We’ve discussed how size may impact performance of a CTA in a past newsletter, but were reminded of the puzzling conundrum in a recent article we stumbled across. The post was highly critical of CTAs in general, discussing commodity prices and riding the speculator blame train that we’ve derailed multiple times in this space, but also made the argument that size impedes speed of transactions, which limits the ability of larger CTAs to perform.

Our newsletter largely delved into the statistical performance of large and emerging CTAs, and we noticed that the larger CTAs didn’t always perform at higher rates. A possible reason for that could very well be the size of positions being traded and how that impacts speed. But most of all, the article made us think back to that original newsletter, in which we had a gem of a quote from Tom O’Donnell (a Partner with The Bornhoft Group – a firm that has been specializing in multi-manager CTA portfolios for 25 years),

“The tricky part is determining if the asset growth makes the manager better at managing money…  or better at counting the money he manages.”

Well said, indeed.  It seems only logical that managers would have issues in staying nimble as they get larger and larger, but we can also see that they didn’t get that big accidentally, with skill in handling such issues.

The debate bears monitoring as the largest CTAs get more and more assets under management as managed futures continues to rise in popularity, and we’ll look to continue measuring the difference in performance between small and large managers, and more importantly – between times when the same manager was small and when they were large.