Investing in a managed futures investment program can be significantly different from traditional hedge fund / alternative investing. To some, the required education process can be a foreboding task because the variables are new. Depending on the evaluation and ongoing risk management system, both the complexity of a program and its risk management features can be a variable output.
In this article professional asset managers are introduced to a systematic method of managed futures investment analysis and ongoing supervision.
Quantifiable issues professional asset managers may wish to include margin usage, leverage exposure to downside deviation, time horizon correlation, volatility exposure relative to beta market environment risk and the always sometimes business operations exposure. For those new to managed futures, this all might represent new variables.
Options Available to QEP Asset Managers
As a professional asset manager, you have several choices in evaluating and managing your investment.
1) Hire new in-house expertise or educate internal talent. Perhaps the most active approach is for the investor to engage the process through the use of internal assets or individual efforts. This could take the form of an investment evaluation apparatus and a separate risk management apparatus, each with focused responsibilities and mandate. The positives of this approach are it enables the asset manager significant degree of control and potentially transparency / liquidity, depending on the account structure selected. The disadvantage is this process could be costly along several fronts, including time / opportunity cost.
2) Invest in a managed futures fund of fund (FOF) approach. Hiring a FOF service enables a more passive approach for investors without the expertise or desire to engage in detailed understanding of managed futures. (Investing in a managed futures FOF is a process all its own detailed at a later date.) The benefits of the FOF approach is the ease of execution and ongoing management. The disadvantages might include an additional layer of fees and a lack of transparency with potential liquidity issues depending on the account structure selected. Choices include a mutual fund account structure or a more traditional hedge fund account structure. Again, each of these structures have different pros and cons, risk management implications, and should be considered alongside a direct managed futures account option.
3) Work with a Consultant or Platform Provider. If an asset manager wished a more active role in the investment process, with significant transparency, they might consider a platform provider or consultant. Available platforms in managed futures come with various benefits and risks. For instance, certain platforms may provide transparency and ongoing account management options, as a fund of fund service might provide. However, depending on the account structure selected, certain types of accounts may expose the investor to loss potential in excess of the initial margin deposit required. Niche account structures, typically available to select family offices, RIAs, pension funds that limit the liability structure risk of the investment are offered.
Once the method of investment access / analysis is selected, asset managers can then move to understanding the underlying principles of the investment and the risk factors to consider, as outlined in further articles on this issue. (Members to the OFS newsletters can log into the web site for consultation from the author Monday, Tuesday and Thursday from 4 PM to 5:00 PM CST. )
DISCLOSURE: These are the opinions of the author and may not have considered all risk factors. Nothing on this web site should be construed as an individual recommendation, talk to your independent advisor. The author and Opalesque may have relationships with those people they cover in the publication. Mr. Melin provides a full disclosure of his business relationships to regulators and certain eligible participants who engage him in consulting projects. Managed futures investing involves risk and there are no guarantees of safety or future performance being implied. Managed futures can be a risky investment. This web site and its content is subject to the terms of the web site. Risk Disclosure and terms of web site are available here: http://www.uncorrelatedinvestments.com/templates/Disclaimer.html Performance information received on this site is provided by third parties and deemed reliable but there is no guarantee relative to same. Performance reporting sources and quality assurance techniques may include, but are not limited to: disclosure document, CTA self reporting, brokerage firm reporting, consultant reporting, spot checking other reporting databases; nonetheless no guarantee of accuracy or implication performance verification or auditing is being made by the publishers. The CTA Database is a project separately managed from www.uncorrelatedinvestments.com.