Preqin: CTAs Gaining Assets as Investors Increase Allocations

Jun 9 2016 | 10:35pm ET

Hedge fund investors are increasingly turning to CTAs over the past several quarters, according to a new special report from industry data provider Preqin.

The number of institutional investors actively investing in CTAs reached a record 1,067 in 2015, up from 1,017 in 2014, according to Preqin. Accordingly, the alternative investment segment has seen four consecutive quarters of net inflows since the start of 2015, with overall positive asset flows of $38 billion in new investor capital. 

For the first quarter of 2016, CTAs saw total net inflows of $13.7 billion – the largest among all hedge fund strategies tracked buy Preqin. 

Furthermore, 69% of investors interviewed at the end of 2015 reported that their CTA portfolios had met their performance expectations for the year, the second highest proportion of any leading hedge fund strategy, Preqin noted. In the same survey, 29% of all hedge fund investors said they planned on increasing their exposure to CTAs in 2016, while only 5% intended to decrease it. 

Although CTAs returned only -0.08% in 2015, this year started strong as global financial markets teetered. The average CTA booked gains of 1.52% in the first quarter, Preqin’s research showed, which when combined with inflows from investors, put the total assets under management for the 1,191 CTAs active in the industry at $241 billion as of the end of Q1, up from $204 billion at the beginning of 2015. 

Other highlights of the report include:

  • Rate of Growth: CTAs as a whole saw net inflows of $13.7 billion in Q1, the highest of any leading strategy. This marks a 7.8% growth in AUM across the quarter, and puts combined CTA assets above those held by credit strategies funds. 

  • Manager Flows: Although CTAs as a whole have seen large net inflows of capital, only 40% of CTA fund managers saw net inflows in Q1 2016, while 48% recorded net outflows. 

  • Market Correlation: CTAs have retained a low correlation (less than 0.3) to both equity markets and other hedge fund strategies since January 2013. Since H2 2014, the correlation between CTAs and the S&P GSCI Total Return Index has been increasingly negative, reaching -0.42 in April 2016. 

  • CTA Sub-Strategies: Since the beginning of 2015, option writing strategies have returned 8.67%, the strongest cumulative performance of any CTA sub-strategy. Countertrend strategy funds have returned 5.82%, followed by macro (3.39%) and pattern recognition (3.16%) funds. 

  • Fund Launches: New CTA launches peaked in 2013, with 153 funds launched in the year. Since then, the rate of launches has declined; there were just 73 new fund launches in 2015 and 12 so far in 2016, just 6% of all hedge fund inceptions. 

“CTAs play an important role in a number of institutional investors’ portfolios,” said Amy Bensted, head of hedge fund products for Preqin, in a statement. “These vehicles, operating trading strategies across a wide range of commodity and financial markets, offer the possibility of returns with low correlation to other financial markets and can smooth returns in investor portfolios. 

“With recent widespread turbulence, it is perhaps unsurprising that increasing numbers of investors have been attracted to CTAs’ potential for low correlation to other investments,” she added.

Founded in 2003, Preqin is a leading source of information for the alternative assets industry, providing data and analysis via online databases, publications and bespoke data requests. The company’s products are used by more than 40,000 professionals in 90 nations.  

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