Item 1.Business
(a)General development of business
Millburn Multi-Markets Fund L.P. (the “Partnership”) is a limited partnership organized September 8, 2008 under the Delaware Revised Uniform Limited Partnership Act. The Partnership commenced operations on August 1, 2009. The Partnership is required, pursuant to its Third Amended and Restated Limited Partnership Agreement (the “Limited Partnership Agreement”), to invest all of its assets in Millburn Multi-Markets Trading L.P. (the “Master Fund”), a Delaware limited partnership that began trading on October 20, 2004. The Partnership is one of a number of investors in the Master Fund. As of December 31, 2018, the Partnership’s partnership percentage in the Master Fund was approximately 33.60% of total partners’ capital of the Master Fund. The general partner and trading advisor of the Partnership and the Master Fund is Millburn Ridgefield Corporation, a Delaware corporation operating in New York, New York (the “General Partner”).
The Master Fund’s business is trading a diversified portfolio of futures, forward, swap, spot and option contracts on currencies, metals, interest rate instruments, stock indices, energy and agricultural commodities. The Master Fund may also, to a limited extent, invest in equities, equity baskets, instruments related to equities, exchange traded funds or notes. The General Partner invests globally pursuant to its proprietary quantitative and systematic trading methodology, based upon signals generated from an analysis from price, price derivatives, fundamental and other quantitative data. Approximately 20%-30% of the Master Fund’s trading, measured by the General Partner’s assessment of risk, currently takes place in the currency markets.
The General Partner conducts and manages the business of the Partnership and the Master Fund. The Master Fund serves as a master fund for a non-U.S. investment vehicle managed by the General Partner and also permits direct investment by persons qualified to so invest, including qualified General Partner employees.
The General Partner was organized in May 1982 to manage discretionary accounts in futures and forward markets. It and its principals have been trading in the futures and forwards markets pursuant to systematic quantitative, trading and risk management methods since 1971. The General Partner has been registered with the Commodity Futures Trading Commission (the “CFTC”) as a commodity pool operator (“CPO”) since July 1, 1982, as a commodity trading advisor (“CTA”) since September 13, 1984 and has been a member of the National Futures Association (the “NFA”) since July 1, 1982. The General Partner has been an approved swaps firm with the NFA since December 26, 2012. The General Partner conducts all trading and investment activities through the Master Fund. The Millburn Corporation, a former affiliate of the General Partner, that, prior to January 1, 2019, performed research, trading, technology, operations, marketing, accounting, tax, legal, compliance, human resources, and other administrative functions for the Partnership and the Master Fund and other commodity pools and investment partnerships managed by the General Partner, merged with and into the General Partner on December 31, 2018, and the General Partner now performs the functions formerly performed by The Millburn Corporation.
As of December 31, 2018, the aggregate net asset value of the Partnership was $159,519,606 and the aggregate net asset value of the Master Fund was $474,824,374. The net asset value of a Series A Unit originally sold for $1,000.00 as of August 1, 2009 was $1,191.29 as of December 31, 2018. The net asset value of a Series B Unit originally sold for $1,000.00 as of August 1, 2009 was $1,369.64 as of December 31, 2018. The net asset value of a Series C Unit originally sold for $1,000.00 as of August 1, 2009 was $1,397.43 as of December 31, 2018. The net asset value of a Series D Unit originally sold for $1,331.20 as of November 1, 2017 was $1,338.27 as of December 31, 2018. In each case, these are based on the actual rate of return a limited partner’s investment in the Partnership would have recognized, net of the highest charges applicable to a limited partner, during each month in the calculation period from August 1, 2009 to December 31, 2018.
The Partnership’s and the Master Fund’s fiscal year ends on December 31 of each calendar year.
The Partnership will terminate upon the prior withdrawal, insolvency, bankruptcy or dissolution of the General Partner or occurrence of any event legally requiring termination.
The Partnership is not a registered investment company or mutual fund. Accordingly, investors in the Partnership do not have the protections afforded by the Investment Company Act of 1940, as amended.
(c)Narrative description of business
The Partnership, through the Master Fund, engages in the speculative trading of futures, forward and spot contracts and may trade options thereon as well as swap contracts. The Master Fund’s sole trading advisor is the General Partner. The Master Fund trades in the agricultural, metals, energy, interest rate and stock indices futures markets and in the currency markets, trading primarily forward contracts in the interbank market. The Master Fund may also, to a limited extent, invest in equities, equity baskets, instruments related to equities, exchange traded funds or notes. The General Partner makes its systematically-based trading decisions pursuant to its investment and trading methods, which may include technical trend analysis, certain non-traditional technical systems (i.e., systems falling outside of traditional technical trend analysis), and money management principles, each of which may be revised from time to time. The objective of the General Partner’s investment and trading methods is to consider multiple data inputs, or “factors,” in order to arrive at relatively near-term return forecasts for each traded instrument and take appropriate risk-managed positions. These factors include price data, but also a range of price derivative and non-price data. Trades generated by quantitative models may be profitable or unprofitable. The General Partner’s objective is to have the profits from its profitable trades offset and exceed the losses from its unprofitable trades. During periods in which market behavior differs significantly from that analyzed to build the models, substantial losses are possible, and even likely.
The General Partner is engaged in an ongoing research effort to improve its investment and trading methods and to apply its quantitative analytic expertise to new financial products.
Successful systematic futures and forward trading depends on several elements. Two of the main factors are the development and selection of the trading systems used in each market and the allocation of portfolio risk among the markets available for trading.
Market environments change over time, and particular systems may perform well in one environment but poorly in another. Likewise, market sectors and individual markets go through periods where systematic trading is very profitable and other periods where no system is able to generate any profits.
The goal of the General Partner’s research has been to develop and select a mix of systems in each market and to allocate risk across a wide array of markets, so as to contain overall portfolio risk within a targeted range, while allowing exposure to profitable opportunities. Over more than 47 years, the General Partner and its predecessor entities have developed hundreds of trading systems. These trading systems generate buy or sell decisions in a particular market based on the analysis of price movements in the market, some non-price information or a combination of both.
Of course, systems can be materially different - better in some periods and worse in others. The main distinguishing features are: the time frame over which systems work (intra-day to long-term); the granularity of data fed into them (tick data to daily, weekly or monthly frequencies) the amount of data used to learn the market structure; the statistical or technical methods used to make forecasts; the type of data (market or economic statistics); and the source of data (cash, futures, forwards or option markets-generated data or government- and industry-generated statistical information). No single approach will work all the time. Therefore, the General Partner’s objective is to have several approaches and several data inputs operating in conjunction with one another.
When arriving at the portfolio allocation, the General Partner generally seeks maximum diversification, subject to liquidity and sector concentration constraints and subject to the mandate of the strategy. Each market is traded using a diversified set of trading systems, which may be optimized for groups of markets, sectors or specific markets. The markets traded and allocations are reviewed at least monthly, although changes may occur more or less frequently. The following factors, among others, are considered in constructing a universe of markets to trade for the Master Fund: profitability, liquidity of markets, professional judgment, desired diversification, transaction costs, exchange regulations and depth of markets. The current allocation to any market in the Master Fund’s portfolio does not exceed 3.0% of total market exposure, measured by risk allocation.
Risk is a function of both price level and price volatility. For example, for any given level of volatility, a 100,000 barrel crude oil position is worth more and is, therefore, probably more risky with oil at $90 per barrel than with oil at $50 per barrel. Similarly, oil would be more risky if prices are moving in a 5% daily range than if prices are moving in a 1% daily range. The General Partner sizes the position in each market taking into account its measurement of risk based on price level and volatility in that market. Market exposure is then managed by the position-sizing models which measure the risk in the portfolio’s position in each market. In the event the model determines that the risk has changed beyond an acceptable threshold, it will signal a change in the position - a decrease in position size when risk increases and an increase in position size when risk decreases. The General Partner’s position-sizing models maintain overall portfolio risk and distribution of risk across markets within designated ranges. The position-sizing model manages the position traded by each of the (directional) trading systems discussed above.
In addition, the General Partner’s risk management processes focus on money management principles applicable to the portfolio as a whole rather than to individual markets. The first principle is portfolio diversification, which attempts to improve the quality of profits by reducing volatility.
Additional money management principles applicable to the portfolio as a whole include: (1) limiting the assets committed as margin or collateral, generally within a range of 5% to 35% of an account’s net assets, though the amount may at any time be substantially higher or lower and (2) prohibiting pyramiding - that is, using unrealized profits in a particular market as margin for additional positions solely in the same market.
Another important risk management function is the careful control of leverage or total portfolio exposure. Leverage levels are determined by simulating the entire portfolio - all markets, all systems, all risk control models, the exact weightings of the markets in the portfolio and the proposed level of leverage - over the past five or ten years to determine the portfolio’s simulated risk and return characteristics as well as the worst case experienced by the portfolio in the simulation period. The worst case, or peak-to-trough drawdown, is measured from a daily high in portfolio assets to the subsequent daily low whether that occurs days, weeks or months after the daily high. If the General Partner considers the drawdown too severe or the portfolio’s simulated volatility too high, it can reduce the leverage or total portfolio exposure. There are, however, no restrictions on the amount of leverage the Master Fund may use at any given time.
Decisions whether to trade a particular market require the exercise of judgment. The decision not to trade certain markets for certain periods, or to reduce the size of a position in a particular market, may result at times in missing significant profit opportunities.
In some cases, the General Partner employs discretion in the execution of trades where trader expertise plays a role in timing of orders and, from time to time, the General Partner may adjust the size of a position, long or short, in any given market indicated by its systematic trading strategies. This exercise of discretion (other than in trade execution) has historically been very rare and would generally occur only in response to unusual market conditions that may not have been factored into the design of the trading systems. Such adjustments would be done with the intention of reducing risk exposures as opposed to seeking additional risk. Decisions to make such adjustments also require the exercise of judgment and may include consideration of the volatility of the particular market; the pattern of price movements, both inter-day and intra-day; open interest; volume of trading; changes in spread relationships between various forward contracts; and overall portfolio balance and risk exposure.
The Partnership’s units of limited partnership interest (“Units”) are issued in four series: Series A, Series B, Series C and Series D (each, a “Series”). The sole differences among the Series are the fees applicable to each Series, and the “series” designation is an administrative, not a legal, distinction. All Partnership fees and expenses, including those described below, are borne by the Partnership and are paid on behalf of, and allocated to, the Partnership at the Master Fund level. All such fees and expenses paid at the Master Fund level are borne indirectly by limited partners as investors in the Partnership, but only to the extent those fees and expenses are properly allocable to such limited partners, pro rata on a Series-by-Series basis, as described herein.
The Partnership bears all of its own direct expenses, including, but not limited to, any taxes to which the Partnership is subject, regulatory fees, and interest charges.
Series A, Series B, Series C and Series D Units are issued in order to account for different selling commissions and registered investment adviser (“RIA”) platform fees, if any, applicable to each Series. Other than with respect to such selling commissions, RIA platform fees and the Profit Share calculation (described below), the Series are subject to the same fees, expenses and other terms of the Partnership and share in the profits and losses of the Partnership on a pro rata basis.
Series A Units are subject to an ongoing compensation charge to be paid to selling agents selling Units (“Selling Agents”) equal to 1/12 of 2% based on the month-end net asset value of such Series’ investment in the Master Fund prior to reduction for any redemptions, distributions, Management Fees (as defined below), any accrued Profit Share (as defined below) and the amounts payable to the Selling Agents then being calculated (a 2% annual rate).
Series B and C Units are not subject to any fees or ongoing compensation to Selling Agents.
Series D Units are subject to an ongoing compensation charge to be paid to Selling Agents equal to 1/12 of 0.75% based on the month-end net asset value of such Series’ investment in the Master Fund prior to reduction for any redemptions, distributions, Management Fees, any accrued Profit Share and the amounts payable to the Selling Agents then being calculated (a 0.75% annual rate).
The General Partner receives from the Master Fund a monthly “Management Fee” in respect of each Series’ investment in the Master Fund, in an amount equal to 1/12 of 2% of the net asset value of such Series’ investment in the Master Fund as of each month-end prior to reduction for any redemptions, distributions, any amounts payable to Selling Agents, any accrued Profit Share or the Management Fee then being calculated (a 2% annual rate), prorated for partial months.
The General Partner’s “Profit Share” is calculated separately as of the end of a fiscal year, with respect to (i) Series A Units (the “Series A Profit Share”), (ii) Series B and Series C Units in the aggregate (the “Series B/C Profit Share”) and (iii) Series D Units (the “Series D Profit Share”). The Series A Profit Share and Series D Profit Share equal 20% of any increase in Series A trading profits and Series D trading profits, respectively, over the previous high point in trading profits as of a date on which a Profit Share was paid with respect to Series A or Series D, respectively (or $0 if no Profit Share has been paid with respect to such Units). The Series B/C Profit Share equals 20% of any increase in aggregate trading profits attributable to Series B and Series C over the previous high point in such trading profits as of a date on which a Profit Share was paid with respect to Series B and Series C (or $0 if no Profit Share has been paid with respect to such Units).
The General Partner’s Profit Share with respect to withdrawals made from the Master Fund as a result of redemptions of Units as of a month-end other than a fiscal year-end are computed and a corresponding allocation made to the General Partner as though the month-end were a fiscal year-end.
The Partnership bears its pro rata share of all of the Master Fund’s expenses, including, but not limited to, all expenses that the General Partner reasonably determines to be incurred in connection with the Master Fund’s investment activities, including brokerage commissions and electronic platform trading costs; any taxes to which the Master Fund is subject; regulatory fees; and interest charges.
A capital account will be established for each Unit and for the General Partner, and its initial balance is the amount of the initial price of such Unit and the initial capital contribution of the General Partner, respectively. The net assets of the Partnership are determined monthly, and any increase or decrease from the end of the preceding month is added to or subtracted from the accounts in the ratio that each account bears to all accounts.
In connection with the Master Fund’s futures trading, the Master Fund currently executes and clears transactions through SG Americas Securities, LLC (“SG Americas”), Deutsche Bank Securities Inc. (“Deutsche Bank”) and Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”), each a registered futures commission merchant, but may use other futures commission merchants or cease using any particular futures commission merchant at any time in the General Partner’s discretion. The Master Fund also currently engages in currency forward trading with Deutsche Bank AG and Bank of America, N.A., which serve as the Master Fund’s prime brokers for such transactions, but may utilize the services of additional prime brokers or engage in such trading with other banks and dealers as well. At this time, the Master Fund clears its currency forward trades with Deutsche Bank AG and Bank of America, N.A.
The General Partner estimates that 90% or more of the Master Fund’s assets, including the assets used to satisfy margin and collateral requirements, will be invested in U.S. government securities or securities issued by federal agencies (or, to a limited extent, foreign government securities in connection with trading on non-U.S. exchanges), other CFTC-authorized investments and certain other money market instruments (e.g., bankers acceptances and Eurodollar or other time deposits). All interest earned on such securities or other obligations purchased with Master Fund assets will accrue to the Master Fund. The balance of the Master Fund’s assets will be held in cash in commodity brokerage accounts, bank accounts or other accounts in the name of the Master Fund and will be used for trading which requires cash for margin and to avoid daily buying and selling of government securities. Neither the Partnership nor the Master Fund will make any loans; provided, however, that the Partnership and the Master Fund may purchase CFTC-authorized investments, including debt instruments, as described above. The General Partner will not commingle the property of the Partnership or the Master Fund with the property of any other person or entity (the deposit of Partnership or Master Fund assets with banks, brokers and dealers for margin, collateral or otherwise not being deemed a prohibited commingling).
The Partnership does not engage in lending (other than through permitted securities investments).
Regulation
Under the Commodity Exchange Act, as amended (the “CEA”), commodity exchanges and futures trading are subject to regulation by the CFTC. NFA, a “registered futures association” under the CEA, is the only non-exchange self-regulatory organization for futures industry professionals. The CFTC has delegated to the NFA responsibility for the registration of CTAs, CPOs, “futures commission merchants,” “introducing brokers,” “swap dealers” and their respective associated persons and “floor brokers” and “floor traders.” The CEA requires CPOs and CTAs, such as the General Partner, and commodity brokers or futures commission merchants and swap dealers, such as SG Americas, Deutsche Bank, Deutsche Bank AG, MLPF&S and Bank of America, N.A. to be registered and to comply with various reporting and record keeping requirements. The CFTC may suspend a CPO’s or CTA’s registration if it finds that its trading practices tend to disrupt orderly market conditions or in certain other situations. In the event that the registration of the General Partner as a CPO or a CTA were terminated or suspended, the General Partner would be unable to continue to manage the business of the Partnership. Should the General Partner’s registration be suspended, termination of the Partnership might result.
In addition to such registration requirements, the CFTC and certain commodity exchanges have established limits on the maximum net long or net short positions which any person may hold or control in certain futures contracts. Most exchanges also limit the changes in futures contract prices that may occur during a single trading day. The CFTC has also proposed, but not yet adopted, additional position limit rules covering energy, metals and agricultural derivative contracts. All accounts controlled by the General Partner are combined for speculative position limit purposes. The General Partner could be required to liquidate positions it holds on behalf of the Master Fund in order to comply with such limits. Any such liquidation or limited implementation could result in substantial costs to the Partnership. It is as yet unclear whether the rules will have an adverse effect on the Partnership.
In response to the financial crises of 2008-2009, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Reform Act”) was enacted in July 2010. The Reform Act mandates that a substantial portion of over-the-counter (“OTC”) derivatives must be must be executed in regulated markets and be submitted for clearing to regulated clearinghouses, subject to margin requirements. The mandates imposed by the Reform Act may result in the Master Fund bearing new or increased fees, including clearing account maintenance fees, and less favorable dealer marks, with respect to the Master Fund’s trading currently undertaken in the OTC markets.
The Master Fund may also trade forward contracts in the inter-bank currency market. Such forward contracts are not currently traded on exchanges; rather, banks and dealers act as principals in these markets. As a result of the Reform Act, the CFTC regulates non-deliverable forwards (including many deliverable forwards where the parties do not take delivery), although currency forward contracts are generally not otherwise subject to regulation by any other U.S. government agency. Changes in the forward markets may entail increased costs and result in burdensome reporting requirements. There is currently no limitation on the daily price movements of forward contracts. Principals in the forward markets have no obligation to continue to make markets in the forward contracts traded. The imposition of credit controls by governmental authorities or the implementation of regulations pursuant to the Reform Act might limit such forward trading to less than that which the General Partner would otherwise recommend, to the possible detriment of the Master Fund.
(i)through (xii) - not applicable.
(xiii)the Partnership has no employees.
Item 1A.
Item 1A.Risk Factors
Not required.
Item 1B.
Item 1B.Unresolved Staff Comments
Not required.
Item 2.
Item 2.Properties
The Partnership does not own or use any physical properties in the conduct of its business. The General Partner or an affiliate perform administrative services for the Partnership from their offices.
Item 3.
Item 3.Legal Proceedings
The General Partner is not aware of any pending legal proceedings to which either the Partnership is a party or to which any of its assets are subject. In addition there are no pending material legal proceedings involving the General Partner.
Item 4.
Item 4.Mine Safety Disclosures
Not required.
PART II
Item 5.
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
(a)Market Information
There is no trading market for the Units, and none is likely to develop. Units may be redeemed upon 15 days’ written notice at their net asset value as of the last day of any month, subject to certain early redemption charges.
(b)Holders
As of December 31, 2018, there were 935 holders of Series A Units, 113 holders of Series B Units, 27 holders of Series C Units and 12 holders of Series D Units.
(c)Dividends
The General Partner has sole discretion in determining what distributions, if any, the Partnership will make to the Partners. No distributions have been made on the Units, and none are contemplated.
(d)Securities Authorized for Issuance Under Equity Compensation Plans
None.
(e)Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
Units are sold on a monthly basis through the General Partner and selling agents retained by the General Partner to act as its agents. Units were initially issued at $1,000.00 per Unit, except for Series D Units, which were issued at $1.331.20 and thereafter at net asset value. Between October 1, 2018 and December 31, 2018, the Partnership did not issue any Units at monthly closings.
(f)Purchases of Equity Securities by the Issuer
Pursuant to the Limited Partnership Agreement, limited partners may redeem Units as of the end of each calendar month. The redemption of Units by limited partners has no impact on other limited partners.
The following table summarizes limited partner redemptions of Series A, Series B, and Series C Units during the fourth calendar quarter of 2018. No Series D Units were redeemed during that period.
Series A Units
Series B Units
Series C Units
Item 6.
Item 6.Selected Financial Data
Not required.
Item 7.
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources
Units may be offered for sale as of the beginning, and may be redeemed as of the end, of each month.
The amount of capital raised for the Partnership should not have a significant impact on its operations, as the Partnership and the Master Fund have no significant capital expenditure or working capital requirements other than for monies to pay trading losses, brokerage commissions and charges. Within broad ranges of capitalization, the General Partner’s trading positions should increase or decrease in approximate proportion to the size of the Master Fund (in which the Partnership participates).
The Partnership raises additional capital only through the sale of Units and capital is increased through trading profits (if any). Neither the Partnership nor the Master Fund engages in borrowing.
The Master Fund trades futures and forward contracts, and may trade, among other instruments, swap, spot and options contracts, on interest rates, commodities, currencies, metals, energy and stock indices. Risk arises from changes in the value of these contracts (market risk) and the potential inability of counterparties or brokers to perform under the terms of their contracts (credit risk). Market risk is generally to be measured by the face amount of the futures positions acquired and the volatility of the markets traded. The credit risk from counterparty non-performance associated with these instruments is the net unrealized gain, if any, on these positions plus the value of the margin or collateral held by the counterparty. The risks associated with exchange-traded contracts are generally perceived to be less than those associated with OTC transactions because exchanges typically (but not universally) provide clearinghouse arrangements in which the collective credit (in some cases limited in amount, in some cases not) of the members of the exchange is pledged to support the financial integrity of the exchange. In most OTC transactions, on the other hand, traders must rely (typically but not universally) solely on the credit of their respective individual counterparties. Margins which may be subject to loss in the event of a default are generally required in exchange trading and counterparties may require margin or collateral in the OTC markets.
The General Partner has procedures in place to control market risk, although there can be no assurance that they will, in fact, succeed in doing so. These procedures primarily focus on (1) real time monitoring of open positions; (2) diversifying positions among various markets; (3) limiting the assets committed as margin or collateral, generally within a range of 5% to 35% of an account’s net assets, though the amount may at any time be higher; and (4) prohibiting pyramiding - that is, using unrealized profits in a particular market as margin for additional positions in the same market. The Master Fund controls credit risk by dealing exclusively with large, well-capitalized financial institutions as brokers and counterparties.
The financial instruments traded by the Master Fund contain varying degrees of off-balance sheet risk whereby changes in the market values of the futures and forward contracts or the Master Fund’s satisfaction of the obligations may exceed the amount recognized in the Statements of Financial Condition of the Master Fund.
Due to the nature of the Master Fund’s business, substantially all its assets are represented by cash, cash equivalents and U.S. government obligations, while the Master Fund maintains its market exposure through open futures and forward contract positions.
The Master Fund’s futures contracts are settled by offset and are cleared by the exchange clearinghouse function. Open futures positions are marked-to-market each trading day and the Master Fund’s trading accounts are debited or credited accordingly. Options on futures contracts are settled either by offset or by exercise. If an option on a future is exercised, the Master Fund is assigned a position in the underlying future which is then settled by offset. The Master Fund’s spot and forward currency transactions conducted in the interbank market are settled by netting offsetting positions or payment obligations and by cash payments.
The value of the Master Fund’s cash and financial instruments is not materially affected by inflation. Changes in interest rates, which are often associated with inflation, could cause the value of certain of the Master Fund’s debt securities to decline, but only to a limited extent. More important, changes in interest rates could cause periods of strong up or down market price trends, during which the Master Fund’s profit potential generally increases. However, inflation can also give rise to markets which have numerous short price trends followed by rapid reversals, markets in which the Master Fund is likely to suffer losses.
The Master Fund’s assets are generally held as cash or cash equivalents, including U.S. government securities or securities issued by federal agencies, other CFTC-authorized investments or held in bank or certain other money market instruments (e.g., bankers acceptances and Eurodollar or other time deposits), which are used to margin the Master Fund’s futures and forward currency positions and withdrawn, as necessary, to pay redemptions and expenses. Other than potential market-imposed limitations on liquidity, due, for example, to limited open interest in certain futures markets or to daily price fluctuation limits, which are inherent in the Master Fund’s futures and forward trading, the Master Fund’s assets are highly liquid and are expected to remain so. During its operations through December 31, 2018, the Partnership, through its investment in the Master Fund, experienced no meaningful periods of illiquidity in any of the numerous markets traded by the General Partner.
Critical Accounting Estimates
The Master Fund records its transactions in futures, forward and spot contracts, including related income and expenses, on a trade date basis. Open futures contracts traded on an exchange are valued at fair value, which is based on the closing settlement price on the exchange where the futures contract is traded by the Master Fund on the day with respect to which net assets are being determined. Open spot contracts are recorded at fair value based on current market prices (“spot prices”). Open forward currency contracts are recorded at fair value, based on pricing models that consider the current spot prices plus the time value of money (“forward points”) and contractual prices of the underlying financial instruments. The spot prices and forward points for open forward currency contracts are generally based on the 3:00 P.M. New York time prices provided by widely used quotation service providers on the day with respect to which net assets are being determined. The forward points from the quotation service providers are generally in periods of one month, two months, three months and six months forward while the contractual forward delivery dates for the foreign currency contracts traded by the Partnership may be in between these periods.
The General Partner’s policy is to calculate the forward points for each contract being valued by determining the number of days from the date the forward currency contract is being valued to its maturity date and then using straight-line interpolation to calculate the valuation of forward points for the applicable forward currency contract. The General Partner will also compare the calculated price to the forward currency prices provided by dealers to determine whether the calculated price is fair and reasonable.
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. (“U.S. GAAP”) requires management to make estimates and assumptions, such as accrual of expenses, that affect the amounts and disclosures reported in the financial statements. Based on the nature of the business and operations of the Partnership, the General Partner believes that the estimates utilized in preparing the Partnership’s financial statements are appropriate and reasonable, however actual results could differ from these estimates. The estimates used do not provide a range of possible results that would require the exercise of subjective judgment. The General Partner further believes that, based on the nature of the business and operations of the Partnership, no other reasonable assumptions relating to the application of the Partnership’s critical accounting estimates other than those currently used would likely result in materially different amounts from those reported.
Results of Operations
The Partnership’s success depends on the General Partner’s ability to recognize and capitalize on trends and other profit opportunities in different sectors of the global capital and commodity markets. The General Partner’s investment and trading methods are confidential, so that substantially the only information that can be furnished regarding the Partnership’s results of operations is its performance record. Unlike most operating businesses, general economic or seasonal conditions have no direct effect on the profit potential of the Partnership, while, at the same time, its past performance is not necessarily indicative of future results. Because of the speculative nature of the Master Fund’s trading, operational or economic trends have little relevance to the Partnership’s results. The General Partner believes, however, that there are certain market conditions - for example, markets with strong price trends - in which the Partnership has a better opportunity of being profitable than in others.
During 2018, the Partnership, through its investment in the Master Fund, achieved net realized and unrealized gains of $8,675,203 from trading operations (including foreign exchange transactions and translations). Management fees of $3,220,274, brokerage commissions of $584,765, selling commissions and platform fees of $2,939,263, administrative and operating expenses of $590,508 and custody fees of $27,562 were paid or accrued. The Master Fund allocated $1,075,724 in Profit Share to the General Partner in respect of the Partnership. Interest income of $2,732,462 partially offset the Master Fund expenses allocated to the Partnership resulting in net income after profit share to the General Partner of $2,969,569.
For the year ended December 31, 2018, the Master Fund achieved net realized and unrealized gains of $32,281,980 from trading operations (including foreign exchange transactions and translations). Management fees of $8,130,927, brokerage commissions of $1,976,433, selling commissions and platform fees of $2,955,747, administrative and operating expenses of $1,158,094 and custody fees of $94,847 were paid or accrued. The Master Fund allocated $4,975,303 in Profit Share to the General Partner. Interest income of $9,261,155 partially offset the Master Fund expenses resulting in net income after profit share to the General Partner of $22,251,784.
An analysis of the Master Fund’s trading gain (loss) by sector for the year ended December 31, 2018 is as follows:
The Partnership was profitable in 2018 as first quarter losses, driven largely by the January - February global equity selloff, were outweighed by gains realized the last ten months of the year. Sizable profits from trading energy futures and, to a lesser extent, from trading interest rate, soft and agricultural commodity futures and currency forwards outdistanced losses from trading stock index and metal futures.
The year opened optimistically with signs of expanding, synchronized global growth, but closed pessimistically amid mounting concerns about a synchronized growth deceleration. Indicative of this change were readings from the composite index of global manufacturing activity produced by JPMorgan Chase & Co. and IHS Markit that stood at a 27-month low of 51.5 in December after reaching a six year high of 54.5 in January 2018. The dramatic change in outlook reflected several shifts that emerged during the year including: a move from quantitative easing toward quantitative tightening by global monetary authorities; the rising tide of trade protectionism, especially between the U.S. and China; mounting political turmoil in Europe including Brexit, the European Union-Italy deficit squabble, France’s “yellow vests” demonstrations, Germany’s leadership changes, and the simmering Spain-Catalonia independence struggle; and increasing tensions between the Trump administration and the U.S. Congress following the November elections in the U.S. Unsettled conditions in world energy markets also contributed to the deterioration of the growth outlook. These factors, combined with reduced global liquidity, increased high frequency algorithmic trading and the declining role of traditional market makers, led to increasing volatility during the year across most, if not all, financial and commodity markets.
Energy trading was highly profitable during the year even as energy prices swung wildly. For example, Brent crude prices started the year at about $66/barrel, climbed to nearly $80/barrel in late May, fell to $71/barrel in mid-August, rose again to more than $86/barrel on October 3rd and then plunged under $50/barrel in December. Conflicting forces were at work throughout the year. The production control agreement signed by the Organization of the Petroleum Exporting Countries (“OPEC”), the U.S. decision to pull out of the Joint Comprehensive Plan of Action agreement with Iran, the implosion of the Venezuelan economy, Libyan oil production difficulties, and the January - September decline in U.S. inventories negatively impacted energy supplies and underpinned prices. Alternatively, rising shale production that pushed U.S. output to a record 11.7 million barrels per day (mb/d) by late in the year; the June relaxation of OPEC’s production restraint agreement that allowed Saudi Arabia and Russia to push their outputs to record levels of 11.2 and 11.4 mb/d, respectively; and the surprising U.S. announcement in November of 6-month waivers of sanctions for purchasers of Iranian crude flooded the market with supply, at first constraining price increases but ultimately leading to the fourth quarter price collapse. Evidence of slowing global growth also depressed prices. Not even the announcement in December that OPEC would re-impose production cuts in January arrested the declines. Generally speaking, long positions in Brent crude, WTI crude, RBOB gasoline and London gas oil during the first three quarters of 2018 and short positions in these markets in November and December were highly profitable. A long U.S. natural gas position was also very profitable in November as seasonal demand pushed prices higher. Trading of heating oil was slightly unprofitable due to a long position in October and November.
Interest rate futures were buffeted by clashing forces during the year. On the one hand, indications that global central banks, especially the U.S. Federal Reserve (the “Fed”), European Central Bank (the “ECB”), Bank of England and Bank of Japan, were pulling back on monetary accommodation led to firming interest rates and falling prices of interest rate futures. On the other hand, higher U.S. interest rates, a rising U.S. dollar, global trade frictions, and political uncertainties sparked tumult in emerging markets, including Turkey, Brazil Argentina, Mexico and Indonesia, triggering growth concerns, capital flight and safe haven demand for government securities. Similarly, worries that political turmoil in Europe could impede European growth triggered periodic safe haven demand that drove interest rates off their highs. Strong demand from central banks, pension funds and insurance-related buyers for high quality government debt, particularly when yields reached attractive levels, added to the price rallies. Finally, increased equity and credit market volatility globally, and subdued actual inflation statistics also underpinned demand for government securities. Overall, long positions in German, French, Japanese, Australian and Canadian note and bond futures, and short-term euribor futures were profitable. Trading the U.S. ultra-bond was fractionally positive too. On the other hand, trading of U.S. 2-, 5- and 10-year notes and short-term Eurodollar futures produced partially offsetting losses. A long Italian bond trade was unprofitable in May when yields rose sharply in the wake of post-election turmoil. Long positions in British interest rate futures were unprofitable, particularly early in the year when rates increased due to rising global growth and in September when as the Fed raised rates.
Short soybean, wheat and corn trades were profitable, especially in June as Chinese tariffs and ample supplies weighed on prices. In soft commodities, short coffee and sugar positions were each profitable during the January - August time frame, while trading of cocoa generated partially offsetting losses.
While the U.S. dollar did advance during 2018, the gain did not occur in a straight line, but rather, was interspersed with periods of volatile sideways market action. The U.S. dollar, which had been on an upswing entering 2018-as measured by the Bloomberg U.S. dollar index (BBDXY) -fell about 4% from January 1 through mid-April, then strengthened in a halting manner by about 8% during the final eight months of the year. In general, the more hawkish stance by the Fed relative to other major central banks and solid U.S. growth and corporate profits underpinned the U.S. dollar. Idiosyncratic trade, current account deficit, fiscal deficit, foreign debt and political problems in a number of emerging economies, including Turkey, Brazil, India and Argentina among others, further buoyed the U.S. dollar. Increased demand in the wake of periodic European political uncertainties also supported the U.S. currency. Long U.S. dollar trades versus the Brazilian real, British pound, euro, Norwegian krone, Swedish krona, Korean won, Indian rupee, Canadian dollar and Israeli shekel were profitable. A long U.S. dollar/short Turkish lira position was profitable through August, and a short U.S. dollar/long Turkish lira trade was profitable after Turkish interest rates were boosted to support the currency. On the other hand, there were a number of idiosyncratic currency movements that produced losses. Long U.S. dollar trades versus the Japanese yen and Swiss franc-perhaps safer safe havens than the U.S. dollar-were unprofitable. The New Zealand and Australian dollars, which had been shorted significantly as trade tensions between the U.S. and China escalated, rebounded sharply on short covering prior to the November G-20 conference in hopes that the Trump-Xi talks would lead to reduced tensions going forward. Somewhat better than expected economic data from both countries and less dovish local central bank statements supported the short covering during the fourth quarter. As a result, long U.S. dollar positions against both these currencies were unprofitable. Trading the U.S. dollar against the Mexican peso was unprofitable, particularly around the Mexican election in July, and after the United States-Mexico-Canada Agreement or “USMCA” was agreed in October. Trading of the South African rand, Singaporean dollar, Russian ruble and Colombian peso versus the U.S. dollar and of the euro against other European currencies were also unprofitable.
Equity markets were increasingly volatile in 2018 due to decreased global liquidity, increased algorithmic trading, increasing trade protectionism and signs of slowing global growth, particularly late in the year. Rising U.S. interest rates and a strong U.S. dollar dented enthusiasm for emerging market equities. Mounting political turmoil dampened investor interest in European equities. Escalating trade tension between the U.S. and China, and Chinese government efforts to rein in excessive debt and to control environmental damage combined to slow China’s growth and led to sharp selloffs in Chinese and other Asian equities. U.S. equities wilted, especially late in the year, under the weight of worsening trade tensions and persistent Fed tightening. In this environment, long positions in U.S., Canadian, British, German, Swedish, Japanese, and Australian stock futures were unprofitable, particularly during the sharp January - February and fourth quarter declines. Trading of the VIX future and of Spanish, Korean and Indian index futures were also unprofitable. Meanwhile, short positions Dutch, French, Italian, Chinese, Hong Kong, Taiwanese, South African and MSCI EAFE stock index futures posted partially offsetting gains, especially during the year-end selloff. At times, long positions in Dutch, French and Taiwanese equity futures also posted gains.
During 2018, metals prices were impacted by a variety of factors including tariffs and other trade disruptions, U.S. sanctions on Russia, political turmoil in producing regions, a shifting mix of the number of cars powered by gas, diesel and electric motors, a generally rising dollar and the shift from global growth to global slowdown. Trading of industrial metals, especially copper and aluminum, was unprofitable. In addition, late in the year, short gold and silver positions were unprofitable and were reduced as a slightly weaker dollar and global economic and political uncertainties boosted the prices of precious metals. A long nickel position in the first half of the year and a short position in the second half generated partially offsetting profits.
During 2017, the Partnership, through its investment in the Master Fund, achieved net realized and unrealized gains of $13,638,110 from trading operations (including foreign exchange transactions and translations). Management fees of $3,624,623, brokerage commissions of $560,113, selling commissions and platform fees of $3,357,673, administrative and operating expenses of $741,338 and custody fees of $32,344 were paid or accrued. The Master Fund allocated $1,338,994 in Profit Share to the General Partner in respect of the Partnership. Interest income of $1,488,520 partially offset the Master Fund expenses allocated to the Partnership resulting in net income after profit share to the General Partner of $5,471,545.
For the year ended December 31, 2017, the Master Fund achieved net realized and unrealized gains of $32,473,673 from trading operations (including foreign exchange transactions and translations). Management fees of $6,579,624, brokerage commissions of $1,390,339, selling commissions and platform fees of $3,378,797, administrative and operating expenses of $1,163,307 and custody fees of $73,575 were paid or accrued. The Master Fund allocated $3,732,701 in Profit Share to the General Partner. Interest income of $3,762,433 partially offset the Master Fund expenses resulting in net income after profit share to the General Partner of $19,917,763.
An analysis of the Master Fund’s trading gain (loss) by sector for the year ended December 31, 2017 is as follows:
The Partnership was profitable for the year primarily due to gains from long equity futures positions. Trading of soft, tropical commodities and metal futures were fractionally profitable as well. On the other hand, losses were sustained from trading currency forwards and, to a lesser extent, energy, agricultural commodity and interest rate futures.
The Partnership’s long equity futures positions produced broad-based gains largely on account of broadening and deepening global growth, increasing corporate profits, broadly accommodative global monetary policies, less extreme than feared election outcomes in Europe, signs that China is addressing its debt problems, and the passage of a business friendly tax plan in the U.S. These positive influences far outweighed the negative effects of North Korea’s belligerence, several terrorist attacks in Europe and the U.S. President Trump’s persistent threat to global free trade and the post-WWII international order, and several measured actions by major central banks to scale back the level of policy accommodation. Long positions in U.S., European, Canadian, Australian and Asian equity futures were profitable, as was a short VIX trade. Meanwhile, a long South African stock futures trade was slightly unprofitable due, in part, to political uncertainties, and a long Indian equity futures position produced a small loss largely due to the short term negative impacts from the implementation of the general sales tax and the reductions to currency in circulation.
The U.S. dollar, which had risen sharply into early 2017, declined markedly in an erratic saw-toothed pattern during the first 9 months of 2017, driving the Bloomberg dollar index to a nearly 33 month low on September 8, down about 11% from the highs reached early in the year. Thereafter, trading was volatile but range-bound. As the year began, the dollar was underpinned by three factors: U.S. growth that was stronger than growth abroad; U.S. politics that seemed more certain than politics in Europe; and a Fed that was reducing monetary policy accommodation while authorities overseas were still engaged in monetary easing. However, as the year progressed these dollar supports eroded. Growth in Europe and Asia accelerated while growth in the U.S. remained modest. The difficult reality of governing diminished the election euphoria for the Trump administration and politics in the U.S. grew more toxic while the political outlook in Europe improved significantly as elections, particularly in the Netherlands and France, produced more moderate outcomes than feared. Finally, the ECB, Bank of England, People’s Bank of China (“PBOC”), and Bank of Canada, among others, shifted toward a less accommodative policy stance. In this environment, U.S. dollar trades against a number of currencies including the Aussie dollar, New Zealand dollar, Canadian dollar, British pound, Japanese yen, euro, Swiss franc, Norwegian krone, Swedish krona, Polish zloty, Singapore dollar, Korean won, South African rand, and the Columbian and Chilean pesos were unprofitable. On the other hand, short U.S. dollar trades against the Indian rupee, Mexican peso, Russian ruble and Brazilian real posted small gains, as did a long dollar trade against the Turkish lira.
Interest rates were volatile throughout 2017 as central banks indicated with both words and actions that the time was at hand for 10 years of extraordinarily easy monetary policy to come to an end. The Fed increased official interest rates three times; the Bank of Canada raised rates twice; the Bank of England increased rates once; the ECB decided to scale back its QE purchase program beginning in January 2018; and the PBOC moved to scale back economy-wide leverage in China. Hence, even though numerous domestic political uncertainties, geopolitical tensions and terrorist events produced periodic flights of safety into government securities during 2017, interest rates did tend to rise during the second half of the year. Consequently, losses were sustained on long positions in German, British, and U.S. 2-, 5-, and 10-year notes and bonds. A long position in short-term sterling rates was unprofitable as well. While long positions in French, Italian, Japanese and U.S. bonds were profitable for the year, those gains were reduced over the last third of the year. Meanwhile, a short Eurodollar futures trade late in the year was fractionally profitable.
Energy prices displayed sharp swings within a broad range during 2017, falling to low points during the first half of the year and climbing sharply thereafter. In this unsettled environment, losses trading WTI crude, RBOB gasoline and natural gas outpaced the gains from long Brent crude, heating oil and London gas oil trades late in the year.
A long palladium trade and a short platinum trade benefitted from a backlash in Europe against diesel cars and toward gasoline cars. Palladium is used in catalytic converters in gasoline autos while platinum is used in diesel based catalytic converters. Long zinc and copper trades were profitable as a shortage of supply, due in part to production related constraints in China, and increased global demand underpinned prices. Trading of silver was also profitable in 2017. These gains were partially offset by losses suffered trading gold, aluminum and lead.
Trading of soybeans and soybean meal produced losses, especially in the May-September period. These losses were partially offset by profits from short corn and wheat positions during the August-October time frame, which occurred in the wake of reports that drought conditions early in the year had little impact on yields, bumper U.S. harvests of corn and soybeans were expected, and Russia was expecting record wheat and corn harvests. A short hog position was marginally unprofitable.
Short coffee, sugar and cocoa trades were profitable as ample inventories and new production weighed on prices. These gains outdistanced the losses from short crude palm oil and cotton positions.
Off-Balance Sheet Arrangements
Neither the Partnership nor the Master Fund engages in off-balance sheet arrangements with other entities.
Contractual Obligations
Neither the Partnership nor the Master Fund enters into any contractual obligations or commercial commitments to make future payments of a type that would be typical for an operating company or that would affect its liquidity or capital resources. The Partnership’s sole business, through its investment in the Master Fund, is trading futures and forward currency and spot contracts, both long (contracts to buy) and short (contracts to sell). All such contracts are settled by offset, not delivery. Substantially all such contacts are for settlement within four months of the trade date and substantially all such contracts are held by the Master Fund for less than four months before being offset or rolled over into new contracts with similar maturities. The Partnership’s Financial Statements, included as Exhibit 13.1 to this report, present a Condensed Schedule of Investments setting forth net unrealized appreciation (depreciation) of the Master Fund’s open future and forward currency contracts, both long and short, at December 31, 2018.
Item 7A.
Item 7A.Quantitative and Qualitative Disclosures About Market Risk
Not required.
Item 8.
Item 8.Financial Statements and Supplementary Data
The report of Deloitte & Touche LLP for the fiscal years ended December 31, 2018 and 2017, as required by this item, is included as Exhibit 13.1 to this report. Supplementary data is not required.
Item 9.
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Item 9A.Controls and Procedures
The General Partner, with the participation of the General Partner’s principal executive officers and principal financial officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures with respect to the Partnership as of the end of the fiscal year covered by this Annual Report, and, based on its evaluation, has concluded that these disclosure controls and procedures are effective. There were no significant changes in the General Partner’s internal controls with respect to the Partnership or in other factors applicable to the Partnership that could significantly affect these controls subsequent to the date of their evaluation.
Management’s Annual Report on Internal Control over Financial Reporting
The General Partner is responsible for establishing and maintaining adequate internal control over the Partnership’s financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as a process designed by, or under the supervision of, a company’s principal executive and principal financial officers and effected by a company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. The General Partner’s internal control over financial reporting includes those policies and procedures that:
• pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Partnership’s assets;
• provide reasonable assurance that transactions are recorded as necessary to permit preparation of the Partnership’s financial statements in accordance with U.S. GAAP, and that the Partnership’s receipts and expenditures are being made only in accordance with authorizations of the General Partner’s management and directors; and
• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Partnership’s assets that could have a material effect on the Partnership’s financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The General Partner assessed the effectiveness of its internal control over financial reporting with respect to the Partnership as of December 31, 2018. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013). Based on its assessment, management has concluded that, as of December 31, 2018, the General Partner’s internal control over financial reporting with respect to the Partnership is effective based on those criteria.
Changes in Internal Control over Financial Reporting
Section 404 of the Sarbanes-Oxley Act of 2002 requires the General Partner to evaluate annually the effectiveness of its internal controls over financial reporting as of the end of each fiscal year, and to include a management report assessing the effectiveness of its internal control over financial reporting in all annual reports. There were no changes in the Partnership’s internal control over financial reporting during the quarter ended December 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.
Item 9B.Other Information
None.
PART III
Item 10.
Item 10.Directors, Executive Officers and Corporate Governance
(a, b) Identification of Directors and Executive Officers
The Partnership has no directors or executive officers. The Partnership is controlled and managed by the General Partner.
The General Partner is a Delaware corporation operating in New York, New York, organized in May 1982 to manage discretionary accounts primarily in futures, forward and spot markets. It is the corporate successor to a futures trading and advisory organization which has been continuously managing assets in the currency and futures markets using quantitative, systematic techniques since 1971.
The principals and senior officers of the General Partner as of December 31, 2018 are as follows:
Harvey Beker, age 65. Mr. Beker is Co-Chairman of the General Partner, and serves as a member of the General Partner’s Investment Committee. He received a Bachelor of Arts degree in economics from New York University (“NYU”) in 1974 and a Master of Business Administration degree in finance from NYU in 1975. From June 1975 to July 1977, Mr. Beker was employed by the investment bank Loeb Rhoades, Inc. where he developed and traded silver arbitrage strategies. From July 1977 to June 1978, Mr. Beker was a futures trader at the commodities and securities brokerage firm of Clayton Brokerage Co. of St. Louis. Mr. Beker joined The Millburn Corporation in June 1978. He initially served as the Director of Operations for its affiliate, Millburn Partners, and most recently thereafter served as Co-Chief Executive Officer of the General Partner and Chairman and Chief Executive Officer of The Millburn Corporation until November 1, 2015. During his tenure at the General Partner (including its former affiliates, The Millburn Corporation, Millburn Partners and CommInVest), he has been instrumental in the development of the research, trading and operations areas. Mr. Beker became a principal of the firm in June 1982, and a partner in the predecessor to ShareInVest in April 1982. Mr. Beker became registered as an Associated Person and a Swap Associated Person of the General Partner effective November 25, 1986 and March 8, 2013, respectively. He was also listed as a Principal and registered as an Associated Person of ShareInVest effective February 20, 1986 until February 25, 2007. Mr. Beker has also served as Co-Chairman of Millburn Asia, LLC and Millburn International, LLC (collectively, “Millburn International Group”) since each entity’s inception.
Gregg R. Buckbinder, age 60. Mr. Buckbinder is President and Chief Operating Officer of the General Partner and also serves as Chief Financial Officer of the General Partner. He joined the General Partner and The Millburn Corporation in January 1998 from Odyssey Partners, L.P., an investment management firm, where he was responsible for the operation, administration and accounting of the firm’s merchant banking and managed account businesses from July 1990 through December 1997. Mr. Buckbinder was employed by Tucker Anthony, a securities broker and dealer, from June 1985 to July 1990 where he was First Vice President and Controller, and from August 1983 to June 1984 where he designed and implemented various operations and accounting systems. He was with the public accounting firm of Ernst & Whinney from June 1984 to June 1985 as a manager in the tax department and from September 1980 to August 1983 as a senior auditor, with an emphasis on clients in the financial services business. Mr. Buckbinder graduated cum laude from Pace University (“Pace”) in 1980 with a B.B.A. in accounting and received an M.S. in taxation from Pace in 1988. He is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants. Mr. Buckbinder served as Senior Vice-President of the General Partner and The Millburn Corporation until November 1, 2015, and has since served as the Chief Financial Officer of the General Partner and the President and Chief Operating Officer of both entities with his affiliation with The Millburn Corporation ceasing on December 31, 2018 upon The Millburn Corporation’s merger into the General Partner. Mr. Buckbinder has also served as Senior Vice President, Chief Operating Officer and a Director of each entity in Millburn International Group since inception. Mr. Buckbinder became listed as a Principal of the General Partner effective February 5, 1999. He became listed as a Principal of The Millburn Corporation, effective March 23, 1998. Mr. Buckbinder became a partner in ShareInVest in January 2000. He was also listed as a Principal of ShareInVest, effective February 28, 2001 until February 25, 2007.
Michael W. Carter, age 49. Mr. Carter is a Vice President, Director of Operations and Principal Accounting Officer of the General Partner. He is responsible for overseeing operations and accounting for the firm’s commodity pools. Mr. Carter has served as Principal Accounting Officer of the General Partner since May 2014, and prior to the merger of The Millburn Corporation into the General Partner on December 31, 2018, also served as Vice President and Director of Operations of The Millburn Corporation since January 2011, maintaining responsibility for the entity’s operations. Mr. Carter previously held the positions of Fund Controller (February 2001 until February 2011) and Senior Accountant (March 2000 until February 2001) with The Millburn Corporation. He graduated from Rutgers, The State University of New Jersey - Newark in May 1997 with a B.S. in Accounting. Prior to joining the General Partner and its affiliates in March 2000, he was employed with the accounting firm Rothstein Kass & Company, P.C., as a fund accountant from March 1997 until September 1997 and as a staff auditor from September 1997 until June 1999, and then an equity analyst covering restaurants with the brokerage firm of Sidoti & Company, LLC, which conducts independent small-cap equity research for institutional investors, from June 1999 until February 2000. He is a Certified Public Accountant. Mr. Carter became listed as Principal of the General Partner effective April 22, 2014. Mr. Carter’s affiliation with The Millburn Corporation ceased on December 31, 2018 upon its merger into the General Partner.
George E. Crapple, age 74. Mr. Crapple is Co-Chairman of the General Partner and serves as a member of the General Partner’s Investment Committee. In 1966, he graduated with honors from the University of Wisconsin where his field of concentration was economics and he was elected to Phi Beta Kappa. In 1969, he graduated from Harvard Law School, magna cum laude, where he was an editor of the Harvard Law Review. He was a lawyer with the law firm of Sidley Austin LLP, Chicago, Illinois, from June 1969 until April 1, 1983, as a partner since July 1975, specializing in commodities, securities, corporate and tax law. He was first associated with the General Partner in June 1976 and joined the General Partner (including its former affiliates, The Millburn Corporation, Millburn Partners and CommInVest) on April 1, 1983 on a full-time basis. Mr. Crapple ceased his employment with The Millburn Corporation effective May 31, 2011 and his position as Co-Chief Executive Officer of the General Partner as of November 1, 2015. He became a partner in ShareInVest in April 1984. Mr. Crapple is a past Director, Member of the Executive Committee, Chairman of the Appeals Committee and a former Chairman of the Eastern Regional Business Conduct Committee of the NFA, past Chairman of the hedge fund industry group, the Managed Funds Association (the “MFA”), a former member of the Global Markets Advisory Committee of the CFTC and a former member of the board of directors of the Futures Industry Association. Mr. Crapple has also served as the Co-Chairman of each entity in Millburn International Group since inception. Mr. Crapple became listed as a Principal and registered as an Associated Person and Swap Associated Person of the General Partner effective September 13, 1984, April 2, 1988 and December 26, 2012, respectively. He was also listed as a Principal and registered as an Associated Person of ShareInVest effective February 20, 1986 until February 25, 2007.
Steven M. Felsenthal, age 49. Mr. Felsenthal is General Counsel and Chief Compliance Officer of the General Partner. Prior to joining the General Partner and its affiliates (including its former affiliate The Millburn Corporation) in January 2004, Mr. Felsenthal was a senior associate in the investment management group at the law firm of Schulte Roth & Zabel LLP (September 1999 to January 2004), where he represented and advised hedge funds, registered investment companies, investment advisers, broker-dealers and banks in connection with all facets of their asset management businesses, and a member of the tax department of the law firm of Kramer, Levin, Naftalis & Frankel LLP (October 1996 to September 1999). He graduated cum laude from Yeshiva University in 1991 with a B.A. in political science, and order of the coif from Fordham University School of Law in 1996, where he also served as an editor of the Fordham Environmental Law Journal. Mr. Felsenthal received an L.L.M. degree in taxation from NYU School of Law in 2001 and has written and been quoted in numerous published articles, and frequently speaks at conferences, on various topics related to investment management. Mr. Felsenthal is a member of the New York State Bar (since August 1997), a member of NFA’s Compliance and Risk Committee (since May 2014), a member of MFA’s CTA, CPO and Futures Committee, serving as a Chair (since April 2018) and Vice Chair (February 2017 to April 2018), a former member of the Steering Committee of the MFA’s Chief Compliance Officer Forum (June 2014 to December 2015), former Chairman of the MFA’s CPO/CTA Advisory Committee (November 2006 to June 2010) and former Co-Chairman of the Steering Committee of the MFA’s CPO/CTA Forum (June 2010 to January 2013), is currently a member of the Editorial Boards of the Journal of Securities Operations & Custody (formerly known as the Journal of Securities Law, Regulation and Compliance) (since February 2007) and the Journal of Financial Compliance (since August 2017) and a regular lecturer for the Regulatory Compliance Association’s Chief Compliance Officer University (since May 2009). Mr. Felsenthal has also served as General Counsel, Chief Compliance Officer and Secretary of each entity in Millburn International Group since inception. Mr. Felsenthal became listed as a Principal of the General Partner effective June 24, 2004. Mr. Felsenthal also served as General Counsel and Chief Compliance Officer of ShareInVest. Mr. Felsenthal’s affiliation with The Millburn Corporation ceased on December 31, 2018 upon its merger into the General Partner.
Mark B. Fitzsimmons, age 71. Mr. Fitzsimmons is a Senior Vice President of the General Partner. His responsibilities mainly involve business development. He joined the General Partner and its affiliates (including its former affiliate The Millburn Corporation) in January 1990 from the brokerage firm of Morgan Stanley & Co. Incorporated, a global financial services firm, where he was a Principal and Manager of institutional foreign exchange sales and was involved in strategic trading for the firm from October 1987 until January 1990. From September 1977 to October 1987, he was with the financial institution Chemical Bank New York Corporation (“Chemical”), first as a Senior Economist in Chemical’s Foreign Exchange Advisory Service and later as a Vice President and Manager of Chemical’s Corporate Trading Group. While at Chemical, he also traded both foreign exchange and fixed income products. From September 1973 to September 1977, Mr. Fitzsimmons was employed by the Federal Reserve Bank of New York, dividing his time between the International Research Department and the Foreign Exchange Department. He graduated summa cum laude from the University of Bridgeport, Connecticut in 1970 with a B.S. degree in economics. His graduate work was done at the University of Virginia, where he received a certificate of candidacy for a Ph.D. in economics in 1973. Mr. Fitzsimmons became listed as a Principal and registered as an Associated Person and a Swap Associated Person of the General Partner, effective July 2, 1993, April 15, 2009 and March 8, 2013, respectively. Mr. Fitzsimmons was a partner in ShareInVest beginning in January 2000. He was also a listed Principal of ShareInVest effective May 19, 1999 until February 25, 2007. Mr. Fitzsimmons also served as a Senior Vice President of The Millburn Corporation until December 31, 2011 with his main responsibilities including business development and investment strategy.
Barry Goodman, age 61. Mr. Goodman is Co-Chief Executive Officer and Executive Director of Trading of the General Partner, and serves as a member of the General Partner’s Investment Committee. Mr. Goodman plays an integral role in business and product development, and in the strategic direction of the firm as a whole. Mr. Goodman joined the General Partner (including its former affiliate The Millburn Corporation) and Millburn Partners in November 1982 as Assistant Director of Trading and most recently thereafter served as Executive Vice President of the General Partner and The Millburn Corporation until November 1, 2015. Mr. Goodman has since served as Co-Chief Executive Officer and Executive Director of Trading of both entities with his affiliation with The Millburn Corporation ceasing on December 31, 2018 upon the merger of The Millburn Corporation into the General Partner. His responsibilities include overseeing the firm’s trading operations and managing its trading relationships, as well as the design and implementation of trading systems. From September 1980 through October 1982, he was a commodity trader at the brokerage firm of E.F. Hutton & Co., Inc. (“E.F. Hutton”). At E.F. Hutton, he also designed and maintained various technical indicators and coordinated research projects pertaining to the futures markets. Mr. Goodman graduated magna cum laude from Harpur College of the State University of New York in 1979 with a B.A. in economics. Mr. Goodman has also served as President and a Director of each entity in Millburn International Group since inception. Mr. Goodman became listed as a Principal and registered as an Associated Person and a Swap Associated Person of the General Partner effective December 19, 1991, May 23, 1989 and January 14, 2013, respectively. He became a partner in ShareInVest in January 1994. Mr. Goodman was a listed Principal of ShareInVest, effective May 19, 1999 until February 25, 2007.
Grant N. Smith, age 67. Mr. Smith is Co-Chief Executive Officer and Chief Investment Officer of the General Partner, and serves as a member of the General Partner’s Investment Committee. He is responsible for the design, testing and implementation of quantitative trading strategies, as well as for planning and overseeing the computerized decision-support systems of the firm. He received a B.S. degree from the Massachusetts Institute of Technology (“MIT”) in 1974 and an M.S. degree from MIT in 1975. While at MIT, he held several teaching and research positions in the computer science field and participated in various projects relating to database management. He joined the predecessor entity to The Millburn Corporation in June 1975, and has been continuously associated with the General Partner and its affiliates since that time. Mr. Smith served as the Executive Vice President of the General Partner and The Millburn Corporation until November 1, 2015 and as the Director of Research of both such entities until May 31, 2016. He has since served as the Co-Chief Executive Officer and Chief Investment Officer of both entities with his affiliation with The Millburn Corporation ceasing on December 31, 2018 upon the merger of The Millburn Corporation into the General Partner. He has also served as a Director of each entity in Millburn International Group since inception, where he, along with the other Directors of each of those entities, is responsible for its overall management. Mr. Smith became listed as a Principal and registered as an Associated Person and a Swap Associated Person of the General Partner, effective December 19, 1991, April 15, 2009, and March 8, 2013, respectively. Mr. Smith also became a partner in ShareInVest in January 1994. He also was listed as a Principal of ShareInVest, effective May 19, 1999 until February 25, 2007.
None of the individuals listed above currently serves as a director of a public company.
(c)Identification of Certain Significant Employees
None.
(d)Family Relationships
None.
(e)Business Experience
See Item 10 (a, b) above.
(f)Involvement in Certain Legal Proceedings
None.
(g)Code of Ethics
The Partnership has no employees, officers or directors and is managed by the General Partner. The General Partner has adopted an Executive Code of Ethics that applies to its principal executive officers, principal financial officer and principal accounting officer. A copy of this Executive Code of Ethics may be obtained at no charge by written request to Millburn Ridgefield Corporation, 55 West 46th Street, 31st Floor, New York, New York 10036 or by calling 212-332-7300 (ask for Client Services).
(h)Audit Committee Financial Expert
Because the Partnership has no employees, officers or directors, the Partnership has no audit committee. The Partnership is managed by the General Partner. Gregg Buckbinder serves as the General Partner’s “audit committee financial expert.” Mr. Buckbinder is not independent of the management of the General Partner. The General Partner is a privately owned corporation managed by its shareholders. It has no independent directors.
Item 11.
Item 11.Executive Compensation
The Partnership has no directors, officers or employees. None of the directors, officers or employees of the General Partner receive compensation from the Partnership. The Partnership invests all of its assets in the Master Fund. The General Partner makes all investment decisions on behalf of the Master Fund. The General Partner receives monthly management fees of 0.0833 of 2% of the Master Fund’s net assets and an annual profit share of 20% of any new trading profit.
Item 12.
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
(a)Security Ownership of Certain Beneficial Owners
All of the Partnership’s general partner interest is held by the General Partner.
(b)Security Ownership of Management
The Partnership has no officers or directors. Under the terms of the Limited Partnership Agreement, the Partnership is required to invest all its assets in the Master Fund. The General Partner has discretionary authority over the Master Fund’s trading. As of December 31, 2018, the General Partner’s interest was valued at $2,788,913, which constituted 1.75% of the Partnership’s capital as of December 31, 2018.
As of December 31, 2018, no directors or executive officers of the General Partner beneficially owned Units in the Partnership.
(c)Changes in Control
None.
(d)Securities Authorized for Issuance Under Equity Compensation Plans
None.
Item 13.
Item 13.Certain Relationships and Related Transactions, and Director Independence
See “Item 11. Executive Compensation” and “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.” The Partnership, through its investment in the Master Fund, paid to the General Partner $3,220,274 in management fees, and $1,075,724 in Profit Share for the year ended December 31, 2018. The General Partner’s capital interest was allocated net income of $191,645 for the year ended December 31, 2018. The Partnership, through its investment in the Master Fund, paid to the General Partner $3,624,623 in management fees, and $1,338,994 in Profit Share for the year ended December 31, 2017. The General Partner’s capital interest was allocated net income of $218,044 for the year ended December 31, 2017.
Item 14.
Item 14.Principal Accountant Fees and Services
(1)Audit Fees
The aggregate fees for professional services rendered by Deloitte & Touche LLP in connection with their audit of the Partnership’s financial statements in connection with the statutory and regulatory filings for the years ended December 31, 2018 and 2017 were approximately $110,000 for each year presented.
(2)Tax Fees
The Partnership did not engage Deloitte & Touche LLP for professional services for tax compliance, advice or planning services.
(3)All Other Fees
There were no other fees for the years ended December 31, 2018 and 2017.
(4)Pre-Approval Policies
The board of directors of the General Partner pre-approves the engagement of the Partnership’s auditor for all services to be provided by the auditor.
PART IV
Item 15.
Item 15.Exhibits and Financial Statement Schedules
(a)(1)Financial Statements
The following are included with the 2018 Annual Report to Security Holders, a copy of which is filed herewith as Exhibit 13.1.
With respect to the Partnership:
Affirmation of Millburn Ridgefield Corporation
Report of Independent Registered Public Accounting Firm
Statements of Financial Condition
Statements of Operations
Statements of Changes in Partners’ Capital
Statements of Financial Highlights
Notes to Financial Statements
With respect to the Master Fund:
Affirmation of Millburn Ridgefield Corporation
Report of Independent Registered Public Accounting Firm
Statements of Financial Condition
Condensed Schedules of Investments
Statements of Operations
Statements of Changes in Partners’ Capital
Statements of Financial Highlights
Notes to Financial Statements
(a)(2)Financial Statement Schedules
All Schedules are omitted for the reason that they are not required or are not applicable because equivalent information has been included in the financial statements or the notes thereto.
(a)(3)Exhibits as required by Item 601 of Regulation S-K
The following exhibits are included herewith.
Designation
Description
10.1
Fifth Amended and Restated Limited Partnership Agreement of Millburn Multi-Markets Trading L.P.
13.1
2018 Annual Report to Security Holders
31.1
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.2
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.3
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
32.1
Section 1350 Certification of Principal Executive Officer
32.2
Section 1350 Certification of Principal Executive Officer
32.3
Section 1350 Certification of Principal Financial Officer
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
The following exhibits were filed by the Partnership as a part of its Registration Statement on Form 10 (Reg. No. 000-54028) on June 30, 2010 and are incorporated herein by reference.
Exhibit Number
Description of Document
3.1
Certificate of Formation of Millburn Multi-Markets Fund L.P.
The following exhibit was filed by the Partnership as a part of Amendment No. 1 to Registration Statement on Form 10 (Reg. No. 000-54028) on August 27, 2010 and is incorporated herein by reference.
4.1
Third Amended and Restated Limited Partnership Agreement of Millburn Multi-Markets Fund L.P.
Item 16.Form 10-K Summary
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 28th day of March, 2019.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the General Partner of the Registrant and in the capacities and on the date indicated.
Title with
Signature
General Partner
Date
/s/ Harvey Beker
Co-Chairman
March 28, 2019
Harvey Beker
(Director)
/s/ George E. Crapple
Co-Chairman
March 28, 2019
George E. Crapple
(Director)
/s/ Barry Goodman
Co-Chief Executive Officer
March 28, 2019
Barry Goodman
(Principal Executive Officer)
/s/ Grant N. Smith
Co-Chief Executive Officer
March 28, 2019
Grant N. Smith
(Principal Executive Officer)
/s/ Gregg Buckbinder
President and Chief Financial Officer
March 28, 2019
Gregg Buckbinder
(Principal Financial Officer)
/s/ Michael W. Carter
Vice President
March 28, 2019
Michael W. Carter
(Principal Accounting Officer)
(Being the principal executive officers, the principal financial officer and principal accounting officer, and a majority of the directors of Millburn Ridgefield Corporation)
EXHIBIT INDEX
The following exhibits are included herewith.
Designation
Description
10.1
Fifth Amended and Restated Limited Partnership Agreement of Millburn Multi-Markets Trading L.P.
13.1
2018 Annual Report to Security Holders
31.1
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.2
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.3
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
32.1
Section 1350 Certification of Principal Executive Officer
32.2
Section 1350 Certification of Principal Executive Officer
32.3
Section 1350 Certification of Principal Financial Officer
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
The following exhibits were filed by the Partnership as a part of its Registration Statement on Form 10 (Reg. No. 000-54028) on June 30, 2010 and are incorporated herein by reference.
Exhibit
Number
Description of Document
3.1
Certificate of Formation of Millburn Multi-Markets Fund L.P.
The following exhibit was filed by the Partnership as a part of Amendment No. 1 to Registration Statement on Form 10 (Reg. No. 000-54028) on August 27, 2010 and is incorporated herein by reference.
4.1
Third Amended and Restated Limited Partnership Agreement of Millburn Multi-Markets Fund L.P.