Pension plan sponsors have shown more interest in active managed futures strategies in recent months, but they're not clamoring to enter the alternative asset class.
Institutional managed futures activity took a dive in recent years following the lead of the Virginia Retirement System, Richmond, and the pension fund of Eastman Kodak Co., Rochester, N.Y., both of which dropped their large managed futures allocations.
And unlike long-only commodity futures strategies, which have gotten some big allocations from endowments and pension funds, active futures management has struggled to gain many new clients.
But recent activity indicates institutional users are ready to give managed futures a try.
Pension plan sponsors that recently made commitments to managed futures strategies include: Echlin Inc., Branford, Conn.; the Workplace, Health, Safety and Compensation Commission, Saint John, New Brunswick; and Wayne County Retirement System, Detroit.
Pension plan sponsors that are considering managed futures include: the Chicago Laborers' Annuity & Benefit Fund; the Chicago Municipal Employees' Annuity and Benefit Fund; VIA Rail Canada Inc., Montreal; and the City of Montreal.
And the San Diego County Employees' Retirement Association reportedly expanded its managed futures allocation, which is performing above benchmarks, to adjust to the increased size of its pension fund.
Industry experts say managed futures interest might have picked up, but not to a great extent.
"The interest has picked up a bit, but there's no evidence it's a trend," said Rob Brown, managing director, research with SEI Capital Resources, Chicago.
"We went through a hiccup . . . when there was a downright exit" from managed futures, Mr. Brown said.
Recent activity in managed futures might be more noticeable following that lull, he added.
Alternative investments as a whole, though, is a subject of interest to pension plan sponsors, he added.
Managed futures generally is separated from long-only commodity futures strategies that do not include financial futures trading, although some in the industry group them together.
Some of the interest in managed futures is tied to concerns about the lofty levels of the U.S. stock market.
Executives at Echlin assigned RXR Capital Management the task of managing a futures and options overlay designed to hedge its equity allocation, an industry source said. Echlin executives declined comment.
RXR already was a manager for Echlin before getting a larger assignment.
RXR will use equity index futures and options positions to create a dynamic hedge for Echlin's entire equity investments, the source said.
Echlin has $111 million in defined benefit assets, according to the 1997 Money Market Directory of Pension Funds and their Investment Managers, with an equity allocation of 54%.
Likewise, the Workplace, Health, Safety and Compensation Commission, views its C$20 million (U.S. $15 million) long-only allocation to managed futures as a hedge against a possible downturn in equities, said Warren Gerow, manager of treasury and investments of the C$535 million (U.S. $388 million) fund.
Capital Management, Princeton, N.J., manages the fund's allocation.
San Diego increased the size of its allocation earlier this year to a notional value of $140 million from its previous $120 million to accommodate the fund's larger size. (San Diego ties its managed futures allocation to the size of the overall pension fund).
Rich Rose, chief investment officer for the $2.7 billion fund, said pension official have been pleased with the allocation, although performance expectations haven't been completely met.
The program has earned about 7% annually since inception, he said. But during the first quarter of this year, when mainstream asset classes were suffering, their managed futures returned 7%, so the diversification benefits have been felt, he said.
The San Diego allocation is managed by Kenmar Advisory Corp., Greenwich, Conn., and Hart-Bornhoft Group Inc., Denver, Colo.
Another firm reportedly gaining institutional clients is Mount Lucas Management Corp., Princeton, N.J.
Mount Lucas executives said the firm added $75 million worth of clients in 1996, but they declined to name them.
Managed futures index returns have been strong, but still lag the booming U.S. stock market.
The Managed Accounts Report Inc., New York, commodity trading adviser index was up 3.1% through April and 14.6% in 1996. Commodity trading advisers are futures managers that are regulated by the Commodity Futures Trading Commission.
The Barclay Trading Group, Fairfield, Iowa, commodity trading adviser index was up 5.9% year-to-date through April, and 9.3% in 1996.
Mount Lucas' own managed futures index, which uses computer algorithms to represent a passive allocation to futures, was up 4.6% through April, and up 10.9% in 1996.
In the same periods, the Standard & Poor's 500 Stock Index was up 8.8% and 23%, respectively.
