How do they get away with it?

It is somewhat amusing that in a world filled with self-styled investing mavens no one has executed a late-night infomercial extolling the virtues of opening a currency CTA. What an oversight: Any business capable of charging fees for delivering sub-Treasury bill performance for more than two decades and still maintain customer loyalty and acquire new investors has a terrific business model.

Students of industrial organization might gravitate toward barriers to entry in such a business as an explanation for how it could continue. As the formal barriers to becoming a CTA are low, we must look to the informal barriers, such as the asset-gathering and fund allocation structure of financial intermediaries. If they do not raise money for new entrants, those new entrants will not be able to achieve the critical mass of assets under management required to stay in business.

And as asset allocators have little to gain from risking assets on as-yet unproven traders — and much to lose if funds under management disappear as a result of poor performance — the safe course of action is to stay with established CTAs until investors walk away in disgust. That has yet to happen.