Pension funds and other major institutional investors, worried about the ability of managed-futures managers to invest relatively large amounts of money, might find comfort in the pattern of recent performance in the alternative strategies.
Larger advisers of managed futures programs tended to perform better than smaller advisers in 1993.
A breakdown of the performance of the 25 largest managed futures programs compiled by Barclay Research Group Ltd., Fairfield, Iowa, will assuage pension fund executives of one of their concerns about investing in this still relatively new, small asset class, said John P. Lass, director.
"It's good news for institutional investors," he said. "They've worried that investing in (managed futures programs) would cause a deterioration in performance" of the advisers.
"But larger traders" - or commodity trading advisers, which are the managers of managed-futures programs - "who tend to get institutional investor money, tended to perform better than smaller advisers."
At RP Consulting Group Inc., St. Petersburg, Fla., which counts the Virginia Retirement System among its pension fund and other institutional clients, Richard A. Pike, president, said in general about managed futures benchmarks, "More and more institutions are using published CTA and pool indexes as benchmarks for performance measurements."
But Mr. Pike cautioned, "Whether managers beat an index isn't? going to make it any easier on whether a client will decide to invest. There are a lot of other issues."
Mr. Pike added, however, "If a manager can beat consistently over time an index an institution follows, then that manager will be favored and will get the bulk of new allocations."
FX Concepts Inc., New York, the manager of the largest managed-futures program on the Barclay list, overseeing $2.5 billion in currency overlay programs, including $1.8 billion it runs for pension funds and other tax-exempt institutional investors, achieved a total return last year of 11.43%.
The performance of FX beat the 10.57% return of the Barclay CTA index, an equal-weighted benchmark of 230 managed futures programs, totaling $12.2 billion, run by about 200 different commodity trading advisers.
The second largest managed-futures program, or portfolio, in the Barclay listing, a $712 million financial and metals program, run by John W. Henry & Co., Westport, Conn., recorded a 46.82% total return for the year.
RXR Group, Stamford, Conn., which runs the third largest program - a $548 million balanced portfolio of equity and bond derivatives - had a 12.73% total return.
In all, the 25 largest managed-futures programs, run by 23 investment advisers, invest in derivatives valued around $7 billion. Two of the advisers run two different programs listed in the group.
RXR, aside from its balanced strategy, runs a $134 million diversified strategy, which returned last year 19.39%, well ahead of the Barclay CTA index.
Millburn Ridgefield Corp., New York, runs a $337 million financial derivatives programs, which returned 10.52%, just under the Barclay benchmark; and it runs a $217 million currency derivate program, which returned -11.79%.
Its currency program was only one of three managed-futures programs among that had negative performance last year among the largest advisers. All three specialized in currency derivatives. Of the other two, one was managed by Colorado Commodities Management Corp., Boulder, Colo., which returned -22.65, the worst performance of the top 25. The other was managed by GK Capital Management Inc., Bloomington, Ill., which returned -6.65.
In all, 17 managed futures programs beat the Barclay CTA index last year, including the best performing 68.51% of the $222 million financial and metals managed-futures program run by Chesapeake Capital Corp., Manakin-Sabot, Va.
Pension funds, although they increasingly use futures and options in their strategies, have been slow to invest in managed futures.
Mr. Pike defines managed futures as "organized, professionally managed speculation in futures and currency markets."
Typically, pension sponsors and other institutions invest in managed futures through a commodity pool operator. A CPO will invest money on behalf of institutional clients with many commodity trading advisers, or CTAs - in the case of the Virginia pension fund, often with 50. The CPO puts together a portfolio of CTAs, and treats CTAs almost as an equity manager treats stocks, adding or withdrawing money from each one depending on a view of its prospects.
According to the latest available study by Greenwich Associates, Greenwich, Conn., only 3% of the 1,106 corporate funds it surveyed used managed futures in 1992.
Yet, in the more familiar area of interest-rate and stock-index futures, some 13% and 12%, respectively, of pension funds in the Greenwich survey use these derivatives.
But Mr. Pike said interest among pension funds "is picking up." He declined disclose names of new potential investors.