The hedge fund preferences of SWF's - why not managed futures?

The strategy preferences of sovereign wealth funds in the Preqin survey provides interest reading for what it does not show. The penetration of equity strategies is a given as is the employment of event driven strategies which isolate a key source of alpha. Macro strategies are relevant as a source of dynamic beta and global situation. What is less clear is why managed futures is not held by even half of the SWF's in the survey. Granted managed futures have not performed as well as others in the post- crisis period, but the long-term performance has been very attractive and the diversification benefit cannot be easily matched.

This suggests that the failure has to be deeper on why there is less preference for this strategy. It does not seem as though education should be the issue. Most have heard of the strategy. I believe the reasons may be twofold. One is an issue with investor and the other is an issue with managers.

First, investors have algorithm aversion. We have written on this issue in the past on its impact on managed futures.  Investors are uncomfortable with systems over discretionary forecasters. Second, managers cannot articulate the edge of what makes them different from other hedge funds and when they will do well. Quant strategies are harder to describe as an alpha producer. The value of risk management is also harder describe as a reason for choosing a strategy versus other hedge fund styles. Investors say they "eat" return not risk. Managers also have a harder time differentiating themselves versus their peers. How is one model different than others. Most investor do not want to take the time to learn the subtle differences across the statistics and modeling employed by managers. The burden is on the managed futures sector to better present their value-added proposition.