Mr. Waksman blamed the 10-year equity bull market for many of the woes suffered by managed futures firms.
"It's virtually impossible to compete with a bull market," he said. "Despite all the arguments for the diversification benefits of managed futures, it's not nearly as preferable as being in the black."
But sources say institutional investors likely aren't responsible for the bulk of redemptions because most are maintaining their allocations as part of a broader crisis risk mitigation portfolio.
Despite the performance travails endured by managed futures managers in 2018, consultants said they continue to support the inclusion of the strategies in institutional portfolios. "We still see a role for managed futures as a diversifying strategy," said Christopher Walvoord, partner and global head of hedge fund research at Aon Hewitt Investment Consulting Inc., Chicago.
Among the asset owners retaining their exposure to the strategies are the $16.6 billion Hawaii Employees' Retirement System, Honolulu; the $226.1 billion California State Teachers' Retirement System, West Sacramento; the $51.1 billion Teachers' Retirement System of the State of Illinois, Springfield; and the $2.9 billion San Joaquin County Employees' Retirement Association, Stockton, Calif.
Recent investors in managed futures strategies include the $16.3 billion Orange County Employees Retirement System, Santa Ana, Calif., which split $300 million evenly in March between systematic trend-following managers AlphaSimplex Group LLC and BH-DG Systematic Trading LLP, a joint venture of Brevan Howard Asset Management LLP and DG Partners LLP.
OCERS has a 10% target allocation to risk-mitigation strategies, of which about 25% is slated for managed futures approaches.
The $8 billion San Diego City Employees' Retirement System took a different approach by dedicating half of its 8% target allocation to opportunity funds to managed futures. The allocation was approved in March and three managed futures specialists were hired in May to manage the allocation, with $130 million going to Systematica Investments Ltd. and $100 million each to Allianz Global Investors and Lynx Asset Management AB.
The addition of managed futures are designed to reduce drawdowns in the overall fund "during times of market dislocation," according to a report prepared for the fund's May 9 investment committee meeting.
In constructing the managed futures portfolio, the SDCERS' investment team and consultant Aon Hewitt Investment Consulting sought managers with different investment approaches to add "a unique level of diversification to the overall managed futures allocation."
The report noted that Systematica "has the largest number of markets traded (250), which should act as a diversifier for the managed futures portfolio, while Lynx's faster reaction to changes in trends ensures that the portfolio should gain exposure to trends quicker. Allianz's low correlation to Lynx and Systematica through the use of the strategy's fundamental model further diversifies the managed futures portfolio."
Liza Crisafi, SDCERS' chief investment officer, did not return a call seeking more information.
Managed futures specialist Campbell & Co. LP, Baltimore, is among the firms reporting fresh interest in their strategies from asset owners. "The end of the fourth quarter 2018 was a watershed moment when we saw renewed interest in managed futures and diversification (from institutional investors)," said Michael S. Harris, president. "It was the first time in 10 years that pension funds saw their funded status drop, and the result is higher demand for diversification strategies."
Mr. Harris said higher volatility in 2018 and heightened geopolitical activity across the globe is making institutional investors nervous and pushing them to protect their portfolios, although he doesn't expect inflows to begin until the third and fourth quarter this year from public and corporate pension funds, endowments and foundations.
Campbell manages a total of $3 billion, with about $2.6 billion run in systematic trend-following strategies, including a multistrategy CTA approach.