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Donald A. Steinbrugge : « A new CTA fund must have a strong differential advantage to have any chance of competing in the institutional market place. »

Donald A. Steinbrugge, managing partner at Agecroft Partners – US third party marketing firm specialized in hedge funds - gave us information regarding demand from institutional investors for CTAs

Article also available in : English EN | français FR

Next-Finance : What is the average % of an hedge fund allocation invested in CTAs for institutional investors ?

Donald A. Steinbrugge : For institutional investors that have a dedicated hedge fund portfolio and included CTAs as one of the strategies they will consider, on average 5% to 10% is dedicated to CTAs

What are the benefits/constraints for such investments ?

There are multiple benefits including :

  • High level of liquidity
  • Full transparency of underlying investments if utilizing a separate account
  • A large number of institutional quality firms to choose from

But by far and away the most important benefit is the low correlation to equity and fixed income long only strategies and other hedge fund strategies.

The negative of CTAs are that on their own they can generate volatile returns equivalent to the equity markets, however when combined with other hedge fund strategies and asset classes they tend to reduce the risk of the over all portfolio.

The negative of CTAs are that on their own they can generate volatile returns equivalent to the equity markets, however when combined with other hedge fund strategies and asset classes they tend to reduce the risk of the over all portfolio.
Donald A. Steinbrugge, managing partner at Agecroft Partners

What are the most interesting quant strategies for institutional investors ? CTA, Quantitative macro hedge, Quantitative equity, Quantitative multi-strategy ?

There are a lot of different strategies within the CTA space, but most of the asset flows have been going to trend following firms.

Do you think that some developments (in terms of transparency, education, trading model understanding, others…) could improve the quant market share in the hedge fund industry ?

The demand for CTAs has increased significantly over the past 6 months due to an improvement in their performance over the past 2 and a quarter years and investors increasing concern for equity and fixed income valuations. Investors are looking for strategies that are uncorrelated with the capital markets and many CTAs fit this need.

Is it difficult for a new quant hedge fund to raise money at the present time? What is your opinion about european quant hedge funds (in particular in France)?

Yes it is very difficult. Most of the money is flowing to the largest managers. The CTA market place is very competitive with over 1 000 funds. A new fund must have a strong differential advantage to have any chance of competing in the institutional market place.

Paul Monthe , RF , April 2016

Article also available in : English EN | français FR

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