Frank Pusateri and Bucky Isaacson, the founders of TCA Exp have been involved in the futures and managed futures worlds for several decades. They played a part in creating the organization representing commodity trading advisors that would eventually turn into the Managed Funds Association. By 2008 many CTAs had grown frustrated with the MFA. It had gone from the Managed Futures Association to the Managed Funds Association several years earlier and its focus had shifted to representing the large hedge fund players that provided much of their funding.
Managed Futures seemed to be playing second fiddle right when someone needed to being blowing its horn. Now 2008 was a watershed year for several reasons. It was arguably the greatest year on record for managed futures. There were better years but that was back in the 1980s when managers took excessive risk and interest rates were so high CTAs earned 18% by standing still. In 2008 the stock market crashed and the suddenly more popular—though not better tested—hedge fund strategies prove to be more correlated to equities than advertised.
And just as CTAs were outperforming every other conceivable investment class the Yale International Center of Finance put out a study in October 2008 titled: “Fooling Some of the People All of the Time: The Inefficient Performance and Persistence of Commodity Trading Advisors.”
It was comical in its bad timing and the fact that one of its authors came from the investment arm of insurance giant AIG that nearly brought down the economies of the Western world. But also in 2008 Frank Pusateri and Bucky Isaacson held the first TCA Exp in Chicago. A year later they would add an event in New York and since added Emerging Manager Forums in London and Miami.
They did not seek to compete with or replace the MFA or its conferences, they simply sought to create an event that would be more accessible to managers and put CTAs together with capital sources.
In a few weeks Frank and Bucky will hold their second annual Emerging Manager Forum in Miami so we thought it would be a good time to talk to them about TCA Exp and where it is headed.
Dan Collins: You started TCA Exp five years ago and expanded it to four events and made it international. What’s next?
Bucky Isaacson & Frank Pusateri: We are considering adding several features which would make the conferences more meaningful for attendees. These include a video breakout room so managers who could not attend in person could still put on a presentation to capital sources, a new ALTERNATIVES TODAY website so managers could post videos about themselves and the possibility of doing a conference in Australia.
DC: One of the reasons TCA Exp has been a success is that many Commodity Trading Advisors felt they were not be represented by the Managed Funds Association (MFA). Has TCA Exp corrected this?
Frank & Bucky: TCA Exp was never intended to be a substitute for MFA. What we wanted to do was create a series of events where emerging managers could meet capital sources that were looking for new talent as a source of alpha. Our goal was to keep the cost of attendance low, make them one day events and provide networking opportunities throughout the day. We never planned to be involved in lobbying or regulatory issues.
DC: When talking to allocators, what do they tell you they are looking for in a CTA?
Frank & Bucky: There is no one size fits all for what an allocator is looking for. Generally, they would like a manager whose trading strategy is compatible with the overall portfolio plan they have, someone who can articulate their strategy, a manager that has a stable business platform and of course a good track record.
DC: The Managed Futures space has taken a lot of heat recently. First it is experiencing its worst performance over an extended period of time on record and recently Bloomberg put out an extremely negative piece on managed futures funds. Has the response to this been sufficient? I have written several rebuttals as has others but the question is whether those responses are hitting the broad investor audiences that are reading Bloomberg?
Frank & Bucky: The problem is deeper than just the current spate of negative articles. There needs to be a continuous effort by the managed futures community to put out positive information about CTA’s. Someone needs to become spokesperson the CTA community so when a negative article comes out that person is contacted for the industry viewpoint so an alternative view can be included in the article.
DC: Does the Managed Futures industry need an organization that can formally respond to these types of attacks?
Frank & Bucky: If there was an organization that focused on Managed Futures it would be a positive for the industry. There are, however, problems in getting an association started. These include:
The cost and time commitment to set up the group and mobilize membership is not insignificant.
Many of the larger funds that have started out as CTA’s have migrated to being hedge funds and are members of the MFA which represents their regulatory and public relations interests.
Many CTA’s are small companies spread out around the country and don’t have the time or assets to commit to an organization. Their main concern is building their company.
The United States is the only major country with a CTA regulatory category. Most countries classify CTA’s as a form or hedge fund.
DC: Do you think that attack piece on managed futures and an earlier piece on hedge funds are a preemptive strike against alternatives’ new ability to advertise?
Frank & Bucky: I’m not sure who would be the one that is starting the preemptive attack. It is more likely a continuation of the events over the last couple of years that have cast a negative light on the entire Futures Industry. At our conferences we have seen an increase in the number of capital sources attending that are seeking out well managed CTA’s. Perhaps they remember the old investment adage “Sell the good news, Buy the bad news”.
DC: Recently you put a greater emphasis on promoting emerging managers. Why is this?
Frank & Bucky: Three years ago we were approached by some hedge fund managers and FX traders asking if we would start a similar conference to TCA Exp for other alternative managers. This led to the Emerging Manager Forums: London in June and Miami in December. The focus of these events is the same as TCA Exp, bringing emerging managers together with capital sources who consider these managers a source of alpha. CTA’s also come to the Emerging Manager Forums.
DC: Both of you have been around for a long time. Is there anything specifically different about the poor performance period of the last few years with other poor performance periods? Has the space changed in any material way that would make certain strategies no longer viable?
Frank & Bucky: If you look back at other periods of poor performance and compare the press reports during those times you will find the reaction of the industry was pretty much the same as today. In fact it was one of the similar periods in the early eighties that was the catalyst for us to form the National Association of Futures Trading Advisors, the predecessor to the MFA. During the difficult periods there are always strategies that perform well. If anything has changed it’s the ease with which capital sources can obtain information on managers. This allows them to make more informed, dynamic allocation decisions.
The strategies of most successful CTAs have never been static. A key component of a successful manager is the ability to do ongoing research on the markets so their strategies evolve as the markets change. We have also seen a proliferation of new strategies from new managers that as they trade and gain client equity should provide a more diverse base of strategies going forward.
DC: What advice would you give to an emerging CTA with a strong program?
Frank & Bucky: You can have a great track record and if no one knows about it no one will invest with you. In developing their business, a CTA should spend time developing a marketing plan that will allow them to reach the investors that they think are their potential clients. The two key factors to look at in developing the plan is how much time you can spend on the road marketing to people and what is your budget for marketing.
DC: Where do you see the trend of managed futures mutual funds heading? Would you recommend an emerging manager seek to create this structure or to simply put up solid performance and find the appropriate partner/distribution channel to offer his or her program in this format?
Frank & Bucky: The mutual fund format is a viable vehicle a manager can use to secure capital. The first step is to secure the distribution channel. The distributor will tell the manager what format is best for him and what investment terms are needed in the vehicle to raise capital from his clients. The mutual fund format will continue to grow as a source of capital. The rate of growth will be dependent on the investing public’s positive or negative view of managed futures as a viable investment vehicle.
DC: Without responded with “It depends on performance” where do you see allocations going in the managed futures space in the next five years?
Frank & Bucky: Over the last 5 years ending Q1 ending 2013 assets under management in the hedge fund space had grown 85%. During the same period CTA AUM has grown 71%. It would not surprise us if over the next 5 years we see similar growth rates. Future trends will include fee compression, increased regulation and competition from within the CTA category as well as from other investment categories. Capital sources will favor managers with good performance whose strategies add value to their portfolio and who can show that they have been able to set up an internal operating structure that gives the manager a strong survivability bias.
DC: When is your next conference and where can someone get information?
Frank & Bucky: Our next conference is the Emerging Manager Forum on Dec. 3, 2013. All of our events sell out. Normally over 25% of attendees are managers and over 45% capital sources, Full information can be found on the website EMERGINGMANAGERFORUM.COM.
-Dan Collins
www.dancollinsreport.com