A growing number of investors would like to consider adding managed futures, which can take both long and short positions via futures contracts and options in global commodity, interest rate, equity and currency markets, in their retirement and other portfolios.
To include managed futures in retirement plans, though, investors face several challenges, according to Adam Rochlin, MF Global senior vice president for alternative investment strategies.
One challenge is availability.
Rochlin says his firm cannot find any employer sponsored 401(k) or defined contribution plans in which plan participants can invest in a “true” managed futures program.
If the plan offers participants a brokerage account option, there are some ETFs available that provide exposure to the performance of managed futures, but they’re not the same, says Rochlin: “It’s not as clean or as efficient as you would necessarily get with a true managed futures fund program,” he explained in a phone interview.
Rochlin cites several causes for this lack of availability in retail investors’ retirement plans.
One is the regulatory climate. The SEC and the CFTC (U.S. Commodity Futures Trading Commission) are at odds over the issue of managed-futures funds for retail investors.
There’s also an investor-suitability issue, says Rochlin: “Under the CFTC and NFA (National Futures Association) regulatory regime, having a true retail managed futures fund that could be made available to individuals who are not considered to be accredited investors is nearly impossible to achieve.”
Developing investment vehicles that will pass muster with plan sponsors and third-party administrators is another hurdle.
Rochlin believes managed-futures funds will need to be packaged similarly to traditional mutual funds in terms of pricing, costs, ease of selection and purchase, etc., in order to gain entry into plans.
The industry is moving in that direction, he says, but there is still more logistical work to do.
The final element is the need to educate retail investors on the risks and benefits of including managed futures in their portfolios.
“We really need individuals to understand what it is that they’re investing in and what the up- and downside is, as well,” says Rochlin. “Those are the three things we’ve got to tackle, and I think they’re all achievable, by the way. Some are a little bit harder but we passionately believe it’s all achievable.”