the Managed Futures mirage

"Many strategies, and not just 'niche' strategies, have less true capacity than meets the eye."

Mr. King,

We infer that you speak from a position of great practical experience. Would you be willing to provide greater detail on the above statement?

A number of excellent, smaller CTAs are following this thread who might be very interested in your thoughts on strategy capacity.
 
Quote from failed_trad3r:

Futures usually overleveraged = FAIL
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Not the point related to the question asked of "Rodney King"...


'Niche' trades are limited to some extent by the nature of the trade and applied strategy, however that may not necessarily be so if the entry points can be flexible,using the same logic as if a single trade.

NiN
 
Quote from Now is Now:

Not the point related to the question asked of Rodney King...
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My main point was that an early investor in a CTA that then has a good 2-3 year run often suffers the fate of being "diluted" by scads of new money that pours in to chase the good performance. Then the CTA's performance falls off because of the ills that accompany excessive size. Therefore early investors can be in the unattractive position of: large downside, but capped upside. If the CTA does poorly, the investor takes the loss, but if the CTA does well, a deluge of new money drowns out the edge, so the original investor has only a couple years, maximum, of upside.
 
Quote from Rodney King:

My main point was that an early investor in a CTA that then has a good 2-3 year run often suffers the fate of being "diluted" by scads of new money that pours in to chase the good performance. Then the CTA's performance falls off because of the ills that accompany excessive size. Therefore early investors can be in the unattractive position of: large downside, but capped upside. If the CTA does poorly, the investor takes the loss, but if the CTA does well, a deluge of new money drowns out the edge, so the original investor has only a couple years, maximum, of upside.
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I've noticed that for JUNE 2010, 19 of the top 20 performers were "emerging" CTAs. One was "established" with AUM of $220mm.

The others ranged from approximately $100k to $34mm AUM.

It would be interesting to hear from some established CTAs/CPOs who observed changes in their performance as their size grew.
 
Quote from Chicago_CTA:

I've noticed that for JUNE 2010, 19 of the top 20 performers were "emerging" CTAs. One was "established" with AUM of $220mm.

The others ranged from approximately $100k to $34mm AUM.

It would be interesting to hear from some established CTAs/CPOs who observed changes in their performance as their size grew.
More...

Where did you get the list of such 19(+1) top “emerging” CTA?
Would you mind post the URL?
 
Quote from Biog:

Pretty good article on manager selection and measuring skill:

http://www.streetstories.com/rotd_13.html
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Neat article. I agree more with the skill orientation.

The article didn't mention how CTA's acquire skills, though. Same situation in this thread, I guess.

My interest in trading OPM was the swap for their professional time (20%, usually). Staying amateur under NFA was also a requirement for me. All small potatos, I guess.
 
Quote from Chicago_CTA:

I've noticed that for JUNE 2010, 19 of the top 20 performers were "emerging" CTAs. One was "established" with AUM of $220mm.

The others ranged from approximately $100k to $34mm AUM.

It would be interesting to hear from some established CTAs/CPOs who observed changes in their performance as their size grew.
More...

An old-time fund-of-funds guy I respect uses a rule of thumb: look only at the portion of a CTA's trackrecord that occurred with AUM within a factor of two of its current level. So if a CTA had a ten year record, but then doubled in AUM in the current year, he'd consider only the one-year record.
 
Quote from myhello2010:

Where did you get the list of such 19(+1) top “emerging” CTA?
Would you mind post the URL?
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Myhello, I would advise you to sign up with Altegris for free information on CTAs. They are www dot managedfutures dot com. (No, I'm not affiliated with them).

I prefer their site to both BarclayHedge and Autumngold.

By registering with them you get detailed access including D-Docs for various CTAs, etc.

Without registering I am only able to paste a list of the top 40 emerging managers:

http://www.managedfutures.com/top_cta_rankings.aspx?timeframe=1&sortby=ror&filter=Emerging

A small 'e' next to the name denotes emerging (<$50mm); while a 'E' denotes established (>$50mm).

---------------------------------------------

I couldn't help but notice the inscrutable 'jack hershey' posted to our thread. Jack, were you a registered CTA once before? Were you an 'exempt' CTA or CPO? Just curious...

happy trading,
Chicago CTA

:)
 
"My main point was that an early investor in a CTA that then has a good 2-3 year run often suffers the fate of being "diluted" by scads of new money that pours in to chase the good performance. Then the CTA's performance falls off because of the ills that accompany excessive size. Therefore early investors can be in the unattractive position of: large downside, but capped upside. If the CTA does poorly, the investor takes the loss, but if the CTA does well, a deluge of new money drowns out the edge, so the original investor has only a couple years, maximum, of upside."

This is a very good insight into the business from the Investor perspective, thank you for sharing.

Over the weekend I read these original investor letters for Michael Burry's hedge fund, Scion Capital. I think they contain elements which are relevant to our discussion.

http://www.scioncapital.com/index__letters.html
 
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