Under the Securities Act of 1933, the U.S. Securities and Exchange Commission allows companies to offer securities for sale without having to register those securities or file periodic reports, provided the companies meet exemptions laid out in Regulation D. For hedge funds’ purposes, those securities are limited partnerships. When a hedge fund firm sells its first securities, it is required by Reg D to file a Form D, which includes names and addresses of the company’s executive officers and stock promoters and the date of the first sale in the offering. As such, Form D filings can be a useful tool to find new hedge fund launches.

Monte Capital Theta Fund LLC

Axonic Residential Assets Fund I, L.P.

—Compiled by Angela Sormani

Here we take a look at the August 2012 and year-to-date through August performance for the top 5 dedicated short bias funds, as tracked by Lipper’s hedge fund database. To see more analysis, including assets under management and domicile information for the top 10 funds, click here. To be truly connected to all the Lipper analytics available on HedgeWorld, become a HedgeWorld Premium Plus member. To find out more about how to do that, visit hedgeworld.com/membership/.

Here we take a look at the August 2012 and year-to-date through July performance for the top 5 convertible arbitrage funds, as tracked by Lipper’s hedge fund database. To see more analysis, including assets under management and domicile information for the top 10 funds, click here. To be truly connected to all the Lipper analytics available on HedgeWorld, become a HedgeWorld Premium Plus member. To find out more about how to do that, visit hedgeworld.com/membership/.

Under the Securities Act of 1933, the U.S. Securities and Exchange Commission allows companies to offer securities for sale without having to register those securities or file periodic reports, provided the companies meet exemptions laid out in Regulation D. For hedge funds’ purposes, those securities are limited partnerships. When a hedge fund firm sells its first securities, it is required by Reg D to file a Form D, which includes names and addresses of the company’s executive officers and stock promoters and the date of the first sale in the offering. As such, Form D filings can be a useful tool to find new hedge fund launches.

Black River Inflation Opportunity Fund Ltd.

Logica Fund, LP

Senzar Prime, Ltd.

HRL Advantage Capital Limited Partnership

Clive Strategists Fund L.P.

Whisperer Empirical LP

Queen Anne’s Gate Global Macro Fund LP

—Compiled by Angela Sormani

Our weekly newsletter is out, and we’ve decided to give up. We’re throwing in the towel and recommending everyone sell their managed futures investments and put it all in the stock market. Ok, not really, but can we really ignore this rally anymore? It is almost begging people to sell everything and get involved.

But would you recommend that to anybody in their right mind? Would anyone in their right mind do that? Given the internet bubble burst, financial crisis, flash crash, and so on; most people we talk to believe a 50% allocation to the stock market is heavy these days. Yet the market goes onwards and upwards.

Whether it is because of just this malaise towards stocks, or because of the hundreds of billions pumped into the U.S. system by Bernanke & Co. – the U.S. stock market has been the best thing going for investors since March of 2009.

While most of us were (smartly) preparing our portfolios for the next leg down in the crash, for the incredible volatility when China’s economy slowed, for the contagion in Europe when countries there started falling like dominoes – the U.S. stock market has laughed it off, returning to the highs attained before the financial crisis.

But, again, does anyone really trust these past 3.5 years? Does anyone really think the next 3.5 years will be that good for stocks? If not, how should you prepare? Read on to find out.

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To read more Managed Futures research pieces, visit Attain’s Managed Futures Newsletter archive and our Managed Futures Blog.

DISCLAIMER

Forex trading, commodity trading, managed futures, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors.

The entries on this blog are intended to further subscribers understanding, education, and – at times- enjoyment of the world of alternative investments through managed futures, trading systems, and managed forex. Unless distinctly noted otherwise, the data and graphs included herein are intended to be mere examples and exhibits of the topic discussed, are for educational and illustrative purposes only, and do not represent trading in actual accounts.

The mention of asset class performance is based on the noted source index (i.e. Newedge CTA Index, S&P 500 Index, etc.) , and investors should take care to understand that any index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices: such as survivorship and self reporting biases, and instant history.

Managed Futures Disclaimer:

Past Performance is Not Necessarily Indicative of Future Results. The regulations of the CFTC require that prospective clients of a managed futures program (CTA) receive a disclosure document when they are solicited to enter into an agreement whereby the CTA will direct or guide the client’s commodity interest trading and that certain risk factors be highlighted. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA.

Copyright © 2011 Attain Capital Management, licensed Managed Futures, Trading System & Commodity Brokers. All Rights Reserved. Reprinted with permission.

What’s news around the hedge fund industry for Monday, Sept. 17, 2012:

A programming note: Postings could be spotty this week, as I’m in New York for HedgeWorld’s fall conference. In any event we will return a more regular schedule next week.

Around the web

LightSquared lenders pursue Harbinger fight. (Dow Jones Newswires, via Nasdaq)

Fixed income trader Michael Cook’s Alaskan sojourn produces new CTA – Katami Capital Advisors. (FINalternatives)

Ex-Touradji trader Paul Crone sets up Citrine Capital Management commodity hedge fund. (FINalternatives)

Here’s how Palo Alto Investors returned 26.2% last quarter. (Insider Monkey)

Alix Capital unveils six new UCITS hedge fund indices. (FINalternatives)

Hedge funds are raking in cash. (Business World)

BofAML: Hedge funds up 0.35% month-to-date. (FINalternatives)

Crucial MiFID vote faces delay as MEP talks drag. (The Trade News)

Four years after Lehman collapse, no top Wall Street prosecutions in sight. (Voices From Russia)

People moves

Pyxis Capital hires Janus vet Stephen Dedyo. (FINalternatives)

Under the Securities Act of 1933, the U.S. Securities and Exchange Commission allows companies to offer securities for sale without having to register those securities or file periodic reports, provided the companies meet exemptions laid out in Regulation D. For hedge funds’ purposes, those securities are limited partnerships. When a hedge fund firm sells its first securities, it is required by Reg D to file a Form D, which includes names and addresses of the company’s executive officers and stock promoters and the date of the first sale in the offering. As such, Form D filings can be a useful tool to find new hedge fund launches.

DoubleLine Opportunistic Income Fund II LP

AG Diversified Income Fund, Ltd.

—Compiled by Angela Sormani

Opinions on high-frequency trading still run the gamut. On one end of the spectrum we find individuals such as like Mark Cuban, a successful Dallas-based businessman, who recently proclaimed that he is afraid of high-frequency traders. Mr. Cuban’s fears are based on his belief that high-frequency traders are nothing more than “hackers,” seeking to game the markets and take unfair advantage of systems and investors.

On the other extreme are employers in the financial services industry. Just open the “Jobs” page in “Money and Investment” section in The Wall Street Journal, and all you will find are job postings seeking talent with high-frequency trading experience for high-frequency trading roles. The advertising employers are the whitest shoe investment banks like Morgan Stanley. These careful firms invest resources only into something they deem worthwhile and legitimate. The extent of their hiring (the only hiring advertised in The Wall Street Journal) implies that the industry is enormously profitable and here to stay.

So, how can Mr. Cuban and Morgan Stanley have such divergent views of the high-frequency world? For one, Mr. Cuban has likely fallen prey to some unscrupulous uncompetitive financial services providers making a scapegoat out of high-frequency traders. Opponents of high-frequency traders identify a range of purported HFT strategies that are supposedly evidence
of how HFT destroys the markets. Supposedly malicious HFT strategies compiled by one of the workgroups of the CFTC’s Subcommittee on high-frequency trading included such ominous names as “spread scalping,” “market ignition,” and “sniping,” just to name a few.

As my upcoming HFT course in NYC (www.hftcourse.com) illustrates, most, if not all, of the HFT strategies thought to be malicious are simply not feasible on regulated exchanges (these same strategies may work in dark pools, however, non-regulated trading venues designed for sophisticated investors and operating under the “buyer beware” principle). Take, for example, the dangerous-sounding “spread-scalping” strategy, the mere name of which conjures images of shady characters in trench coats emerging from behind the pillars of an institution to hawk their wares.
Spread scalping is thought to be a strategy whereby the HFT trader “simply” places limit orders on both sides of the market and takes the spread, without providing any economic benefit to the markets.

Of course, as any seasoned market-maker will tell you, no strategy taking the spread is simple. In fact, associated risks are huge: 1) the trader posting limit orders may accumulate imbalanced inventory, resulting in sharp market losses due to adverse price movements; and 2) the trader
always risks ending up on the losing end of the trade, facing a trader better-informed about the market’s imminent direction.

In their normal state, markets are fraught with informational asymmetries, whereby some traders know more than the market-maker. Better-informed traders may have superior information about impending fundamentals or just superior forecasting skills. In such situations, better-informed traders are bound to leave the market-maker on the losing end of trades, erasing all other spread-scalping profits the market-maker may have accumulated.

For a specific example, consider a news announcement. Suppose a spread-scalping HFT has positions on both sides of the market, ahead of the impending announcement on the jobs figures – information on how many jobs were added or lost during the preceding month. A better-informed trader, whether of the low or high-frequency variety, may have forecasted with reasonable accuracy that the jobs number is likely to have increased. Suppose the better-informed trader next decides to bet on his forecast, sending a large market buy order to the market. The presumed spread-scalping market-maker then takes the opposite side of the
informed-trader’s order, selling large quantities in the market that is just about to rise considerably on the news announcement. In a matter of seconds, and due to activity of lower-frequency traders, our high-frequency market-maker may end up with a considerable loss in his
portfolio.

In summary, spread scalping may seem like a predatory strategy to some market participants, yet is hardly profitable in its most naïve incarnation. Spread-scalping enhanced with inventory and informational considerations is what most market participants call market-making, a legitimate activity that is the integral parts of market functionality. Without limit orders sitting on either side of the spread, traders desiring immediacy would not be capable of executing their market orders. Compensation of a spread is a tiny profit when compared to the amount of work required to be able to provide the limit orders on both sides of the market on the daily basis.

Similar analysis can be applied to a range of strategies considered to be adverse. Granted, some strategies are a direct result of market manipulation, and those, like “spoofing” outlawed under the Dodd-Frank act, should be screened for. Many other strategies thought to be malicious, however, are myths reflecting unease with technology experienced by some market participants. As HFTcourse.com shows, most high-frequency trading strategies are tried and true automated methods of traditionally human market making and short-term arbitrage functions.

Irene Aldridge is teaching courses on design and implementation of algorithms in Chicago (September 5 and 6, 2012) and New York (September 20 and 21, 2012). For more information and to register, please visit http://www.hftcourse.com today. She will also be speaking on a panel about algorithmic trading at HedgeWorld New York 2012, to be held Sept. 19 at the Metropolitan Club.

Here we take a look at year-to-date through July risk-adjusted performance for the top 5 multi-strategy funds, as tracked by Lipper’s hedge fund database. To see more analysis, including assets under management and domicile information for the top 10 funds, click here. To be truly connected to all the Lipper analytics available on HedgeWorld, become a HedgeWorld Premium Plus member. To find out more about how to do that, visit hedgeworld.com/membership/.

Hedge funds can do a lot of things to raise more capital, but the best strategy might have more to do with communication than anything else.

“The way they can attract more capital is by telling a good story and making sure that they’re succinct in their message about what they’re doing with the capital they’re investing,” Daniel Strachman, a financial expert who serves as the Director of Research and Strategy for the GAIM Conference Series, told StreetID. “Number two, proving that what they say they’re doing is what they actually are doing, and meeting the expectations of their investors.

“Number three, it’s a communication issue—letting your investors know when you’re doing well, letting your investors know when you’re not doing well, and then reaching out to additional investors.”

Strachman, who authored nine books (including Getting Started In Hedge Funds and The Fundamentals of Hedge Fund Management), has managed money and helped build hedge funds all over the world.

“One of the things that I think most people fail to recognize is that they have this field of dreams scenario—an ‘if we build it, they’ll come’ kind of thing,” he continued. “That’s not true. The way to be successful in the hedge fund industry is to go out, come up with your story, your marketing message, make sure it’s succinct, make sure it’s accurate, make sure it explains in detail how the money is being managed, and then communicate that to existing and potential investors on a regular basis.”

Strachman said that the number-one thing that most managers forget is that it is the client’s assets they are handling. “Clients have a right to know what’s going on with their money,” he said. “That’s what they have to remember at all times. So if a client calls and asks what’s happening, they need to be willing to talk to them and be willing to explain what’s going right, what’s going wrong, and just have open dialogue.”

While the occasional bad apple is inevitable, many within the hedge fund industry are getting it right. “A lot of the big or medium-sized funds are growing and they are adding people,” said Strachman. “I know some small groups that are adding people as well. [Hedge funds] are always looking for marketers to help raise assets and increase assets under management. I think that’s where there’s always room for good people.”

Strachman also believes that they are seeking help in compliance and operations. “I think there’s opportunity on the asset management and the portfolio management side as well,” he added.

But don’t count out the technologists, who have become an important part of the financial sector. “I think there’s always going to be room for fundamentalists and quantitative managers in the marketplace,” said Strachman. “I think a lot of times you’ll see that there are [hedge funds] out there who are looking for good people—they just want people.”

This content originally appeared on StreetID, a financial career networking, matchmaking and news site. To learn more about StreetID, visit StreetID.com. StreetID’s financial career news can be found on its blog, streetid.com/newsblog/.