CTAs attract attention from Asian institutions

Commodities trading advisor (CTA) funds are attracting greater interest from Asian institutions, according to a new Preqin report, although it has apparently not yet translated into significant allocations to the region.

A survey of global institutional investors – which included fund of hedge funds – by data provider Preqin found that 713 had active CTA portfolios, more than double the 331 in 2008. They include public pension funds, of which 25% have allocations to quant funds, and insurance firms, with 19%.

Of European institutions polled, 25% had an interest in CTAs, with Asian investors following close behind with 23%. It compares with the 15% of North American respondents who favoured the strategy.

The geographical breakdown is notable, given that the number and size of CTA funds in Asia is much smaller than in the UK, which has long been home to several multi-billion-dollar quant managers, including Man Group, Winton, BlueCrest and Aspect.

Despite the indicative interest, however, CTA funds in the region have found that raising capital is challenging.

Quant managers in Asia are “beating their heads on the wall” as to how they can get capital for their funds, says Bartt Kellermann, chief executive of Global Capital Acquisition, a US-based consulting firm to investors in alternatives.

Realising good returns has also been a challenge, says Kellermann. Quant trades are determined by a so-called ‘black box’ program comprised of complex proprietary algorithms which try to predict future market trends.

Some CTAs have had performance losses due to the fact that their programs have been thrown off by government intervention in markets across the globe, Preqin notes. This has led CTAs to turn in an average performance of 0.35% in the 12 months to end-September, versus 8.02% for hedge funds.

It's a factor that has led fund of hedge funds to take a more cautious view towards CTAs, even though its low market correlation compared with other strategies has been a draw for other investor classes.

Additionally, there are a few well-performing CTA managers in Asia, Kellermann notes, citing SinoPac Asset Management in Hong Kong and Singapore-based Piquant Capital as examples.

Kellermann, who is organising the Battle of the Quants conference taking place in Hong Kong next month, says that interest in Asian CTAs is growing.

In China, where futures markets volume exceeds that of the US, a groundswell of onshore commodities traders are running capital invested mostly by mainland high-net-worth investors. A Quant Investment and High Frequency Trading conference is set to take place in Shanghai later this month, with more than 100 quant investors and traders expected to attend.

“As many quants rely on volume trading, the number of managers in the region is expected to increase over time,” as markets in Asia continue to develop, says Kellermann.