Alternatives for Retail: The Amount of Money Allocated to Alternative Investments, Particularly Hedge Funds and Managed Futures Programs, Has Grown Immensely over the Last Decade but Unfortunately -- and It Is Unfortunate -- Most Retail Sized Investors Do Not Have Access to These Alternatives

By Collins, Daniel P. | Futures (Cedar Falls, IA), May 2008 | Go to article overview

Alternatives for Retail: The Amount of Money Allocated to Alternative Investments, Particularly Hedge Funds and Managed Futures Programs, Has Grown Immensely over the Last Decade but Unfortunately -- and It Is Unfortunate -- Most Retail Sized Investors Do Not Have Access to These Alternatives


Collins, Daniel P., Futures (Cedar Falls, IA)


Public commodity pools are basically the managed futures version of mutual funds. They are sold in increments as low as $ 1,000 and there are few restrictions as to who can invest in them. But that is where the similarities end. Public commodity pools are regulated by a web of regulatory agencies including the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), National Futures Association (NFA), the Financial Industry Regulatory Authority (FINRA, which replaced NASD) and all 50 states. In addition to that burden, the NASD in 2004 reversed a policy exempting public commodity pools from Rule 2810, which limits the level of underwriting compensation for selling agents of all direct participation programs (DPPs, which the pools fall under) to 10% of gross proceeds. This change caused concern in the industry that it would limit the creation of new pools and that selling agents could switch end users to different vehicles once their trail commissions ended.

Investors in public pools are not subject to suitability requirements like "accredited investor" or "qualified purchaser" status, which are required for private placements.

There has been an ongoing debate at the SEC and industry lobbying groups about those requirements. The SEC has wanted to raise the bar because the accredited investor threshold, due to inflation, has grown to include retail participants. They want a higher bar for retail investors to access sophisticated investment vehicles. Many of these private placements are beyond the scope of the retail investor, whether through regulation or simply due to minimum investment levels of several hundred thousand and beyond.

To understand these vehicles an investor must read and sign off on offering material or disclosure documents that often run between 25 to 50 pages. So what does the ultra retail investor--the one too unsophisticated to invest in private alternative investment vehicles even when they are offered within their investment means--have to sign off on? Well, the prospectus for the Frontier Fund family of public commodity funds is 535 pages long. That's right, 535. While lengthy because they encompass multiple funds, typically the offering materials for public pools are much larger and include more complex material than those for private placements.

It is because of this overarching regulatory barrier that most successful alternative investment strategies, managed futures in particular, are out of reach of the retail investor.

It also is the reason why there is not a rush to create additional products for retail. Who wants to pay a minimum of $1 million to go through the hassle of setting up a retail fund and deal with a smorgasbord of regulators including all 50 states? It is a lot easier to set up a private CTA and sell your strategy in $1 million chunks.

"We have a number of retail products," says Walter (Tom) Price III, chairman and CEO of Price Futures Group. But the ruling by NASD (now FINRA) in 2004 that limited trail commissions has affected their offering. Price has closed the Price 1 Fund to new investments and began offering it as a private placement. "You are not going to see any new public funds. As a private fund you can charge anything you want to, you can structure it any way you want, you are not regulated to the extent [public pools] are," Price says.

THOSE WHO DARE

There are, however, a few hardy souls who are venturing into this arena. Christian Baha, founder of Superfund Asset management, launched his retail trend-following managed futures programs in Europe in 1996 and in the United States in 2002. Baha has been a huge advocate for the expansion of retail hedge fund strategies in general and managed futures in particular. "We think that retail needs diversified products that can lower their overall risk and increase their performance at the same time and we can achieve that in the best way with managed futures funds based on systematic trend-following," Baha says. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Alternatives for Retail: The Amount of Money Allocated to Alternative Investments, Particularly Hedge Funds and Managed Futures Programs, Has Grown Immensely over the Last Decade but Unfortunately -- and It Is Unfortunate -- Most Retail Sized Investors Do Not Have Access to These Alternatives
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.