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May 22, 2019  

LPs Get Crack at Profitable Discus Program

Capital Fund Management, an early practitioner of systematic-trading strategies, is re-opening a managed-futures fund that’s been off-limits to new investors since at least 2015.

The Paris firm seeks to raise an additional $1 billion for the vehicle, dubbed Discus, which currently has $2.1 billion under management. With a track record that dates to 1991, Discus was among the first futures-trading programs in Europe to employ trend-following computer models. It’s still among the most profitable, with a 10.6% annualized return since inception. Year-to-date, Discus was up 12.5% as of May 17.

Investors have had limited access to Discus in recent years. The vehicle was closed to new investments from 2006 to 2011, at which point its assets totaled about $3 billion. CFM reopened the subscription window shortly before Neuberger Berman’s Dyal Capital unit acquired a minority stake in the fund operator in December 2011.

For investors who deployed capital at that point, the timing was inauspicious. Discus lost 13.8% in 2012 and 9.9% in 2013. By the time CFM cut off subscriptions again in 2014 or 2015, the program’s assets had shrunk by roughly a third.

More recently, Discus has handily outperformed the Societe Generale CTA Index, with annual gains of 7.5% in 2018, compared to a 5.8% loss for the CTA index; 12.6% in 2017, versus a 2.4% increase for the index; 5.8% in 2016, versus a 2.9% loss for the index; and 8.4% in 2015, when the index was flat.

“CFM has developed new clusters of models and portfolio construction techniques that allow us to grow in size without impacting our performance, which has been strong over the past several years,” president Philippe Jordan said.

CFM runs $9.7 billion overall. Its largest vehicle, dubbed Stratus, is a multi-strategy program that uses quantitative models to trade a variety of liquid assets including equities, bonds, currencies, options and futures. Stratus, which launched in 2003, also has been closed to new investments for some time.

CFM runs the balance of its assets through so-called alternative-beta vehicles, including a $1.9 billion program dubbed CFM Institutional Systematic Trends. In April, the program added a new version called CFM Institutional Systematic Trends Equity Capped that limits investors’ exposure to the stock market.

Like many other trend-following vehicles, CFM Institutional Systematic Trends has underperformed in recent years, with an essentially flat return since 2015. Since inception in January 2013, CFM’s program has produced an annualized return of 11.3%, thanks to stellar performance early on.

CFM was Dyal’s first investment in a hedge fund-management company. At the time, CFM had about $5.7 billion under management.