After years of avoiding the retail space, the topic of retail access of alternatives was highlighted on several panels during the Managed Funds Associations Network conference in Palm Beach, FL this week. In the United States this has taken the form of managed futures mutual funds and in Europe the growth of UCITS structures.
Bruce Cleland, vice chairman and former president and CEO of Campbell and CO. said the various central bank interventions helped momentum and trend followers.
On the subject of the emergence of managed futures mutual funds Cleland joked, “For a long time it (offering managed futures programs to retail) was a lonely place, I wish it was still lonely.”
Cleland acknowledges that the emergence of managed futures mutual funds is a clever workaround of the onerous commodity pool rules adding, “Sometimes it is a clever work around that drives [principal] changes.”
Campbell has commented to the CFTC in support of the NFA rules changes on commodity pool exemptions (Rule 4.5) that would put some exempt funds back into the CPO camp. However, Cleland does not want to kill the new products, but would like them to have to make the same disclosures as his commodity pool products do. “It should be a level playing field,” Cleland says.
He adds that he is looking for a compromise that would allow the products to compete fairly.
UCITS is a European Union regulatory structures that allows various liquid investment products including alternatives to be offered to retail traders. While UCITS have been around since 1989, they have only recently gained popularity as a way to access alternatives like managed futures. Most of these products are domiciled in Luxemborg and Ireland due to favorable tax structures. Michelle Moran, partner at Dechert, noted that institutions are also interested in UCIT products accounting for two-thirds of the capital invested in them.
Regulation was also a big topic at the conference. While some at the conference were weary of the specter of more regulation, Cleland noted that past regulated changed have benefited the industry. “When the CFTC was founded we worried that it would be the end of the business but it actually was the beginning of it. If it is properly handled it can be a successful outcome.”
He notes that moving swaps on exchange and into clearing could have a “surprisingly good outcome.”
However Cleland added that the pace of new regulation is happening too quickly for the industry to adjust. “Slow down, they are trying to do too much too fast, it is challenging the law of gravity.”
While Cleland wants to ensure his products are not at a regulatory disadvantage to new managed futures mutual funds, he says it has been a mistake to keep these products away from retail and part of the reason alternatives are viewed with skepticism is that people don’t understand them. “We haven’t allowed the small investor to understand us. It is appalling that the people that need the most help don’t get it.”