Updated with clarification
After 35 years, an icon of the systematic managed futures industry — David W. Harding, founder, CEO and co-CIO of Winton Group Ltd. — faced reality as performance declined and rebranded the firm as a multistrategy manager.
Eighteen months after its official transformation into a multistrategy manager, Winton Group has settled into a smaller company footprint after cutting its head count by 43% and consolidating operations in the firm's London headquarters.
Mr. Harding founded Winton in 1997 to a run pure-play quantitatively managed trend-following strategies. But in 2004, he began gradually increasing investments in other strategies including equities, corporate bonds, cash and interest-rate swaps.
The Winton Fund was formally reclassified as a quantitatively managed multistrategy fund in mid-2018, when the weighting to the firm's original trend-following strategy fell below 50% of assets under management.
"We were the most famous trend-following manager and were thought of as the best of class. Clients wanted to invest with the best of class, but they wanted us to make money in the stock market regardless of conditions for managed futures strategies, which was not always possible," Mr. Harding said in an interview.
At issue was the net performance of the Winton Fund, the firm’s flagship fund. The net performance of the fund was up 3% in 2019 compared with a decline of 0.6% in 2018, an increase of 7.9% in 2017, a drop of 3% in 2016 and a 0.9% rise in 2015.
The firm's assets began to decline from a peak of $33.7 billion as of Dec. 31, 2015, to $19.8 billion at year-end 2019 — a 41.2% slide.
The firm experienced higher net outflows in 2018 and 2019 after investors were informed about the change to a multistrategy approach in mid-July 2018.
Firmwide assets fell by a total of $8.7 billion in the two years ended Dec. 31, 2019, down 17.2% to $23.6 billion in 2018 and down 16.1% in 2019.
Assets under management and advisement in the Winton Multistrategy sleeve totaled $12.3 billion in as of Dec. 31.
Mr. Harding said the lure of providing better performance through an even more diversified investment approach convinced the firm to formally change the investment mandate of the Winton Fund. "Business is about giving clients what they want," he said.
The firm also manages two other funds. The $6.6 billion Winton Diversified Macro strategy combines fundamental and technical signals and uses futures, forwards and swaps. A new fund launched in July 2018, the $139 million Winton Trend strategy, offers investors a pure-play, trend-following fund using futures.
Winton Group is not alone among trend-following specialists experiencing significant asset declines that are needing to adapt to changing investor preferences.
"With managed futures investors, it has always come back to the question, 'Are we in a prolonged rough patch or are managed futures dead?' Alpha has become very hard to come by," said Christopher Solarz, a New York-based managing director and head of global macro strategies at alternative investment consultant Cliffwater LLC.
Mr. Solarz in an interview said managed futures and commodity trading adviser firms "have less and less of a valid starting point for conversations with investors and have thrown in the towel as trend-following strategies continue to underperform."
Mr. Solarz said managed futures managers have "become like mutual funds," charging much lower fees in a bid for survival. There are very big changes happening in this part of the investment industry."