Our weekly newsletter is out, and we’re tackling one of the questions we here more than you might think: how can I start my own CTA? From managed futures billionaire David Harding of Winton, to the legend of John Henry leveraging managed futures success into ownership of the Boston Red Sox, to the tale we recently told of Bill Eckhardt and the Turtle Traders – there are plenty of alluring stories to entice skilled traders to try their hand at becoming professional Commodity Trading Advisors (CTAs). Taking the leap from trading your own money to managing others’ is the first step toward building a legend of your own, but how realistic is it to turn that gleam in your eye into a successful enterprise and tens of millions in the bank?
You might think that your worries extend no further than: 1. Make money, 2. Be operationally sound, and 3. Be properly registered and compliant. But even when you do everything you are supposed to do, the assets don’t always just come pouring in. What other challenges must an upstart CTA overcome? Well, for starters…
Jumping into the managed futures space means entering a David versus Goliath situation, as just a handful of huge CTAs control the bulk of managed futures wealth (in terms of assets under management). Does this mean all hope is lost? Definitely not. It isn’t easy, but there are a few things you should know before getting started.
JPMorgan, MFGlobal, and the Way Forward
For former MF Global customers, one of the last barriers to resolving the case has finally come down. JP Morgan has relinquished its claim to a significant portion of the remaining money for distribution, in addition to agreeing to pay an addition sum to the trustee. Via the Wall St. Journal:
See Also: Futures Magazine and NYT Dealbook
JPM giving up on its claim to that $417 million means that the trustee avoids a lengthy court battle (that they hopefully would have won anyway), speeding up the remaining distribution. That $100 million is a nice addition, although it’s only going to add a few more percentage points to the final recovery totals – bringing US MF Global customers to around 95% of their original funds. It may have taken far longer than it should have, but we’re happy to see one of the last barriers brought down, to finally allow former customers to move on.
At the same time, this week also saw the release of a survey conducted by Horizon Cash Management on the impact of the two recent FCM bankruptcies on CTAs and CPOs, and it confirms much of what we’ve seen (and said) about the need to change the way the industry operates moving forward. The summary is quite short and definitely worth a read, but for us the most important part is the list of changes that industry participants are calling for:
If fighting JPMorgan for the return of customer funds seemed daunting, the task of making significant changes to the regulatory landscape may look downright overwhelming. But we think persistence will pay off, and continued outreach like Horizon’s survey is great to see. It shows that the people and businesses who make up the industry support these changes, and if anything is capable of overcome the sclerosis of our regulators, it is a persistent appeal from the community. To paraphrase a famous saying – there’s no stopping an idea whose time has come.