Category Archives: Managed Futures News

Morgan Stanley Customers Bear All of Managed Futures Funds’ Risks but Enjoy None of Rewards

Recent articles in Bloomberg News and the Washington Post have exposed Morgan Stanley’s unfair practices in connection with both its management of managed futures funds and its sale of these investments to retail brokerage customers.

Morgan Stanley Smith Barney Spectrum Technical L.P. is an example of one Morgan Stanley managed futures fund that appears to have existed purely for the benefit Morgan Stanley at the expense of investors.

According to the Bloomberg article, Spectrum Technical raised $797 Million between 2002 and 2012 and experienced trading gains of $490 Million during this period.   Based upon this data, one would think that Spectrum Technical would have been a great investment.

Amazingly, Spectrum Technical  experienced an overall loss during this period.  This is because it paid $497 Million in fees, expenses, and commissions to Morgan Stanley and various outside commodity trading advisers, approximately $7 Million more than its trading gains.

Morgan Stanley’s brokerage/financial advisory division made massive commissions selling this product.  The general partner of the fund which reaped massive management fees — Ceres Management LLC — is a wholly-owned subsidiary of Morgan Stanley.

This investment never made any sense for Spectrum technical’s limited partners.  No rational investor receiving a fair disclosure of the skewed risk versus reward balance would have put capital at risk for the opportunity to pay any windfall in trading profits to Morgan Stanley and to commodity trading advisers in fees, commissions, and expenses.   Investors essentially gave Morgan Stanley money to gamble, Morgan Stanley won big at the casino, but Morgan Stanley gave none of the winnings back to the investors.

It appears that Morgan Stanley misled many of its brokerage customers.  Morgan Stanley apparently presented rosy charts showing how well certain managed futures funds had performed during the past two decades.  However, the effects of fees and commissions are not fairly addressed in the fund’s prospectuses.

These problems are not limited to Morgan Stanley.  According to the Bloomberg articles, 63 managed futures funds were required to report information to the SEC over the last ten years due to their size.  In aggregate, 89% of the trading profits from these 63 funds were eaten up by fees, commissions, and expenses during this period. Interestingly, BarclayHedge, a company which tracks the performance of managed futures funds, only looks at trading performance and does not keep track of the performance of funds net of fees.

Spectrum Technical is a Delaware limited partnership.  Under Delaware law, a general partner owes fiduciary duties to the limited partnership.  As a fiduciary of Spectrum Technical, Ceres Management — the Morgan Stanley subsidiary that is the general partner of Spectrum Technical — was required to put the interests of Spectrum Technical above its own interests.   By managing Spectrum Technical in such a manner that the partnership bore all of the risks, but stood no real chance of success, it appears that Ceres breached fiduciary duties.

The names of nine Morgan Stanley managed futures funds appear below:

Morgan Stanley Smith Barney Spectrum Strategic L.P.

Morgan Stanley Smith Barney Spectrum Technical L.P.

Morgan Stanley Smith Barney Spectrum Currency and Commodity L.P.

Morgan Stanley Smith Barney Spectrum Global Balanced L.P.

Morgan Stanley Smith Barney Spectrum Strategic L.P.

Morgan Stanley Smith Barney Spectrum Select L.P.

Polaris Futures Fund L.P.

Meritage Futures Fund L.P.

Blau & Malmfeldt is a law firm that represents investors across the United States in securities, commodity futures, partnership, and shareholder rights disputes.  Investors in Spectrum Technical, and in other managed futures funds, are encouraged to contact our law firm at 312-443-1600 to discuss their legal rights.