FM: What other managers are you currently working with?
BD: Our current CTAs are Commodity Futures Services, LLC which trades the IPATS system; Keck Capital Management, LLC, which trades the Keck system; Kelly Angle, Inc., which trades the Genesis system; and Revolution Capital Management, LLC, which trades the Mosaic system.
According to the 2011 fourth quarter Barclay Managed Funds Report, the WMA program, three of our current strategic partners, one past strategic partner and one of our past employees with his own system are all represented in the top 20 CTA performers of 2011. Also, three of the above were included in the top 20 CTA performers over three years, and four were included in the top 20 CTA performers over the past five years. I think we've done a fairly decent job in reviewing and developing systems with our strategic partners.
FM: Do you see a lot of promising new managers out there?
BD: Not a lot but occasionally. If we have enough information to make us curious and it looks like it would be interesting we are open to taking a serious look at it and kicking the tires and seeing if it works. If so, maybe we can work out a deal where it works for everybody. We are being approached by three or four people a month. They approach us because they know we have a history of start-up opportunities.
FM: Back in 2009 we spoke about how the strong performance of managed futures in 2008 — as opposed to almost all other investments — should bring managed futures into the mainstream. While we have seen some growth, it has not been as strong as one may have expected. Why?
BD: The public is slow to make a change even after 2008. The mainstream media, big banks, large financial institutions, government and the financial news networks generally push the equity industry. This along with the recovery of the stock market and recent Federal Reserve policies has kept everyone invested in equity strategies. It's hard to buck the trend.
Managed futures is new to many institutions, and the due diligence process is very slow. Capital will flow to the large players first, as a safe place to test the waters. I would suggest this is already occurring as evidenced by the AUM (assets under management)growth experienced by the larger managers. We expect capital to flow to the smaller managers as investors better understand the industry and available options and systems. Also, as comfort grows with large managers and the true value of a managed futures strategy is understood, more retail products will include managed futures to protect against black swan events and improve risk adjusted returns.
FM: What needs to happen for managed futures to truly become a mainstream investment?
BD: Managed futures needs to be easily available in a structure that does not overly burden the investor with fees and costs. This could happen by inclusion of managed futures funds on the platforms by the major investment banks.