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CTA Funds Continue To Attract Institutional Investment

by Nicole Rubbi-Clarke

  • 27 Jul 2010
  • HF

CTAs continue to be an attractive investment opportunity and the number of investors stating an active interest in the strategy has risen since last year. Preqin currently monitors over 400 institutional investors with an active interest in the sector, 16% of the total investor universe.

Direct hedge funds are the most favoured investment approach for these investors. Many have chosen to invest in CTAs as a way to diversify their portfolios, lower portfolio risk and get exposure to non-equity and fixed income-related returns. Managed futures have benefitted investors by generating increased portfolio returns even in declining markets and have reduced portfolio volatility.

North American-based investors are the most active in the sector (representing 63% of all CTA investors). 29% are European and 8% are based in Asia and Rest of World. Most of the capital in the CTA industry comes from the larger, more established investors. At present, funds of hedge funds are the biggest source of capital for CTA managers  with 28% of all such investors are active in managed futures. CTAs are also very popular amongst pension funds, not least because they provide their portfolios with transparency and liquidity, two key issues in the institutional market at the moment. 75% of the 20 largest investors in CTA in terms of assets are pension funds. 21% of endowments and 13% of foundations also invest in managed futures.

Interest in CTAs is expected to continue in the future, as more investors seek to diversify their portfolios whilst adding an additional layer of transparency and liquidity to their holdings. Large institutional investors, such as funds of hedge funds and public sector pension funds, represent the most significant contributors in the managed futures sector. However, smaller institutional investors are increasing in numbers. Therefore the diverse CTA universe, comprised of a variety of trading styles from currencies, interest rate products, stock indices, base metals, agriculture and energy, promises to attract new investors in 2010 and beyond.

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