Managed Futures/CTA Strategies Show Favourable Performance and Liquidity Terms for Investors

by Nat Auld

  • 07 May 2015

While the wider hedge fund industry saw poor performance in 2014, managed futures/CTA vehicles posted their best yearly return since 2010, generating 9.96% for 2014. Preqin’s Hedge Fund Analyst shows that this performance streak has continued into 2015, with the strategy posting consecutive gains for the first three months of 2015. Given the recent healthy performance delivered by managed futures/CTAs, we take a look at investors that are active in the strategy and those investors looking to target managed futures/CTAs over the longer term.

Preqin’s Hedge Fund Investor Profiles tracks over 4,900 institutional investors worldwide that are active in the hedge fund asset class. Of these investors, 23% have demonstrated an appetite for investing in managed futures/CTA funds. The chart below shows that fund of hedge funds managers are the most prominent investor group, accounting for 30% of the investor pool. This is followed by foundations (13%) and pension funds (23%). Moreover, of all investors allocating to CTA funds, North America-based institutions represent the majority of investors with a preference for CTA strategies (59%), followed by Europe, which represents 28%.  

CTA vehicles offer investors a range of characteristics that make them appealing to investors. Their recent streak of good performance has not been lost on investors; the strategy is highly relevant during periods of rising asset class correlations. Ever since the Global Financial Crisis in 2008, many institutional investors have been looking to create portfolios with greater diversification in a volatile investment climate. Furthermore, CTA vehicles have favourable liquidity terms; the mean lock-up period for managed futures/CTAs is 2.3 months. Redemption frequency terms of CTAs (the most liquid of all other hedge fund strategies) are also favourable, where the median redemption frequency is just seven days, and demonstrates the appeal of CTAs for investors that regard liquidity as a top priority. Notably, a number of investors look to gain exposure to these strategies through a multi-manager structure, offering further diversification within a portfolio. $2.6bn Ireland-based Abbey Capital is an example of a firm that offers funds of CTAs.

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, recent gains, as well as diversification in investor portfolios. However, according to Preqin’s Hedge Fund Investor Profiles Fund Searches and Mandates feature, only approximately 17% of mandates issued since the start of 2015 have specifically included the strategy. One example of an investor currently looking to increase its exposure to these strategies is AMT Futures Limited. The fund of hedge funds manager plans to invest approximately $10mn in two to four managed account hedge funds over the next 12 months, primarily focusing on managed futures/CTAs.

Continue browsing industry reports, publications, conferences, blogs and more on Preqin Insights