After a barrage of commercial television advertisements, I decided to check out what the SuperFund was all about. Upon seeing the commercial, the name SuperFund jogged some memories of a prior article I read and bam!, it hit me. I had read about it in this BusinessWeek article years ago. Perhaps the mental affiliation with a toxic waste site triggered the memory. The commercial just features a European guy walking around mispronouncing “investment”. While the US commercial lacks appeal – it’s quite annoying actually, I envision this is some kind of coy curiosity ploy that will evolve into more descriptive, quantitative result-laden commercials. The 2006 BusinessWeek article raises some questions and concerns over real returns for investors, and highlights that this managed futures fund is pitched as the Everyday Guy’s hedge fund due to the modest income requirements and minimum investment limits. SuperFund is not a scam; to their credit, investors willing to read the prospectus will see what they’re up against though.
Since the article is a bit dated and focuses primarily on the European investment cohort, I went right to the source and can report the following based on Fact Sheets and Prospectus:
- On the home page, Superfund A and B claim annualized returns of 11.3% and 16.9%, respectively. They also claim cumulative returns of 95.2% and 165%. Oddly, there is no date of inception provided. Why? I don’t know. The date in the fact sheet for A and B shares was listed as 2002; I’m unsure of why this would be omitted on the home page.
- A description of the investment model yields the following: Managed futures investments are intended to generate long-term capital growth and provide global portfolio diversification. A primary reason to invest in a managed futures product, such as Quadriga Superfund, is to provide a non-correlated investment to a portfolio of traditional stock and bond investments that has the potential to improve returns and lower the portfolio’s volatility. This is possible because managed futures products historically have not been correlated to traditional markets, such as stocks and bonds.
- The Fact Sheets show very impressive returns and no correlation with the major equities indices. Attached is a screen shot of the returns that look nothing like the returns on equities in the past few years:
Looks pretty good, right?
Now, Reality Sets In
These disclaimers are displayed on the Fact Sheets in plain view, but should be seriously considered by prospective investors:
An investment in Series A or B involves substantial risk and may result in the complete loss of principal invested.
The foregoing performance results are shown net of all fees
Each series is speculative and is leveraged from time to time. As a result of leveraging a small movement in the price of a contract can cause major losses.
There is no secondary market for the investment offering and redemptions are only limited to certain periods.
Substantial expenses must be offset by trading profits and interest income for each series to be profitable.
Prospectus – Details, Details, Details…
- Investment eligibility requires net worth of at least $70K and $70K annual income, which is much more affordable than the typical $2Million/$200K for hedge fund investors.
- There is a note on counterparty risk, which is essentially what led holders of credit default swaps to financial ruin during this most recent crisis.
- 1.85% Management Fee – reasonable, right? But, then there’s the 25% of aggregate cumulative net appreciation – That’s a huge chunk!
- There’s a note on Selling Agents and Affiliates, which reads as though you’re essentially paying a 4% load and 4% per year after.
- There is some ambiguity as to tax treatment, which could put this investment at a further deficit to more conventional alternatives.
To their credit (or perhaps that of the regulators), there is a clear break-even scenario laid out, which I was going to try and calculate myself.
You need to return 8.75% in A shares and 10.63% in B shares to just Break Even!
In light of these exorbitant fees, the returns that seemed so attractive initially are not so alluring at the end of the day. Is it possible that even with these risks and fees, it’s still a net benefit for regular investors over traditional investments? Or will the “SuperFund” connotation as Americans know it be fitting?
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If they provide an uncorrelated return, it is possible that investing an approporaite proportion would lower your total portfolio risk. Without the numbers, it is hard to tell. With the prospectus jitters you get from reading the disclosures of loss of capital, it could also just be some revised wording given the “average guys” lack of understanding about risk.
That is still alot in fees though.
You really have no idea what you’re talking about. Please do some proper research before posting up such silly commentary on investment houses.
i have only one question (yes, i am the aaron smith qouted in the BW article). how much money would you have made if you invested when you read the business week propaganda?
Well Dennis,
Your comment has really added no value to the conversation. If you’d like to highlight WHY I have no idea what I’m talking about or what the “proper research” is that I have not performed, that would great.
I invite readers to highlight any inaccuracies or misstatements in my content. If you can identify any here, I’d be glad to correct, but since I went directly to the source and cited facts presented by Superfund, I’m not aware that I’ve introduced any errors in the conversation.
By the way, why so angry?
Aaron,
As managing director, I’m sure you can enlighten us. Please share the returns (after all fees of course).
Tennyson Reply:
March 6th, 2010 at 11:44 am
@Darwin,
If you paid attention to what you read on Superfund’s website, you would notice that the performance posted is NET OF FEES. And that includes the 25% incentive fee charged on the excess returns in the case of new All-Time-Highs.
Darwin Reply:
March 6th, 2010 at 12:00 pm
@Tennyson, This article’s a year old. If they’ve updated their literature, that’s great. At time of writing, this looked like a pretty lousy deal. Perhaps I’ll revisit performance; I’m guessing they didn’t keep up with other conventional investments this year either.
Tennyson Reply:
March 6th, 2010 at 12:05 pm
@Darwin, It was always net of fees, (including in your original post) “The foregoing performance results are shown net of all fees”.
2009 was not a good year for Superfund, but given its track record – this may just be an inevitable bump in an otherwise stellar performing Fund Manager.
If the discussion has continued, I would like to follow it.
Thanks,
Tom
I know this is an old post, but Superfund has laid off employees in Chicago.
Darwin Reply:
March 6th, 2010 at 4:02 pm
@Jocko, Is there a press release or public info? Laying off employees isn’t exactly indicative of success.
Darwin – “Laying off employees isn’t exactly indicative of success”.
You’re kidding right?
Goldman lays off the bottom 5-10% of performers each year routinely.
Citadel’s chief Kenneth Griffin is notorious for laying off people.
But I guess those firms aren’t successful LOL
I suspect you were wrong. It appears to have been a scam.
I first heard of Superfund during the summer of 2008 when they were advertising their hedge fund on CNBC as a managed futures fund for the average investor. I also saw the CEO being interviewed several times where he claimed that market direction does not matter and that the program that they use is 100% automatic (no human intervention) and will automatically switch its trading strategy as the market turns.
Out of curiosity, I went to their site to see how the fund performed. They had 4 managed futures funds and claimed to have $1 billion under management. When I first looked at the performance of one of their funds, I wasn’t impressed since it had gone from a NAV of 1,000 at funds conception in November 2003 to 1,350 at the high of the stock market in October 2008 which is only 35% as compared to an increase in the DOW of about about 45% during the same time.
However from November 2008 through August 2009, the fund performed superbly increasing to nearly 1,700 (total performance since inception of 70%) while the DOW sank to 11,500 (total performance of about 25% during the same time).
I continued to watch the fund during the dept of the credit crisis from September 2008 through March 2009 and the fund continued to increase to 1,900 (90% increase since inception) while the DOW plummeted to below 7,000 (loss of about 25% over that period of time). I was becoming very impressed with the fund and could understand why people would invest in the fund even though it charged exorbitant fees (8.75% annual fee plus 25% performance fee and their highly leveraged fund even more) since it appeared that the fund had found the secret of profiting no matter the direction of the market.
Recently I investigated the fund again and was surprised to see that the fund had gone into a tailspin from April 2009 through December 2009 returning to a NAV of 1,350 (35% since inception) while the DOW had recovered to 10,000 (8% over the same period of time). See the performance chart and NAV tables in the following link.
http://www.superfund.com/HP07/download/U…
Initially I thought that their luck had run out but when I investigated their new funds that used the same strategy (inception April 2009), those funds increased by about 20% during that period while the original funds decreased about 30% during the same period of time. See the funds performance chart and NAV tables during that time in the following link.
http://www.superfund.com/HP07/download/U…
So how can two funds using the exact same strategy perform so drastically different during the same period of time? I don’t believe they can but instead the fund manager found a way to keep investors in the fund (not allow redemptions) while he put out declining performance numbers so they could pay off investors by the end of 2009. According to the funds prospectus, redemptions occur at the end of the month and require a 5 day written notice but redemptions can be denied if liquidity or other issues exist. It appears that the fund was able to stop investors from redeeming since their was only about 1/6th the value of redemptions during 2009 as compared to 2008.
Over the past two months, Superfund has closed 6 offices around the world leaving only Vienna, Hong Kong, and New York. I suspect they are on their last leg.
http://www.arabianbusiness.com/590295-au…
So from the time of conception, the funds have increased 30% which is about the same as the DOW (8% gain plus about 21% dividends over 7 years) while the fund returned about 92% to the firm (8.75% per year for fees x 7 years = 61.5% plus 30 percent in performace fees – fund performance was a high of 120% including performance fees x 25% = 30% for the firm and 90% for the investor).
I strongly suspect it was a scam but will be hard to prove. I suspect the fund will claim that the losses occured due to deleveraging and liquidity issues while trying to pay off investors as they were forced to sell off the assets due to a run on the fund. Like the banks during the credit crisis, they were likely marking assets much higher than the market value of the assets to try to make it appear that the fund was performing better than it really was.
It appears that the true gain for Superfund from inception through December 2009 may be less than 30%. I suspect that because trading is performed on a short term basis, the investor is declared to have received short term gains annually equal to the performance increase in the fund. Since the fund reached its near high of a little over 90% gain since inception, the investor would likely have gotten 1099 forms declaring 90% short term gains during the years.
They would likely be taxed as normal income and if the investor had a marginal tax rate of 33% for federal and state taxes, that would reduce his gains by 30% (90% * 33%) wiping out any possible real gains.
Although taxes would also have to be paid on DOW dividends, they would likely be taxed at 5 or 15% reducing the DOW real gain by no more than 3%. Also there is a .18% management fee for the DIA ETF so the real gain for an investor in the DOW could be as little as 24.5% during that time period compared to 0% for the Superfund.
Typical money men – they use your money to make themselves cash first and if there’s anything left the investors get it.
Owners therefore have little risk, only reward. The investors assume all the risk and no guarantee of a return………………
It is funny to see that Aaron hasn’t been replying, and also someone has taken out the news on Wikipedia that Superfund has closed a number of offices globally over the past few months, including the office in Singapore where Mr. Smith was the MD, and also the offices in Australia, South America, Europe….etc.
Now the are betting hard in Japan according to the latest news from Hedgeweek.
“Superfund is focussing its investment lens on Japan’s retail investors, with the launch of Superfund Blue Japan. The firm hopes to secure USD 100 million within twelve months for the fund. It will use a market-neutral strategy picking investments from 2,500 global equities. The fund joins Superfund’s stable of two other managed futures funds in Japan, which use computer modelling to identify price signals in futures markets. Johann Peter Santer, President of Superfund Securities Japan Co., told Bloomberg that the fund “will only take short positions in futures indexes, while its long bets will be in single securities.” ”
So no more managed futures for Superfund i suppose? Or is this another way to admit that Superfund’s success on managed futures in the early 2000 was only pure luck?
from Reuters:
SINGAPORE, June 11 | Fri Jun 11, 2010 1:55am EDT
Austrian hedge fund manager Superfund said on Friday it has shut six international sales offices and laid off staff as part of cost-saving measures amid a tough business environment.
Superfund has closed its sales offices in Singapore, Dubai, Sydney, Sao Paulo, Liechtenstein and Monaco and will now manage its operations out of Vienna, Hong Kong and New York, the firm said in a statement.
The firm, which uses computer programmes to run its managed futures funds, rose to prominence in the mid-1990s by regularly producing double-digit returns. Its performance over the past 12-18 months has, however, been poor.
According to Superfund’s latest report, its flagship Superfund Q-AG lost 24 percent in 2009 and was down 6.9 percent in the five months ended May. But the fund is up 516 percent since its inception in 1996 for an annualised return of 13.6 percent.
Superfund, started by former Austrian policeman Christian Baha does not disclose assets under management but news reports from 2007 said Q-AG alone had about $1.5 billion. (Reporting by Kevin Lim; Editing by Saeed Azhar)
OMG….
this is even better:
http://www.reuters.com/article/idUSLDE68L1TO20100922
They just moved their office in Hong Kong from the financial district to the shopping district.
Mr. Smith, any comments?
I’ve actually met Aaron before, came off as an arrogant jerk. Funny thing is, he’s just a sales guy at the end of the day, their system is automated from what they say, he doesn’t program it, so doesn’t really add any value besides sales.
Mr. Smith has left Superfund.
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