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Digital Subscriptions > The Hedge Fund Journal > Issue 132 – May 2018 > DNA of a Manager Search

DNA of a Manager Search

Commodities paper from bfinance


Commodity investment is back in the spotlight.

After a decade of poor performance, many commentators delivered a more bullish outlook for commodities during the first quarter.

Such predictions are buoyed by global economic growth and some helpful market dynamics, such as the reduction in contango (page 5). Goldman Sachs, for instance, announced on February 1st that it expects returns of 15% on its commodity index (GSCI) over the next six months and claimed that the environment for commodities was “the best [seen] since 2004-2008.” Prices have surged, fallen amid the equities rout and risen again. Several large investors have signalled their intention to enter this often-controversial space, drawn not only by the investment outlook but by the sector’s inflation hedging characteristics. The recently announced 5% allocation by the influential UK National Employment Savings Trust (whose Deputy CIO is quoted above), for example, was hailed with praise in some quarters and derision in others. A popular national newspaper claimed that the “wild west of commodities is no place for NEST’s members” and criticised the “fetish” for “so-called uncorrelated returns.” At bfinance, we have observed notable changes in client demand. Investors with passive commodity exposures are showing greater interest in enhanced (active) systematic commodity investing, although to date we have not seen a resurgence of appetite for pure-play commodity hedge funds. We are also seeing strong appetite for Alternative Risk Premia, CTA and Systematic Macro strategies, many of which also involve commodity investments with a similarly systematic approach, but as part of a multi-asset schedule (see The Changing World of Alternative Beta). With commodities back in focus, this paper – part of the DNA of a Manager Search series – explores one pension fund’s hunt for an enhanced commodity overlay manager. It addresses both the different strategies and the variety of implementation structures that investors can consider in that sector.

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