You can’t go far in learning about managed futures without coming across the name John W. Henry, who has to be considered the most famous person (for non managed futures people) to come out of the managed futures space – although that fame is as a result of his foray into the world of sport, not his successes in investing. We’ve used the line more than once before when seeing the eyes of an uncle or random stranger at a wedding gloss over at our explanation of managed futures and exactly what it is we do for a living… “it’s how John Henry, owner of the Boston Red Sox, made his money”.  That’s usually followed by an “ahhh”, even though it likely hasn’t shed any new information about how it is he made that money.

But it seems that what transformed Henry from trend following nerd to household name – success with the Red Sox – is starting to cut the other way for him. From the Bloomberg article, John Henry’s Terrible, Horrible, Very Bad Year, we learn that the owner who, in 2004 helped break the Red Sox curse and took the team to their first World Series victory since 1918, is hitting what one might charitably label a “rough patch.” Via Bloomberg:

..he has made a mess of two different teams in two different sports on two different continents. The Red Sox are in the basement of the American League East, and Liverpool is off to its worst start since “Love Me Do.” Henry is no longer seen as a genius but as just another rich, out-of-touch, out-of-town owner who has lost the faith of his teams’ fans and the reverence of the sports-business community.

We feel bad for the fans of those teams (but only so much, we do have the Cubs here in Chicago for anyone who feels a World Series title in 2004 is too far removed from the present), but we must confess that isn’t what we thought of when we saw Bloomberg’s headline last week. We thought the headline was referring to Henry’s core business of running managed futures programs.

You see, while the Red Sox are in last place, his main CTA, GlobalAnalytics, just happens to be in the midst of its worst-ever drawdown, having lost -35.85% since the fund’s peak in April 2011. As they say, “when it rains it pours.” The CTA has also seen a sharp decline in assets, which started in 2005 when Merrill Lynch decided to stop putting their clients in JWH products.

Disclaimer: past performance is not necessarily indicative of future results.

What’s to blame here? Volatility, Merrill Lynch, or his foray into sports?  Would the performance be better if John Henry was actually at the controls day to day? We doubt it. To us it looks like the model has performed as it was designed to… it is just a more volatile model than investors are looking for these days. The mammoths like Winton or Man AHL in the industry tend to see that. We often look at CTAs getting large and experiencing shrinking volatility as a bad thing; but perhaps the assets are growing because the volatity is falling. Maybe they are meeting investor demand for lower volatility and that is why they are seeing smaller gains and losses – not because of their size.

Whatever it is – it’s sad to see this titan of the managed futures industry losing assets on top of his team’s losing games. We wish him the best and hope that his efforts to turn things around on the field and in the books are successful.

P.S. – It’s interesting to note the timing between the outflow of assets from Henry’s program and the performance of the program. It looks like Merril Lynch couldn’t have made much worse of a call – pulling all of the money during the 05/06 drawdown; right before the program took off in 2007 and 2008.