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Pension funds show growing interest in managed futures

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EUROPE – The number of institutional investors active in the managed futures (CTAs) market has been increasing in recent years, with 713 respondents to a Preqin survey having active CTA portfolios compared with 504 in 2008.

Preqin said institutional investors were increasingly targeting investments providing transparency and liquidity within their hedge fund portfolios.

It added that, since the 2007-08 financial crisis, many investors had also been looking to diversify, in order to better weather future crises.

Amy Bensted, head of hedge fund products at Preqin, said: "CTA/managed futures have often been regarded as an 'all-weather' investment choice, with historical performance characteristics that make the strategy highly relevant during periods of relatively low returns and generally rising asset-class correlations.

"Year on year, more investors are adding CTAs to their portfolios of alternative asset funds in order to tap into this diversified liquid source of alpha."

The report went on to say that the CTA strategy remained particularly appealing for public pension funds, with 25% expressing a preference for such portfolios.

Preqin's report added: "Since the onset of the financial crisis, public pension funds have become more demanding when it comes to their liquidity and transparency requirements.

"They are also looking to construct diversified portfolios of funds that can produce uncorrelated returns."

Bensted pointed out that investors had continued to show strong interest in CTAs despite their lower returns in recent years when compared with other hedge fund strategies.

"Despite recent disappointing performance by CTA vehicles, investor interest in the strategy continues unabated, with 14% of fund searches initiated in October 2012, including a managed future mandate," Bensted said.

But Preqin said these relatively lower returns had to be "put into context".

While hedge fund and equity market returns show a significant degree of correlation, with hedge funds having a tendency to perform negatively when the S&P 500 is not performing well, the Preqin CTA index has been in negative territory for only 21 months since 2002 compared with 28 months for the S&P 500.

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