The Handbook of Financial Instruments

Chapter 32 Managed Futures

Mark J. P. Anson, CFA, Ph.D., CPA, Esq.

Chief Investment Officer CalPERS

Managed futures refers to the active trading of futures contracts and forward contracts on physical commodities, financial assets, and currencies. The purpose of the managed futures industry is to enable investors to profit from changes in futures prices. In this chapter managed futures as an investment vehicle are discussed.

INDUSTRY BASICS

The managed futures industry is another skill-based style of investing. Investment managers attempt to use their special knowledge and insight in buying and selling futures and forward contracts to extract a positive return. These futures managers tend to argue that their superior skill is the key ingredient to derive profitable returns from the futures markets.

There are three ways to access the skill-based investing of the managed futures industry: public commodity pools, private commodity pools, and individual managed accounts. Commodity pools are investment funds that pool the money of several investors for the purpose of investing in the futures markets. They are similar in structure to hedge funds, and are considered a subset of the hedge fund marketplace.

Every commodity pool must be managed by a general partner. Typically, the general partner for the pool must register with the Commodity Futures Trading Commission and the National Futures Association as a Commodity Pool Operator (CPO). However, there are exceptions to the general rule. ...