Managed futures: flows cool after recent declines

A downturn in the fortunes of managed futures looks likely to lead to increased redemptions, although there are pockets of strong returns among larger firms

After starting the year off with a healthy 2.54% return in January, the managed futures index experienced five consecutive months of declines through June 2015. The last three months through June 2015 saw the managed futures index return -3.54%, the macro index return -2.28%, and the hedge fund aggregate roughly flat at 0.19%. The volatile third quarter hurt many hedge fund strategies, however macro and managed futures products appeared, for the most part, to perform relatively well. While there were certain high-profile losses during Q3 and in August in particular, the aggregate of both the macro and managed futures space greatly outperformed the broad hedge fund industry and virtually every other major strategy.

The difference between large and smaller managed futures fund performance has been significant in 2015. Those with more than $1 billion in assets under management (AUM) entering 2015 returned an average of 2.53% in September, 3.62% in Q3 and 4.40% year to date, while their smaller peers returned 0.80%. -0.54% and -1.59% in the same periods. This is a significant data point because managed futures funds received relatively large allocations in the first half of 2015 after good returns in the second half of 2014 and the vast majority of new flows were directly to the largest products in the universe.

Managed futures fund flows did turn negative in August for the first time since December 2014. What appeared to have been a nearly flat month of flows in July was revised firmly higher, however products currently reporting to eVestment indicate redemptions of $1.78 billion in August. Given roughly 85% of the available assets have been reported, along with the magnitude of the outflow, it is highly likely August flows will remain negative.

The significance of the August redemptions is the timing, which follows a period of performance declines. The universe experienced elevated losses in April June, and again in August at a rate that rivalled June's large losses. The implication is that more redemptions could be ahead for the universe. However, the pockets of strong returns from larger firms may offset redemptions if allocations are directed to products that have weathered recent volatile markets effectively.

Flows into macro hedge funds cooled after six consecutive months of inflows. The universe's flow trends have been similar to their managed futures peers, however this correlation stopped in August. The universe did experience large performance declines in June and again in August so it will be interesting to see how investors react heading into the year-end.

A different generation

The eVestment Education Report depicts university and college representation across the asset management space. The financial services industry continues to be one of the leading fields of interest for students and recent graduates, and asset management, in particular, may play a larger role going forward. Industry expansion has been robust since 2008 with assets under management growing 8% globally to $74 trillion in 2014.

Asset management firms voluntarily provide information on their key professionals to eVestment, alongside other firm and fund information. The report draws from a data set of 35,000 active professionals, from 4,500 asset management firms, which represent 900 universities and colleges globally. The top 75 national universities and top fifteen liberal arts colleges, as ranked by US News & World Report, were chosen for our ranking tables and school-specific pages. Schools are ranked based on the total number of graduates, representation based on their roles at each firm and a variety of other factors.

An interesting point from the education data, when looking at graduation dates for all key professionals, was how many current key professionals had not yet experienced an environment when the US Federal Reserve was raising interest rates. Of all key professionals reported to eVestment, nearly 14% have joined the asset management industry since the last time there was a Federal Reserve rate increase. The alternatives side appears to have more experience, as just 10% of key professionals in hedge funds have not worked through a rising rate environment. While there are limitations to the data, including that there may be more key non-direct investment professionals – marketing, for example – employed within traditional asset management firms, there is still a very clear drop in recent graduation dates, which indicates a longer lead time for key professionals to enter the hedge fund space compared with traditional asset management strategies.