The State of the CTA
Understanding the landscape of Commodity Trading Advisors (CTAs) is essential for those interested in the futures and liquid hedge fund markets. One important aspect of this field is the National Futures Association (NFA) membership statistics, a vital indicator of compliance and activity within the futures strategies domain. Membership in the NFA is crucial, as it sets the baseline for operational compliance among CTAs.
Tracking the number of NFA members provides an insight into the CTAs landscape, revealing both the scope of our current tracking and shedding light on the CTAs that remain unmonitored. Notably, some CTAs may not publish their figures, which could be indicative of the CTA aspect not being their primary strategy, or perhaps they are in either a start-up or winding-down phase.
An important trend observed from this tracking is the popularity of Managed Futures/Liquid Hedge Funds. Historically, we’ve witnessed an approximate 3% annual reduction in the number of CTAs across most categories, with the exception of Futures Commission Merchants (FCMs), which have maintained their numbers. However, despite this contraction in numbers, assets under management in the space have remained stable, suggesting a consolidation of management to a smaller, potentially more efficient cohort of managers.
This contraction could be due to a variety of structural changes within the industry, including how Managed Futures strategies are marketed and distributed. For instance, there’s a noticeable shift towards products like 40-Act and ETFs funds which favor platform sales over traditional broker introductions. Additionally, there appears to be a diminishing interest from ‘retail/HNW’ sectors towards CTAs, with a movement instead towards private assets.
Introducing Brokers, who serve as intermediaries between managers and investors, represent the category experiencing the most significant decrease, shrinking by nearly 5% per year. This decline is indicative of the challenges faced in marketing CTAs to investors.
In examining the trends affecting managers who engage in business as either a CTA or a Commodity Pool Operator (CPO), there’s a noted downturn. Although there was a slight increase in registered CPOs at the start of the year, this was short-lived as 2023 proved to be a challenging year for many CTAs, reversing any gains. Moreover, January saw a pronounced decrease in the number of Associates, highlighting a significant drop of 687 individuals no longer active in the futures industry.
This article provides a snapshot of the evolving dynamics within the CTA space, highlighting the structural shifts and the challenges faced by those in the managed futures and liquid hedge fund markets. Understanding these trends is crucial for both current and prospective participants in these markets.
