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Equinox brings managed futures to retail market

Date: Thursday, May 6, 2010
Author: Hedge Funds Review

Equinox Fund Management announced the launch of a regulated US mutual fund which provides exposure to the returns of a diversified basket of managed futures programs.

The MutualHedge Frontier Legends Fund is the first of its kind, Equinox CEO Bob Enck told Hedge Funds Review.

The fund will provide investors with exposure to an actively managed portfolio of commodity trading advisor (CTA) programs. Enck distinguished MutualHedge from other mutual funds that replicate the performance of a single CTA program or a managed futures index.

The fund allocates to a group of diversified and complementary managed futures programs and aims to generate more consistent performance with less volatility than individual CTAs or managed futures indexes.

The fund is managed by Equinox Fund Management's chief investment officer (CIO) Richard Bornhoft. He has been investing in managed futures for over 25 years and has allocated almost $2 billion to CTAs in that time.

The new fund will have exposure to between five and seven underlying CTA programs trading over 100 global futures markets. Bornhoft and his team will actively manage the fund's allocations and select programs for inclusion in the portfolio.

The fund had allocations of around 20% to five individual CTA programs at the end of January 2010. This included programs designed by well-known CTAs like QIM and Winton.

Diversification is achieved through exposures to CTAs with different trading styles (systematic and discretionary) and time horizons. The fund will have exposure to a range of asset classes: currencies, equity indexes, interest rates, metals, energy and agriculture.

Enck said the fund was launched in response to "significant and growing demand" for managed futures products among retail investors.

"Retail investors have developed a real appetite for alternatives generally and managed futures in particular. The diversification benefits are compelling," said Enck.

It has been almost 30 years since the Harvard professor John Lintner issued his seminal paper on the long-term benefits of including an allocation to managed futures within a diversified portfolio. The market meltdown in 2008 drove home that point.

The average CTA program gained 18% in 2008 against a 37% decline in stocks. That has prompted some broker dealers and investment advisers to recommend allocations of 3%-10% to managed futures as part of a diversified portfolio.

Non-accredited investors can access traditional CTAs through broker dealers and investment advisers. However, sales of these products are subject to various accreditation and suitability standards and are typically only offered to individuals with $250,000 or more in investable net worth.

Equinox is also the advisor to The Frontier Fund, a separate public commodity pool that has been available to non-accredited investors through broker dealers and investment advisers for over five years. The company currently has over $800 million in assets under management.

Enck said the mutual fund format allowed Equinox to offer managed futures to a broad retail investor base with "fewer complications and hurdles". He said MutualHedge had the potential to surpass Equinox's Frontier Funds range in terms of assets under management "in fairly short order".

Equinox is not the only company with an eye on the retail market. AQR Capital Management, one of the first big hedge funds to offer its products in a mutual fund format, launched the AQR Managed Futures Strategy Fund in January 2010.

The Legg Mason Permal Tactical Allocation Fund launched in April 2009 was the first multi-manager hedge fund product offered under the mutual fund rules. The fund is managed by Permal, the fund of hedge funds unit of Legg Mason.

The MutualHedge Frontier Legends Fund offers daily liquidity and the initial minimum investment is $2,500. It is currently available through 15 broker dealers, including Charles Schwab, Fidelity, Stifel Nicholas, TD Ameritrade and LPL Financial investment platforms, among others.

Equinox Fund Management was established in 2003. The company was launched with the aim of making managed futures investments accessible to individual investors.

Equinox said the MutualHedge Frontier Legends Fund was the first in a planned series of investment products to be launched under the MutualHedge brand. The products will share the core concept of providing access to institutional-quality alternative asset strategies with low minimums and daily liquidity.