Managed futures mutual funds appear to clear one significant regulatory hurdle
Broad distribution of managed futures through a mutual fund structure, which at one point faced an uncertain future, appears to be moving forward, according to Dan Driscoll of industry regulator National Futures Association (NFA). At a recent meeting in Chicago, the NFA brought together top industry participants with divergent interests, from commodity pool operators (CPOs) to existing managed futures mutual fund operators, who, with NFA encouragement, worked out differences to craft potential rule changes that will now go to the Commodity Futures Exchange Commission (CFTC). It is the group's hope that the CFTC, who writes final rules, will consider recommendations from the NFA and industry participants.
The NFA pulling together this meeting and crafting an agreement must have been interesting, to say the least. Some CPOs had openly expressed concerns about the managed futures mutual fund structure that limits the typical 2%/20% fees many active pool managers rely on. Some industry voices claimed such reduced fees would keep away the more talented managers and pool operators. To support this claim, many of the managed futures mutual funds have significantly underperformed industry benchmarks, particularly those mutual funds based on a single formula algorithm.
Managed futures mutual funds and their uncorrelated investment benefits became a target for the CFTC, which last year indicated that the mutual fund fee and risk disclosure required a closer look. Talk inside the industry had eyed the potential to shut down the managed mutual fund through elimination of a foreign corporation exemption that allowed for trading of futures and options contracts. Existing managed futures mutual fund operators, for their part, are likely breathing a temporary sigh of relief that their legs were not cut from underneath by eliminating the foreign corporation that allowed futures and options to be included in a mutual fund. It will be interesting to see how the final rules are crafted at the CFTC, as the industry of high alpha investing, detailed disclosure requirements and transparency meets a low fee, high beta equity mutual fund industry with different disclosure standards.
Whatever the result, the fact remains that investors should be provided easy access to investments uncorrelated to the performance of the stock market ? particularly at this moment in economic history. While the future is never certain, it appears as though managed futures mutual funds have cleared a significant hurdle. Will this manifest itself into existing managed futures investment programs converting into mutual funds? This remains to be seen, as significant hurdles still exist in terms of establishing a managed futures mutual fund.
Steps Necessary for Mutual Fund Formation and Registration
As it currently exists, establishing a managed futures mutual fund can be complex.
From a legal standpoint, the mutual fund is a Securities Exchange Commission (SEC) registered and regulated pooled investment vehicle that is required to comply a complex set of rules, regulations and statutes, including the Investment Company Act 1940 (1940 Act).
To request a complete white paper outlining details on how to set up a managed futures mutual fund, visit the white paper download page at www.Go2ManagedFutures.com/download
About the Authors
Mark Melin has written three books, including High Performance Managed Futures. Click here to purchase a copy of the book: http://amzn.to/oMOV97. Contact Mark at 312-451-8368 or mmelin@pfgbest.com.
Dan Hart is Managing Director of Cortland Fund Services, a leading provider of administration services for managed futures pools, funds and other accounts. Contact Dan at 312-564-5065 or dan.hart@cortlandglobal.com.
