Capricorn Strategies Interview with HedgeThink

Case for New CTA Managers

New CTA Managers to Gain AUM Market Share?

— Article from Attain Capital Management —

“Only invest with managers with 5 year track Record”
“Don’t invest in a program with less than $50 million under management”
“Make sure your investing with someone who’s ‘been there’ before”

A lot of investors out there (including us at times: here and here) have some hard and fast rules when it comes to selecting managers for their alternatives portfolio. Indeed, this is why the large keep getting larger (see Winton recently surpassing $30 Billion, Bridgewater over $100 Billion, and Nassim Taleb’s rant on the futility of trying to play at this game where winners take all). Last time we checked, the breakdown of large versus small managers looked something like this:

David vs. GoliathData Courtesy: Attain Post “So You Want To Be A CTA

At a certain point in an investors filtering and due diligence, only one or two names remain.  If you want a program with a 10+ year track record, performance profile of x, staff of at least y, in house compliance, legal, etc. etc. – your list starts to dwindle in a big hurry, leaving just the largest players who have been around for a long time. Turns out asset raising is as much of a winner take all game as ride share apps and search engines.

But are these investors missing the forest for the trees (albeit redwoods), so to speak?  Are they doing themselves a disservice by only going with the old hands? Is there a case to be made for the new guys on the block?  Turns out there most certainly is – from a pure performance standpoint.

We took a look at our culled database of 600+ managed futures programs going back into the 1980s to find out just how ‘new programs’ perform compared with older programs, plotting the average performance by year of track record across hundreds of programs. This shows the average performance of each program in its first 12 months, its next 12 months, the 12 after that, and so on and so forth until looking at the 10th year (12 month period) of track record for those programs which go out 10 years plus.

View the full article here