Interpreting Proprietary Results

An investor called us yesterday asking what it meant in some CTA materials he was reading through that the performance was proprietary. Good question.

On occasion, you’ll see performance denoted as “proprietary results.” This means that the numbers reflect the performance of money (their own or money they have an interest in) invested by a manager into their own program. Per industry regulation, a program’s track record (the results of clients on that program) must be maintained separately from the proprietary results.

But why does it matter in the end? Isn’t it technically the performance of the same strategy used to generate the overall track record? There are a few things to keep in mind:

  1. Proprietary results represent the pinnacle of self-reporting bias. If a program loses money when trading in a proprietary manner, odds are you’ll never see it offered to investors.
  2. Proprietary results, especially in any strategy incorporating a discretionary component into their strategy, may not reflect the true level of risk in a strategy. The fear is that a manager, when not trading with their own money, may take undue risks (or on the flip side, they may be scared with other people’s money and risk less, resulting in lower returns).
  3. Proprietary results, typically speaking, don’t demonstrate a long enough track record to truly assess the risk involved in the strategies they’re meant to reflect. In this sense, those results may not be the most reliable source of data for investors (even though they are the only data available).
  4. Proprietary accounts usually don’t have to pay management or incentive fees, and will normally have much lower commissions than what clients have. While many proprietary results are back-adjusted to try to reflect those fees, it’s not always consistent.
  5. Proprietary results represent performance under ideal circumstances for the manager- they get to trade the strategy they created on their terms and then fashion how it’s offered to the public according to that. Their ability to replicate the performance with 10 or 20 clients staring at their account balances daily may differ. Think about it like this- proprietary results are like you saying you can hit a baseball 390 feet, and telling the story of the one time you did it in your backyard. Actual results are like being called out and having to hit a homerun in Yankee Stadium in front of a packed house.

That doesn’t mean that proprietary results are worthless. They do provide a snapshot of what a program is capable of- it just doesn’t paint the whole picture necessarily. Not all proprietary results will fall victim to each of the flaws we’ve listed. Frankly, if you’re the investor searching for the “next big thing” in the shape of an emerging CTA, proprietary results may be all you have to consider. At the end of the day, something to consider is better than nothing as you make allocation decisions, but it is important that investors understand the limitations of these results as they make their evaluations.


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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

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