.

 

[Vulcan Trader]

Quote from the1:

I used to manage an LP as a CPO and currently run as a CTA. The pattern of chasing returns and bailing on drawdown became so predicitable I had to have one-on-one discussions with investors and put every new investor through a screening process. I rarely, RARELY came across an investor that wanted to invest money during a period of drawdown. A potential investor was interviewing me one day and after all was said and done he said, "call me when you have a 20% correction." My jaw almost hit the ground. I had my 20% correction and he dumped in a bunch of coin. He was the best performing investor that year.

I've concluded it's just human nature for investors to chase performance and avoid funds that are performing badly. This can be said for index funds as well. If utilities are down 30% on the year no one will touch it but if it's up 30% on the year the money will be flowing in. The same thing happens in managed futures.

Your dilemma is not an easy one to solve.

DARN GOOD analysis. Well stated.

 

[Rodney King]

Quote from Vulcan Trader:

He's right I had a client like that who was extremely wealthy and he admitted that he was only trading for fun and enjoyment and not to make money. So YES those clients do exist. I know because I WAS A BROKER.

<i>Broker</i>, not <i>CTA</i>? In my experience, whales who want "fun and enjoyment" <i>control the trading themselves</i> rather than turn their money over to a CTA. Where's the fun in opening a printed statement once a month? And institutional clients always exhibit a seriousness of purpose.

 

[1prometheus]

I think Rodney, Vulcan and CTA are all correct. Likely recreational "whales" do like to do their own trading.

What happens is they develop a relationship with the broker and trust him. Maybe the Broker suggests winning trades or strategies.

When the broker says, "I am starting a CTA" The relationship is in place and the "Whale" is willing/happy to invest.

I think the lesson here is one of relationship building.

 

[chinook]

This might be slightly off topic here; however, I noticed that there are some very knowledgeable people here... I am also planning to launch a managed futures fund -- I have a reasonably decent track record for about 7 months now. I have a potential big investor interested in putting some money in. I was thinking about the usual 2/20 fee structure. However, I just got a call from a headhunter (she knows that I've been working on my track record) and she told me about trading for a prop firm and their payout is 50%. She hasn't given me much details yet though.

This got me wondering. Why would people with capital get into prop trading (for futures), and not just instead invest with various CTAs and pay only 20% of the profits? The only thing I can come up with is that they are looking for high % return strategies that are usually not that scalable. For instance, they invest $2M in a strategy that can potentially make 50% return a year.... Put $20M into the same strategy as a CTA fund and then you might a 50% drawdown instead of 50% profits...

Any other thoughts? Thanks!

 

[Rodney King]

Quote from chinook:

This got me wondering. Why would people with capital get into prop trading (for futures), and not just instead invest with various CTAs and pay only 20% of the profits? The only thing I can come up with is that they are looking for high % return strategies that are usually not that scalable. For instance, they invest $2M in a strategy that can potentially make 50% return a year... Put $20M into the same strategy as a CTA fund and then you might a 50% drawdown instead of 50% profits... Any other thoughts? Thanks!

It's a complicated question, but, yes, a big part of it is greater control, especially of capacity. Many strategies, and not just 'niche' strategies, have less true capacity than meets the eye.

 

[chinook]

Quote from Rodney King:

It's a complicated question, but, yes, a big part of it is greater control, especially of capacity. Many strategies, and not just 'niche' strategies, have less true capacity than meets the eye.

Thanks Rodney King!