“We’ve always been very cautious of capacity issues,” said Audrey Gale. “Although we had some allocations from existing investors, we had closed to new investors three years ago. But we’re know in a position where we are comfortable with taking on new capital.”
A capacity-conscious Eckhardt is looking to add roughly $100 million to its asset base.
A significant portion of the capital may come from fund of funds looking to enhance value and take advantage of the managed futures’ low-correlation to equity-driven strategies, Ms. Gale said.
The Chicago-based firm took a conservative approach to capacity, looking to avoid capital that might impact liquidity and returns. The advent of electronic trading in futures markets and concerns about the Y2K bug had made the trading group especially cautious in 1999 and 2000.
But ongoing analysis of trading and risk systems in terms of liquidity and performance has convinced the firm that it could bring aboard additional money.
Although the firm’s $340 million under management puts it among the largest CTAs in the industry, Eckhardt used to be a bit bigger, weighing in at over $400 million. Redemptions from profit-takers and those cautious about managed futures in general have also opened up additional capacity at the firm.
Existing investors at Eckhardt include both individuals and institutions. Managed accounts start at $5 million and qualified individual investors can get access to programs with a minimum investment of $100,000.
The firm runs three variations of its managed futures strategy. The basic product is a diversified program, which has something of a financials bent. Financials represent some of the deepest futures markets in terms of liquidity.
A more aggressive version of the standard program applies additional leverage atop that basic chassis.
A third program invests strictly in global financials, omitting the traditional commodity contracts traded in the standard diversified program and its levered counterpart.
November’s markets gave Eckhardt a solid push into the black. Year-to-date returns for each of Eckhardt’s technical programs crept into the double-digits by the end of the month.
The firm’s principals include William Eckhardt, a 26-year veteran of the futures industry, as well as John Fornengo. The firm’s turtle strategy draws upon decision theory and utility theory and avoids the riskier “breakout” approach to futures markets used by many other CTAs. Investment decisions are based on price movements.
Eckhardt’s systems only allow trading in markets that fall below its proprietary measurement of market volatility and choppiness.
In November, for the first time in two years, this volatility measurement was low enough to allow for a greater level of market exposure. The vast majority of profits were in global fixed-income futures markets.
Pete Gallo, Editor PGallo@HedgeWorld.com