Institutional Hedge Fund Investors Maintain an Appetite for Managed Futures/CTA Strategies

by Joseph Lee

  • 05 Jun 2014
  • HF

Investments in managed futures/CTA strategies continue to be a prominent choice for a wide range of investors across the hedge fund universe, likely as a result of what these vehicles offer investors in terms of liquidity and transparency, as well as diversification to investor portfolios. Of the 4,600 institutional investors tracked by Preqin’s Hedge Fund Investor Profiles, 23% have demonstrated an appetite for investing in managed futures/CTA funds

Managed futures/CTA vehicles offer performance characteristics that make it a highly relevant strategy during periods of relatively low returns and generally rising asset class correlations. Ever since the global financial crisis in 2008, many institutional investors have been looking to create portfolios with greater diversity and generate uncorrelated returns in a volatile investment climate. A number of investors look to gain exposure to these strategies through a multi-manager structure, offering genuine diversification within a portfolio. $2.2bn Ireland-based Abbey Capital is an example of a firm that offers funds of CTAs. 

As managed futures/CTA strategies have very short or no lock-up periods, certain institutional investors continue to pursue these strategies due to the additional liquidity they provide. Currently, 34% of all public pension funds actively investing in hedge funds indicate a preference for managed futures/CTA strategies, a 12 percentage point increase from this proportion in 2012. Florida State Board of Administration recently set out plans to invest in two funds of hedge funds that will provide exposure to CTAs. The pension fund believes that this sector will perform well in the future and that these investments will provide diversification in case of a bear market. North America-based institutions represent the majority of investors with a preference for managed futures/CTA strategies (59%), followed by Europe which represents 29% of these investors. 

Since the global financial crisis in 2008, the number of institutional investors active in managed futures/CTA strategies has continued to grow. Despite a recent spell of disappointing performance, The Q1 2014 Preqin Quarterly Update: Hedge Funds revealed that 16% of investors searching for new hedge fund investments in Q1 were including managed futures/CTA funds in their searches, a significant increase from the 11% and 9% of investors targeting the strategy in Q4 2013 and Q3 2013 respectively.  With numerous liquid and transparent strategies on offer, there is evidence to suggest that managed futures/CTA strategies should continue to attract significant capital going forward as a result of the diversification these funds can add to investor portfolios.

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