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Pinnacle Awards Competition Highlights Risk / Reward Management
By Mark Melin

"It is unusual that the fastest growing alternative investment sector does not have its own awards competition," noted BarclayHedge's Sol Waksman. "That's the point of the Pinnacle Awards."

Held June 11, the competition sponsored by CMEGroup and BarcklayHedge handed out 25 awards seven primary categories.  Taking home awards in the best diversifier category and best risk adjusted single sector category was discretionary trader Newton Capital partners, a single manager winner with $100-299 million in assets under management.  Winner of the best diversifier category $300 million+ AUM was short term trader Two Sigma Investments. (Complete list of winners available at the end of this article). 

The awards competition highlighted performance during a period of time when managed futures has experienced difficult market environments.  "The past few years have not been investor friendly," Mr. Waksman noted.  "Wild swings from risk-on to risk-off and back to risk-on against a backdrop of massive government intervention in interest rate markets have impacted prices in all major market sectors and have taken their toll on investment portfolios."

For the recent period from January 2010 through the end of Q1 2012, The Barclay CTA Index has gained 6.73% versus a gain of 22.68% for the prior 3-year period.

Delivering performance during this period of time was two-time winner Emil van Essen, a spread arbitrage trader who took home awards in the best defensive category and best return / high volatility diversified category, along with Paskewitz Asset Management's short term directional stock index trading program, which won an award for the best return, high volatility single sector category. 

A factor interesting in managed futures, noted by Mr. Waksman in his address to the Pinnacle Awards audience, was the rise in AUM despite sluggish overall managed futures performance.  "In the recent period since January 2010, in spite of less than stellar performance, assets under management have increased by 53.7% to $328.3 bil. In the 3 years prior to 2010, although returns to CTAs were much more robust, 22.68% vs. 6.73%, AUM increased by 25.7%, less than half the more recent rate.  But many of the Pinnacle Award winners held up in a variety of market environments due to their strategy. 

Such appreciation can be found in programs such as Vegasoul Capital Management, a systematic trend trader with a short-term reversal strategy overlay, which took home the award for best risk adjusted (diversified) returns in the $100-$299 million category.  Volatility CTA Dominicé & Company took home two awards, in both the best defensive single sector category as well as the best return, high volatility single sector category. 

 "Upon closer inspection, we find that in the earlier period inflows accounted for approximately 15% of the AUM increase while 85% of the increase in AUM came from appreciation. In the more recent period, these numbers are completed reversed with 85% of the increase coming from inflows and only 15% coming from appreciation."

 "Typically, money tends to flow into investments when returns are good and flows out when returns disappoint. That fact that asset inflows have increased during a difficult period is somewhat surprising and counter-trend. Perhaps after 29 years, John Lintner's revolutionary and landmark finding that the performance of Managed Futures investments are not correlated with the performance of a stock/bond portfolio has finally become mainstream. Maybe investors are looking at the political and economic landscape, seeing all of the uncertainty on the horizon and making a strategic or tactical decision to allocate to Managed Futures in anticipation of better investment returns ahead. Or maybe, after living through the liquidity crunch of 2008 during which investors took full advantage of the more than ample liquidity available in Managed Futures as they redeemed roughly 15% of total industry assets at year end without impacting the efficient flow of the futures markets and without managers having to limit or restrict redemptions in any way whatsoever, they have come to realize that return of capital can be as important or even more important than return on capital.

"Just recently, Germany was able to sell 2-year bonds at a 0% interest rate for just such a reason," Mr. Waksman noted.

Winners of the 2012 Pinnacle Awards