By Linus Nilsson, founder of NilssonHedge, a hedge fund database.
One of the Alternative Data sets that we track is the number of NFA members. The NFA is one of the cornerstones when it comes to ensuring compliance among Futures based strategies. Membership is largely mandatory and you can track the number of registered members here: https://www.nfa.futures.org/registration-membership/membership-and-directories.html. We track these numbers over time.
From our perspective, this helps us to know how many CTAs we are not tracking. Quite a few as it turns out. Some of the CTAs that are not publishing their numbers are doing so as the CTA part of their strategy is not their main strategy. Or the manager is in a startup or a sunset phase.
We track these measures over time, which enables us to get a read on how popular Managed Futures/Liquid Hedge Funds are. It is one measure amongst many. Since we started to track these numbers, we have noted an annual shrinkage of approximately 3% across most categories. The only category that has not shrunk, is the number of FCMs. At the same time, we see stable assets under management. This likely indicates that the universe of eligible managers is becoming more concentrated.
Part of this is likely structural, change in how Managed Futures strategies are distributed, i.e. the shift towards 40-act and ETFs funds which are sold through platforms rather than introducing brokers. Part of this is also likely related to declining 'retail/HNW' interest in CTAs and an anecdotal shift towards Private Assets.
Introducing Brokers are to an extent the agents that connect managers with investors. This is the hardest hit category, shrinking by almost 5% per year. This would be a clear indicator if it is easy or hard to sell CTAs to investors.
In terms of the managers seeking to do business as a CTA or a CPO, the trend is also negative. Going into 2023, there was a small uptick in the number of registered CPOs, but that reversed quickly as 2023 turned out to be a poor year for most CTAs.
In January we saw the largest decline in the number of Associates, i.e. individuals working in the Futures Industry. We recorded a decline of 687 individuals no longer seeking to do business.
About the Author:
NilssonHedge is operated by Linus Nilsson, an experienced allocator who has spent close to twenty years investing in Hedge Funds (both privately and for institutions) or operating systematic strategies, as a startup but also as the CIO of a smaller European CTA.
Mr. Nilsson founded NilssonHedge, a hedge fund database, as an initiative to bring transparency to the hedge fund universe. The database combines an innovative way of aggregating public performance data with cost-efficient access to hedge fund returns.
