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Quantitative CTAs face pincer squeeze over patchy performance and on-site investor checks

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Some quantitative trend-following hedge funds may be caught in a pincer movement between continued lukewarm performance on one side and ongoing investor aversion as a result of allocators being unable to perform deeper on-site due diligence on the other.

Computer-driven CTAs have posted somewhat patchy performances in recent months after starting the year strongly.

Trend followers were able to gather strong momentum following March’s historic market crash by locking onto a series of sharp moves in commodities and currencies. More recently, though, many hedge funds running these strategies have stumbled in the face of a strong market surge over the summer.

Société Générale’s main CTA Index – a key industry benchmark which measures the daily performance of a select pool of large managed futures strategies – has seen a sluggish start to September, down 0.77 per cent in the first week of the month. Overall, the index has lost 2.21 per cent since the start of the year.

Tom Reeves, head of research at Murano, the London-based research-focused platform that connects global investors with hedge fund managers, pointed to the twin challenges looming over managers running systematic managed futures models at the moment.

“I think the performance we have seen of them generally from March onwards has been pretty lacklustre. I think it’s putting pressure on some strategies,” he told Hedgeweek recently.

At the same time, the ongoing coronavirus situation has meant investors and allocators have been unable to perform enhanced on-site due diligence on trend-following managers, preventing them from probing deeper into the complex proprietary algorithms that underpin many of these strategies.

“For institutional investors who want to invest in systematic strategies, given that we’re all still at arm’s length with each other at the moment, that’s proved a difficult point for systematic managers,” Reeves explained.

“The threshold, or hurdle, over which an investor needs to get in order to invest in something that’s proprietary to a strategy is much higher than, for example, a long/short equity, fixed income or global macro fund.”

He added: “If you’re unable to do the on-site due diligence where the fund is really driven by the systems then it’s very difficult I think for investors to get comfortable.”

Elsewhere, SocGen’s Trend Index, which tracks the net daily gains of a pool of trend-following based hedge fund managers, dropped more than 1 per cent in a sluggish first seven days of September. The index remains flat for the year at -0.34 per cent.

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