Due Diligence Calls: Available to all Investors

If you are anyone other than an individual investor (i.e. family office, pension fund manager, or RIA), then it is not important for you to continue reading, as you already know this managed futures “secret.”

Once an individual investor has made up their mind to make an investment in managed futures, they then usually rely on an investment advisor to provide due diligence and make recommendations on which CTAs to invest with.  If an investment advisor is not being consulted, then most times, an investor will use a portfolio builder to test out different combinations of CTAs to see which combination yields the best risk adjusted return.  While there is nothing wrong with this approach (assuming a rigorous analysis has been completed), many times individuals are not aware that they can add an additional step in this process: speaking with the portfolio manager/head trader at each CTA that they are considering an investment with.

The major reason that investors are not aware that most CTAs are available to answer questions via phone is because it is not openly advertised.  Well here’s the biggest advertisement you’ll see regarding this: ALMOST ALL CTA PORTFOLIO MANAGERS ARE WILLING TO SCHEDULE A CALL WITH POTENTIAL INVESTORS TO ANSWER ANY QUESTIONS YOU MIGHT HAVE.  If you are interested in speaking with them, ask your investment advisor or broker to schedule a call for you, as they most likely already have a relationship with the CTA and are most aware of their schedule.

While some investors might be hesitant to speak with portfolio managers, since they may not be sure what types of questions to ask, here are a few simple questions  that can provide a lot of insight:

  • What is your background (education and professional), and how did you become the head trader at XYZ CTA?
  • How do you generate ideas for potential trades?
  • Why did you decide to focus on the markets outlined?
  • What is your edge?

Without getting too technical, the above questions can be very insightful and give an investor a decent idea of what it would be like to invest with the CTA. If nothing else, it gives the investor either more confidence to go ahead with the investment or raises a personal red flag as to why they might not like what the CTA has to offer.

While it is never required for investors to speak with CTAs prior to making an allocation, we like to notify all of our investors that the option is always available. Speaking with the person(s), who will eventually be managing your money can be a very important step prior to making any type of investment. Furthermore, if you have spoken with the manager prior to making an allocation, then you have laid the ground work to periodically call them after becoming their client.  This helps when a CTA is in a drawdown, and you would like to know what challenges they are facing – what better way than to schedule a call and ask?