You don't have to be a sophisticated investor to recognize that thanks to events of the last several months, the American investment landscape has sharply and irrevocably changed, and that current events ranging from continued volatility in global financial markets to the ascendancy of Barack Obama and the Democratic party to the helm of the national government stand to change it still further. As headlines trumpet the latest alarming news regarding the economy and the financial markets, popular pessimism concerning America's financial future rises seemingly in inverse proportion to the degree to which public confidence in the individuals and institutions responsible for economic stewardship plummets. Apart from the broadly-held consensus that things are bad and are likely to get worse, there is precious little agreement as to the ultimate breadth or depth of the economic challenges ahead, or to their impact upon the investment landscape.

For too long, too many investors, commentators, and even regulators have operated with a less-than-clear understanding of the broader investment landscape and the significant forces acting within it. After all, when things are going well and money is being easily and abundantly made, it is all too easy to pay too little attention to what is being done, by whom, and how-but there is nothing like a major crisis to quickly focus one's attention. It is doubtful that the words mortgage-backed security, for example, had even been uttered on national television until the stunning collapse of these same securities triggered the current financial implosion-though it is certainly apparent now that a broader and more widely held appreciation of this particular concept would have been quite useful beforehand. Such ignorance must be included in any listing of the factors underlying the current crisis, and overcoming such ignorance must be afforded the highest possible priority.

As if there weren't already enough reasons for previously-blithe investors to start paying attention to the details: Enter Bernard Madoff and his Madoff Securities Limited, L.L.C. hedge fund, whose spectacular $50 billion plummet from grace caused collateral damage to investors ranging from Steven Spielberg to the Royal Bank of Scotland. For an industry already battered by collapsing returns and investors' mad dash for the exits, Madoff Securities' cataclysmic flameout could well prove to be the kiss of death trumpeted in the headline of Britain's Independent newspaper; the Madoff collapse occurred a scant three weeks after the Financial Times' report of a record $40 billion exodus from poorly performing funds. For investors accustomed to viewing hedge funds and their ostensible ability to profit regardless of market conditions as a high-return safety zone, the sector's current travails seem a particularly bitter blow.

During the high-flying days of tremendous hedge fund returns, investors had been willing to overlook factors such as lockup periods, lack of transparency, and the general lack of accountability on the part of managers-all factors exploited by Madoff. Even more scrupulous managers, pressured to maintain high returns and empowered to invest in whatever areas stood to maintain them, were led to take imprudent risks; in the era of easy credit and consequent leverage, this posed fewer problems than the current period of sharply reduced leverage.

For purposes of convenience, hedge funds have been conjoined with managed futures under the umbrella term alternative investments. From a factual standpoint, these fundamentally dissimilar investment vehicles have little common ground to support such an unfortunate linking, apart from historically high rates of return. Successfully distinguishing between the two completely separate asset classes could be vital to investors wishing to weather the current financial maelstrom with their portfolios intact. A signifcant portion of the billions of dollars currently flowing out of the hands of hedge fund managers is streaming towards managed futures as investors recognize futures' ability to make good on promises that hedge funds have recently failed to fulfill.

Structurally and operationally, managed futures are situated to provide the absolute return that the hedge fund industry could not deliver, while offering far greater accountability and transparency. Typical hedge fund guidelines enable managers to effectively invest in anything at any time without any need to provide transparency to investors; stocks, distressed securities, debt financing, convertible bond financing, or virtually any other form of investment may be selected, while the investor - who likely would be horrified at such uses of their funds - remains blissfully unaware. The investor is forced to rely on past returns and personal faith in the manager's acumen as his assurance that this tremendous power is not misused. Reporting of fund performance typically takes the form of intermittent vague estimates, rather than actual figures, until these are replaced by hard numbers at the last possible moment for tax purposes. Moreover, long lockup periods preclude the investor from acting swiftly in response to changing market conditions, poor fund performance, or other factors.

While certainly futures traders are subject to the same human foibles and errors that hedge fund managers, stockbrokers, or other investment professionals are, and while it is true that futures are subject to volatility and downside risk, key differences allow more readily for changes of course as market conditions dictate. A hedge fund manager locked into illiquid investments or long-term positions is left with little recourse in the event of adverse circumstances; managed futures traders, on the other hand, typically deal principally in highly liquid investments, enabling rapid shifts in strategy and allocations as circumstances warrant. A truly trend-following futures trader may take either long or short positions on any given commodity, promoting even as those trapped in illiquid or unidirectional positions lose their shirts.

An astute futures trader need not depend upon markets moving either up or down-only that they move. The end of the cold war, the industrial and economic ascension of China and India, the expansion of several Latin American economies and the steadily rising global population all provide the assurance that the overall trend will be towards increasing demand for finite commodities, and consequently a vibrant ongoing market; unsettled global geopolitical and economic conditions would indicate continuing sharp price swings, benefiting the knowledgeable trader who has done the hard work of assembling and assessing the necessary data to identify emergent trends and act accordingly.

With the recent closure of over 3,000 hedge funds and the Madoff debacle, it would seem that the era of the insular, secretive hedge fund guru has come to a close. Investors now seem inclined towards knowledge-based investment strategies which rely upon managers who offer accountability, transparency, and demonstrated expertise. The complex, rewarding world of managed futures appears poised to receive them warmly.

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