under-performed in the second and third quarter. On the other side, I would expect that anybody that had exposure to the capacity factor are generally going to be the larger groups that are out there, who typically have a longer time-horizon allocation, simply because they are so large they can’t operate in the shorter time frame. The longer time horizon has done quite well thus far this year. So I would suspect that with high exposure to correlation, maybe you under-performed, but with higher exposure to the capacity factor, you probably out- performed.
That perspective has yet to be validated by our research team, but we are going to be updating that information continuously as we evolve this concept that Katy established in the white paper.
HL: Do you have any views on the SEC’s recent proposals for liquidity risk management in mutual funds, and in exchange traded funds? Are the proposals practical and fit for purpose?
WA: The SEC is looking more broadly at liquid alternatives. We don’t believe that managed futures are in that crosshairs when it comes to liquidity risk, which is something that the proposed rules are really focused on. The spirit of their investigations appears to be focused on identifying derivatives masquerading as liquid instrument when they really are not. We are trading the most liquid exchange- traded markets in the world, added to which 80-90% of the assets are actually sitting in cash or cash equivalents.
I think we will probably end up with some additional reporting requirements and that is something that we are going to be able to meet readily which we don’t expect to have any issues addressing. One of the benefits of having operated in some of the most highly regulated markets for many years is that we’re generally well prepared to meet new requirements.
HL: Katy Kaminski has also done a paper on the return dispersion among CTAs, and this year it feels as if we have seen unusually wide dispersion amongst the CTA universe. But is this in fact the case?
WA: I think for the first quarter of the year, you wouldn’t have seen a whole lot of dispersion because there were very strong momentum signals in the market place. Subsequently, in the second and third quarter, there were a lot weaker signals from the underlying momentum alpha strategies. It is during those periods that the differences in the risk and portfolio management framework at any management company is demonstrated. In these periods you will often see large deviations
in the performance across managers, because the underlying signal is weak and it is really all about how they might have set up their risk and portfolio framework.
Just as an example. We maintain a constant risk target in our portfolio. In terms of time horizon, we have a substantial allocation across one to three months, three to six months, and six month and beyond time horizons, and we also target a long term equal allocation amongst the asset classes that we have in the portfolio. That is not typical, and is because of our asset level, as well as the strategy set we have deployed, that we have the ability to do this.
I suspect, over the second and third quarter of this year you have dispersion amongst managers because weak momentum signals at different time horizons and performance dispersion across time horizons. Within our portfolio shorter term strategies have underperformed while longer term strategies have outperformed. It is actually fairly similar to 2013 – in particular, it had a lot of variation amongst performance, probably for a similar reason.
HL: Will CTAs continue to diverge from each other as they plough different furrows? For example some of them are more esoteric markets, including over the counter markets, and others are moving away from momentum models.
WA: Yes, I think that is definitely going to be happening as managers try to differentiate themselves. Campbell has had exposure to momentum, carry, mean reversion as well as global macro components in our portfolio since as early as 2000. We are still labelled as a trend follower but we have had exposure to those components for a long period of time. I know that some of our larger European counterparts have exposure to equities and cash equities, so the more that managers try to differentiate themselves and make their value proposition more prominent, the further the deviation will become. It is one of the challenges of there not really being a fixed benchmark for active managers.
HL: Would you like to highlight any other thought leadership that you feel is particularly relevant to late 2015 markets?
WA: We are spending a lot of time asking clients what they want answered – they are asking good questions and we need to keep focusing on taking their perspective and building the white papers from that particular point. We don’t have anything specific that I could talk through at this point. For the moment we are focusing on the continuation
of the theme of trying to understand why CTAs diverge from each other, understanding a little bit more about how to better provide transparency and some understanding about the risk and portfolio frameworks that everybody has got around these fairly well understood signals. We have got lots of ideas but I think our focus is to go back and make sure that we are answering some of the questions that investors are having.
HL: You also hired Richard Johnson to handle institutional business development, so what types of institutional investors are looking at your systematic strategies now? Would it be pensions, endowments, foundations and insurance companies? Other types?
WA: I think that after last year’s performance in particular, there is a wider variety of investors that have a growing interest in managed futures. Richard basically brings a lot of energy, very good processes, as well as a number of good relationships to Campbell that we can leverage. We have had a substantial private wealth distribution channel for a long period of time at Campbell – it is well established. Our institutional client base has been a large part of our business for many years but is still less diverse than we’d ultimately like. One of the things that we want to focus on expanding our institutional investor base across all of the types of investors that you mentioned. We can’t be everything for everybody, but we are focused don building out the access points our clients have to our strategies. We have offered large institutional clients managed-accounts and comingled fund structures for a number of years and of course we supported private offerings for the private wealth side as well. We want to be able to provide access to our strategies through ‘40 Act vehicles as well as a number of other things, for a variety of clients. Unfortunately that is not a succinct answer because of course we need to take advantage of wherever the interest comes from.
We are currently looking to fulfil a couple of other institutional sales roles, in particular focusing on the consultant channel and making sure that they are getting the answers and support that they need, while making ourselves as accessible as possible to them. We are also looking at utilising some third party distribution to be able to better access the RIA (Registered Investment Advisor) channel. We need to make sure that we have got touch points in a lot of different areas to continue to diversify our client base.
HL: And where do you see most of the growth in your business coming from in terms of strategies and deals? So, for example, the strategy side, are you seeing more growth of the managed futures or on the equity market neutral?
35
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73