Where do hedge funds come from?
It is believed that the first futures transactions were carried out with Dutch tulip bulbs in the 17th century. Regardless, by the mid-1800s it became clear that some regulation for standardizing commodity futures would be necessary.
In 1848 the Chicago Board of Trade (CBOT) was founded and became the most important worldwide futures exchange for agricultural products. It paved the way for standardized commodity futures to be traded for the first time in history and permitted the standardization of variables such as price, quality, quantity, and delivery date.
The late 1970s saw market participants move away from traditional commodity futures trading and launch brands such as interest products, currencies and treasury bonds. But the principle behind futures contracts stayed the same: a specified price for a specified product was determined for a specified future date. Basically “commodity futures trading” became “futures trading” while the original principle behind futures contracts stayed the same.
Why Managed Accounts?
The conclusion that managed futures should be included in traditional portfolios of stocks and bonds was initially reported in a 1983 published study conducted by Dr. John E. Lintner, a Harvard Business School professor of finance. Dr. Lintner's study stated that by including managed futures in an investment portfolio you can reduce volatility while enhancing returns. It also indicated that such portfolios show substantially less risk at every level of expected return than portfolios consisting entirely of stocks and bonds.
More recently, Dr. Thomas Schneeweis conducted a study completed in June 1997 entitled ''The Benefits of Managed Futures." Dr. Schneeweis, a professor of finance at the University of Massachusetts, built upon Dr. Lintner’s work by including new performance data generated between 1985 and 1995.
His study provides information affirming that the inclusion of managed futures in traditional investment portfolios have the following benefits:
- A reduction of portfolio volatility risk and an enhancement of returns
- Managed futures trade in markets which offer investors the same market integrity and safety as stock and bond markets
- Managed futures are no more risky than traditional equity investments
- The special benefits of managed futures are derived from the risk and return opportunities that managed futures offer in addition to traditional stock and bond investments