What the *!@%* is GTAA?

November 8, 2010 03:34 PM

When I started writing about managed futures and hedge funds about a decade ago I did a story about the different strategies involved and a veteran told me “Global Macro” was not so much a specific strategy but a marketing tool by Commodity Trading Advisors (CTAs) tired of being rejected by allocators afraid of the futures space. Some managed futures managers started calling themselves Global Macro hedge funds and apparently it opened some doors. While Global Macro encompasses more than CTAs, I still view it as a term that doesn’t tell you a whole lot about the manager defining himself with it. Which may be its purpose.

The sad truth is that a decade ago defining yourself as a futures trader closed more doors than it opened — easier just to call yourself a Global Macro hedge fund and get that allocation.

Recently, I heard a trader referred to as a GTAA trader. Huh? I googled the trader and the firm he was affiliated with and low and behold found an entire story in Pensions & Investments referencing GTAA without ever spelling it out. As an editor, I sometimes make the call that certain acronyms are so well known that we can use it on first reference: OPEC and GDP fall in that category but GTAA? By this point I guessed that it meant Global Tactical Asset Allocation but I was fascinated and looked further. I saw it defined as trend following but with more conservative risk management (not those crazy trend followers of yore).

 We have written here how managed futures, despite a bad reputation, is the best alternative investment. This is not a bias as the goals for alternative investments have long been defined as: non-correlation to traditional equity and bond portfolios, transparency and liquidity. Managed futures beat all other hedge fund strategies on those criteria. We also have talked about how fund of funds underperformed in 2008 because they did not have divergent strategies. Okay another definition: traditional trend following managers are divergent whereas many hedge fund strategies, especially arbitrage strategies, are convergent, meaning they rely on reversion to the mean principles. Trend followers exploit the not so rare fat tailed events. The convergent camp — believing in efficient markets — doesn’t necessarily accept that they exist. They do by the way.   

 But here is the kicker; I kept seeing this GTAA reference in numerous hedge fund conference sites. All these professional hedge fund guys know they need managed futures but they can’t get over their long held biases so they have to come up with a name. Why would you create GTAA when all of us understand trend following? Not sure if the GTAA title was created by managers tired of being rejected ala the Global Macro example, or by fund of fund administrators who know they need it but have to repackage it into something new to justify the years they ignored it at a big cost to their investors. On further review I noticed that the name is not so knew, seeing it referenced a decade ago. Perhaps I was napping through those panels.

 Either way it seems kind of silly.

About the Author

Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange.