Infovest21 Investor Focus

The institutional demand for global macro and CTAs

In the past several months, a number of large US public pensions have allocated assets to global macro and commodity trading advisors.
In March, the New Jersey Division of Investment made a $200 million commitment to BlueCrest Capital. As of year-end 2011, it had $150 million with Brevan Howard (global macro), $97.5 million with Lynx and $128 million with Winton Futures Fund (managed futures).

Also in March, New York City pension funds made their first direct allocations to hedge funds. Among those receiving $350 million allocations was Brevan Howard.
Late last year, Massachusetts Pensions Reserves Investment Management allocated $25 million each to Brevan Howard, Winton and BlueCrest Capital Management (managed futures).

In the fourth quarter of 2011, Texas Teachers Retirement System allocated $400 million to AQR Delta Offshore Fund (managed futures) and $160 million to Graham Global Investment Fund (managed futures).

Texas County & District Retirement System allocated to Brevan Howard, Caxton (global macro), Graham Global Investment Fund and Winton Futures Fund.

Last October, Illinois Teachers’ Retirement System allocated $15 million to Flintlock’s Commodity Opportunity through its emerging managers program.

Last October, New York State Common Retirement Fund allocated another $55 million to Brevan Howard and $50 million to COMAC Global Macro Fund.
California State Teachers’ Retirement System, which approved a $200 million allocation to global macro in 2009 and hired Lyxor Asset Management as an adviser in December 2011.

2011 versus 2012
Michael Bernstein, director and head of US pensions and consultants at Lyxor Asset Management, observes that 2011 was a very difficult market for many hedge fund strategies. “In that environment, we saw a noticeable demand for global macro strategies followed by managed futures. They were the top two strategies that investors were demanding – broadly as well as within the Lyxor managed account universe.

The Lyxor platform has about 100 managed accounts and a significant percentage of those are managed futures and global macro… The macro funds were of heightened interest last year because people saw it as a market environment where some of those top down economic decisions were important. Investors were leaning toward managers that were willing and able to make those top down calls and macro was the best strategy for that.”

Bernstein notes that there has been a noticeable difference this year. “We see more evenly distributed demand for different strategies and a lessened demand for macro and CTAs. Some market participants feel we’re in an environment less determined by these large macro factors – though that can change week to week.
It has been a more stable environment. Some of the geopolitical fears are less than they were last year. When that happens, you have more opportunity for stock picking, security selection of all kinds, you get back to bottom-up fundamental investment work. When you have that, you have the opportunity to make money on other types of strategies such as equity long/short, credit long/short and other hedge fund strategies.”

Strong interest in CTAs
A lot of money has flowed into CTAs, particularly some of the larger CTAs. “Some investors look at them as a basket of tail risk protection strategies. We are seeing more interest in baskets of CTAs as they have different time frames and models. We’ve seen interest in that for the past 12-18 months,” says Bernstein.

CalSTRS
CalSTRS selected Lyxor as its advisor for a concentrated portfolio of macro funds. It does not include CTAs.

Bernstein says the initial portfolio is somewhere between five and six funds. “We’re helping them figure out which funds are appropriate. This is a trial – if the program meets its goals, it could be expanded in three years. They are trying to find investments that are good complements i.e. not correlated to the rest of the portfolio. They are studying the tactical asset allocation techniques of some of these managers and trying to potentially use some of these techniques in their broader portfolio.”

One investment has been made. Two will be made shortly. Between July 1 and end of year, the rest will be launched. All the initial funding will be done by the end of the year. The end of the trial period will be in another two years.

Bernstein says this project is different from most of the work they’re doing with other investors. It is a dedicated macro portfolio. “We’ve had very strong demand from many different large institutions for macro managers – both managed accounts as well as traditional investment vehicles,” he adds.