Key Takeaways
- • CTA fund launches in Europe collapsed to 50 funds in the first nine months of 2015—the lowest level since 2006—representing just 9% of total hedge fund launches, reflecting sustained investor withdrawal from the strategy.
- • Only 14% of CTA investors planned to increase exposure to the asset class at the start of 2015, while 70% expressed dissatisfaction with performance following a weak second quarter, according to Preqin research.
- • European hedge fund industry stress is broader than CTAs alone: Eurekahedge data showed 40% of hedge fund closures in 2014 were European funds, indicating systemic performance and confidence issues across the region.
- • Amy Bensted, head of hedge fund products at Preqin, noted that while investor interest in CTA strategies may be growing in absolute terms, prolonged performance disappointment continues to drive asset outflows and reduced capital commitments.
Summary
European institutional investors are sharply reducing allocations to commodity trading advisor (CTA) hedge funds amid persistent performance concerns, with fund launch activity hitting its lowest level since 2006. Only 50 CTA funds launched in the first nine months of 2015, representing a 9% share of total hedge fund launches during the period. This marks a significant decline in appetite for a strategy that typically deploys capital in physical commodities through futures and options contracts.
Investor sentiment toward CTAs has deteriorated markedly. Research from Preqin, a financial information provider serving institutional allocators, revealed that merely 14% of CTA investors planned to increase their exposure to the asset class at the start of 2015. More concerning for strategy practitioners, 70% of existing CTA investors expressed dissatisfaction with recent performance, particularly following a weak second quarter. This performance-driven frustration appears to be the primary driver of reduced new fund launches and capital redeployment away from the strategy.
The challenges facing European CTAs reflect broader weakness in the regional hedge fund industry. Eurekahedge data from 2014 documented that four out of every ten hedge fund closures occurred among European-domiciled funds, suggesting systemic challenges extending beyond CTAs to encompass the wider European hedge fund ecosystem. Despite potential growth in the absolute number of investors interested in CTA strategies, sustained underperformance and disappointment have created structural headwinds for capital raising and investor retention, according to Preqin's Amy Bensted.
Investor sentiment toward CTAs has deteriorated markedly. Research from Preqin, a financial information provider serving institutional allocators, revealed that merely 14% of CTA investors planned to increase their exposure to the asset class at the start of 2015. More concerning for strategy practitioners, 70% of existing CTA investors expressed dissatisfaction with recent performance, particularly following a weak second quarter. This performance-driven frustration appears to be the primary driver of reduced new fund launches and capital redeployment away from the strategy.
The challenges facing European CTAs reflect broader weakness in the regional hedge fund industry. Eurekahedge data from 2014 documented that four out of every ten hedge fund closures occurred among European-domiciled funds, suggesting systemic challenges extending beyond CTAs to encompass the wider European hedge fund ecosystem. Despite potential growth in the absolute number of investors interested in CTA strategies, sustained underperformance and disappointment have created structural headwinds for capital raising and investor retention, according to Preqin's Amy Bensted.
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