The short answer to the question posed in the title of this blog post is: “all types of investors.” The types of investors utilizing managed futures ranges from small retail investors, to some of the world’s largest pension funds and institutions. Since aiSource’s expertise is discovering managers during their emerging stage (less than $25M AUM, or less than 3 year track record), our clients usually consist of investors that focus on those type of CTAs: high-net-worth individuals, family offices, fund of funds, and RIAs.
aiSource has to tailor our services when it comes to satisfying the needs of each of the four types of clients we work with. Individual investors rely more on our expertise and recommendations, while family offices re-create and reconduct the entire due diligence process on any CTA we recommend. Fund of funds want us to act as a “scout” that is always on the lookout for new managers, and RIAs want us to simplify our CTA offering and simplify the investment process.
The reason each investor type has different “demands” when it comes to our services is due to the needs they are trying to fulfill within their investment mandates. We thought it would best to create a table to show which factors are important to each investor type when it comes to investing in managed futures:
One thing in common for all investors that is not mentioned on the chart above is that all investors want the highest possible risk-adjusted return they can achieve (“duh”). In addition to their pursuit of this, each investor has slight variances in how they try to achieve their investment goals. High-net-worth individuals’ biggest concern is the diversification of their investment portfolio into alternatives; with managed futures being one of the alternatives. Further, individual investors want to know that their CTA investments are diversified across various strategy types and sectors.
Family offices, on the other hand, are looking for pure alpha generation in their pursuit of achieving returns greater than the stock market. This results in family offices conducting a very thorough and long due diligence; many times lasting numerous months. Fund of fund clients primary concern is non-correlation to their existing allocations, and risk management. Funds want to make sure they are selecting the best managers with the best risk controls in place, because at the end of the day they are accountable to their clients. Lastly, RIAs want simple investment options to show to their clients. They don’t want to burden their clients with too many options and prefer to have a select few CTAs that can be inserted into their client portfolios and help achieve diversification.
The above table does not include all investor types, nor does it include all the factors that the above investors consider prior to making an investment. That being said, aiSource has a lot experience dealing with HNW individuals, family offices, fund of funds and RIAs, and the above characteristics are very much in line with their investment guidelines.