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Managed Futures Funds: How Financial Engineering Creates Profits For Wall Street

Many investors understand very little about managed futures funds. Managed futures funds have long been touted by major Wall Street firms that manage and market this type of investment strategy. Investors are sold these funds with promises the investor is getting access to an asset classes not readily available to most investors. Investors rely on the fund managers as the experts at trading futures contracts. However, these highly misunderstood investments are ripe with excessive fees, costs and commissions which may dramatically impact potential investor’s return on investment.

According to news reports, earlier this month, the CFTC launched an investigation of the high fees charged to investors in the $337 billion managed futures market. The CFTC’s investigation begins as a U.S. Senate committee urged the CFTC and the SEC to study ways to provide investors with clear disclosures about the high fees charged to retirement accounts invested in managed futures funds.
These asset classes include trading futures contracts in equity indices (i.e. developed and emerging markets), interest rates (i.e. U.S. Bonds, Eurodollar Bonds, Euro-Bund), commodities (i.e. energy, agriculture and metals) and currencies (i.e. Dollar, Euro, Pound, Yen). As a result of the development of global exchanges, investments in futures contracts are becoming highly liquid investment vehicles which connect the world economies. Through investments in managed futures funds, investors are allegedly able to invest in asset classes that have a low correlation with traditional equity and fixed income securities markets resulting an overall lower risk for investment portfolios.

The primary rationale for investing a portion of an investor’s portfolio in managed futures contracts is to generate portfolio returns with greater returns on a risk-adjusted basis. The supposed low to negative correlation of managed futures funds provides superior results for an investment portfolio during “down markets” which smooth portfolio returns over time. Professional money managers caution investors cannot “market-time” when to invest in managed futures funds making the recommended investment in managed futures funds a permanent part of a buy-hold asset allocation strategy.

There has been recent debate in the financial press about the excessive fees charged by managed futures funds. For long term investors in managed futures funds, excessive management fees have allegedly absorbed the gross returns achieved by managed futures funds making this highly profitable for many Wall Street firms. Managed futures fund performance figures are reported net of all fees paid for the management of the account. Typically, the trading manager is compensated by a flat management fee based on assets under management. Additionally, an “incentive-based” fee is deducted based on profits in “up” years. This “performance-based” fee is usually paid net of all fees. In addition to management and performance fees, a managed futures account has deducted from the balance expenses for transactions costs and commissions. The net result for investors has been the loss of trading profits from a poorly-explained regime of excessive fees and conflicts of interest.

Silver Law Group is currently investigating whether major Wall Street firms are in compliance with the securities industry’s rules and regulations concerning the fees and terms associated with the management of managed futures funds. The focus of the investigation includes whether the fees and terms were adequately disclosed for potential claims of misrepresentation or omission of material facts and whether the recommendations made to investors resulted in unsuitable investment advice based on client investment ability to understand and assume the risks associated with managed futures funds.

We are currently investigating the following funds amongst others. For investors who were solicited by their financial advisor to invest in the following managed futures funds, contact us for a free consultation:

  • Morgan Stanley/Ceres Managed Futures Funds
  • Merrill Lynch Managed Futures Funds
  • Other Managed Futures Funds
    • Grant Park Futures Fund LP
    • Altegris Winton Futures Fund LP
    • Campbell Strategic Allocation Fund L.P.
    • RJO Global Trust
    • BlackRock Global Horizons I L.P.
    • Managed Futures Premier BHM Fund

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