The Commodity Futures Trading Commission (CFTC) is investigating the sky high fees that are charged to investors in managed futures funds. This comes after a December 19, 2013 letter that the Senate’s Special Committee on Aging sent to the CFTC asking them to work with the Securities and Exchange Commission (SEC) on investigating the fees and the means for their disclosure when associated with retirement accounts .
A managed future fund is a variety of alternative investment that is overseen by the CFTC. These funds are normally sold to consumers via brokers. Fund managers then invest in futures, which are financial contracts in which the buyer promises to buy an asset at a predetermined date in the future. Such futures obligations typically obligate the buyer to purchase assets like global commodities (goods and services), and foreign currencies, among other speculative financial instruments .
A review of these funds has shown that over 89% of the gains of $11.51 billion these funds posted were eaten up by fees, commissions, and expenses of the fund managers. As The Economist describes hedge fund fees, it is “easy to think of people who have become billionaires by managing hedge funds; it is far harder to think of any of their clients who have got as rich.”
What is worse is many of these fees are not adequately disclosed to investors. The National Futures Association (NFA), a self-regulating watchdog organization that oversees the trading of commodities and futures, does not require managers of managed futures funds to disclose how their fees impact investor profits over time. And given that these funds are sold to investors by brokers, it is not likely a broker would disclose that all of the gains from the fund are likely to be eaten up by these fees .
In the December 19 Senate Committee letter that has prompted the CFTC probe, Senators Bill Nelson and Elizabeth Warren wrote: “Clearly, individual investors, especially senior investors looking to find a suitable place to place their retirement savings, should be made aware of these managed-future funds’ fees and commissions and the draining effect upon their investments. Although these funds are purported to be for sophisticated investors, some of these firms have a very low minimum investment that can be made from an Individual Retirement Account (IRA). We are very concerned about the potential impact these fees could have on the retirement security of the Americans who invest in these funds.”