Managed Futures for All: With a High Regulatory Bar for Creating Public Pools, Restrictions on Trail Commissions and Super High Minimum Investment Levels for Managed Accounts, Few Investors Have Access to Managed Futures. However, Some Brokers Are Trying to Bridge the Gap by Offering Managed Futures to Retail
Collins, Daniel P., Modern Trader
Managed futures as an asset class, to many, is a closely held secret. Though the likes of John W. Henry, Millburn Ridgefield and Campbell and Company have been around for several decades with returns that hold up against the more popular alternatives and have offered retail access through broker dealer networks, the vast majority of managed futures programs are out of the reach of ordinary investors.
There are only a handful of open public commodity pools available to the retail public and the vast universe of commodity trading advisors (CTA) all seem to require minimums of $500,000 or more (see "Managers want big money, right"). Perhaps the main problem is that the terms futures and investment have often been thought of as mutually exclusive.
Because futures always have been viewed as a highly speculative field, whether you talk to an average Joe or a Wall Street broker, they never have gained mainstream attraction as a viable asset class. Retail investors can pick from thousands of long-only equity based mutual funds and bond mutual funds and even real-estate investments trusts (REIT), but they are rarely presented with the managed futures option.
The way investments are offered to the retail community involve "securitizing" larger investments and offering them in smaller chunks. While that is efficiently done in long-only mutual funds, in futures the regulatory hurdles are multiplied, making the creation of public pools cost prohibitive.
While the Managed Funds Association has long sought freedom from the yoke of dual regulation, any entity seeking to create a public pool faces a cost ten times greater than creating a mutual fund and the close supervision of multiple regulators. There is a large gap between the handful of retail public commodity pools and the universe of 600 plus CTAs who target institutional and high net-worth clients. However, a group of enterprising futures commission merchants (FCM) are attempting to fill the void by finding emerging CTAs who accept smaller minimums and offer managed accounts at a more reasonable investment level.
Rick Gallwas has attempted to fill that gap, first through his firm Zap Futures and now as president of RJO Futures, a division of R.J. O'Brien, which purchased Zap. "Am I trying to give people professional money managers at a lower entry level than $500,000? Yes, I am working with people to grab this marketplace of emerging CTAs because, obviously, the people taking $500,000 minimums and managing $500 million started somewhere," Gallwas says. He sees a great desire for professionally managed futures from people with between $25,000 and $100,000 to invest. "On the individual level you are trying to give the retailer the chance to work with professional money managers."
Gallwas is not alone. FCMs Peregrine Financial Group (PFG), Man Futures and American National Trading Corp. and several others all have been working and developing relationships with emerging CTAs to offer to their clientele.
PFG has gone a step further by holding a CTA challenge that awards the best performing emerging CTA with a $500,000 allocation. The award is not the goal, but a way to attract emerging managers. Michael Killian, SVP at PFG, says their clientele requires them to think small. "Given the client profile that PFG has, more retail oriented, and clients that would invest in CTAs or funds in the $10,000 to $100,000 range, we need to find emerging CTAs, as their minimum requirement tends to be in that $25,000 to $50,000 range," Killian says.
Michael Herron, national director of brokerage services at American National Trading Corp. (ANTC), is two years into a program trying to bring managed futures to the retail investor.
"We are looking for the mom and pop investor; the whole idea is to bring Wall Street to Main Street. The mom and pop investor has not been aware of managed for the last 30 years," Herron says. …