| Derivative Instruments | 3. DERIVATIVE INSTRUMENTS Derivatives and Hedging (Topic 815) of the Codification requires qualitative disclosure about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. The Partnership’s market risk is influenced by a wide variety of factors, including the level and volatility of interest rates, exchange rates, equity price levels, the market value of financial instruments and contracts, the diversification effects among the Partnership’s open positions, and the liquidity of the markets in which it trades. The Partnership engages in the speculative trading of futures and forward contracts on currencies, energies, grains, interest rates, livestock, metals, softs and stock indices. The following were the primary trading risk exposures of the Partnership at September 30, 2021, by market sector: Agricultural (grains, livestock and softs) – The Partnership’s primary exposure is to agricultural price movements which are often directly affected by severe or unexpected weather conditions as well as supply and demand factors. Currencies – Exchange rate risk is a principal market exposure of the Partnership. The Partnership’s currency exposure is to exchange rate fluctuations, primarily fluctuations which disrupt the historical pricing relationships between different currencies and currency pairs. The fluctuations are influenced by interest rate changes, as well as political and general economic conditions. The Partnership trades in a large number of currencies, including cross-rates—e.g., positions between two currencies other than the U.S. dollar. Energies – The Partnership’s primary energy market exposure is to gas and oil price movements often resulting from political developments in the oil producing countries and economic conditions worldwide. Energy prices are volatile and substantial profits and losses have been and are expected to continue to be experienced in this market. Interest rates – Interest rate movements directly affect the price of the sovereign bond futures positions held by the Partnership and indirectly the value of its stock index and currency positions. Interest rate movements in one country, as well as relative interest rate movements between countries, may materially impact the Partnership’s profitability. The Partnership’s primary interest rate exposure is to interest rate fluctuations in countries or regions, including Australia, Canada, Japan, Switzerland, the United Kingdom, the U.S., and the Eurozone. However, the Partnership also may take positions in futures contracts on the government debt of other nations. The General Partner anticipates that interest rates in these industrialized countries or areas, both long-term and short-term, will remain the primary interest rate market exposure of the Partnership for the foreseeable future. Metals – The Partnership’s metals market exposure is to fluctuations in the price of aluminum, copper, gold, lead, nickel, platinum, silver, tin and zinc. Stock indices – The Partnership’s equity exposure, through stock index futures, is to equity price risk in the major industrialized countries, as well as other countries. Derivatives and Hedging (Topic 815) of the Codification requires entities to recognize in the Statements of Financial Condition all derivative contracts as assets or liabilities. Fair values of futures and forward currency contracts in an asset position by counterparty are recorded in the Statements of Financial Condition as “Net unrealized appreciation on open futures and forward currency contracts.” Fair values of futures and forward currency contracts in a liability position by counterparty are recorded in the Statements of Financial Condition as “Net unrealized depreciation on open futures and forward currency contracts.” The Partnership’s policy regarding fair value measurement is discussed in the Fair Value note, contained herein. Since the derivatives held or sold by the Partnership are for speculative trading purposes, the derivative instruments are not designated as hedging instruments under the provisions of the Derivatives and Hedging guidance. Accordingly, all realized gains and losses, as well as any change in net unrealized gains or losses on open positions from the preceding period, are recognized as part of the Partnership’s trading gains and losses in the Statements of Operations. The following tables present the fair value of open futures and forward currency contracts, held long or sold short, at September 30, 2021 and December 31, 2020. Fair value is presented on a gross basis even though the contracts are subject to master netting agreements and qualify for net presentation in the Statements of Financial Condition. Fair Value of Futures and Forward Currency Contracts at September 30, 2021 Net Unrealized Fair Value - Long Positions Fair Value - Short Positions Gain (Loss) on Sector Gains Losses Gains Losses Open Positions Futures contracts: Energies $ 1,358,933 $ ( 25,629 ) $ 9,290 $ ( 63,930 ) $ 1,278,664 Grains - ( 2,670 ) 381,328 ( 111,513 ) 267,145 Interest rates 3,748 ( 396,072 ) 272,867 ( 19,709 ) ( 139,166 ) Livestock 9,240 ( 350 ) 2,280 - 11,170 Metals 224,715 ( 1,058,105 ) 864,815 ( 351,637 ) ( 320,212 ) Softs 57,425 ( 3,319 ) - ( 15,299 ) 38,807 Stock indices 30,155 ( 569,879 ) 103,373 ( 121,615 ) ( 557,966 ) Total futures contracts 1,684,216 ( 2,056,024 ) 1,633,953 ( 683,703 ) 578,442 Forward currency contracts 539,870 ( 5,272,778 ) 4,188,460 ( 683,579 ) ( 1,228,027 ) Total futures and forward currency contracts $ 2,224,086 $ ( 7,328,802 ) $ 5,822,413 $ ( 1,367,282 ) $ ( 649,585 ) Fair Value of Futures and Forward Currency Contracts at December 31, 2020 Net Unrealized Fair Value - Long Positions Fair Value - Short Positions Gain (Loss) on Sector Gains Losses Gains Losses Open Positions Futures contracts: Energies $ 171,561 $ ( 22,821 ) $ 147,200 $ ( 47,110 ) $ 248,830 Grains 600,725 ( 75 ) - ( 58,775 ) 541,875 Interest rates 451,704 ( 77,733 ) - ( 4,342 ) 369,629 Livestock - - 350 ( 3,320 ) ( 2,970 ) Metals 1,218,228 ( 162,546 ) 121,935 ( 308,748 ) 868,869 Softs 63,528 ( 157 ) 260 ( 21,214 ) 42,417 Stock indices 916,090 ( 102,903 ) 135,736 ( 4,437 ) 944,486 Total futures contracts 3,421,836 ( 366,235 ) 405,481 ( 447,946 ) 3,013,136 Forward currency contracts 2,207,125 ( 490,820 ) 529,838 ( 1,931,881 ) 314,262 Total futures and forward currency contracts $ 5,628,961 $ ( 857,055 ) $ 935,319 $ ( 2,379,827 ) $ 3,327,398 The effect of trading futures and forward currency contracts is represented on the Statements of Operations for the three and nine months ended September 30, 2021 and 2020 as “Net realized gains (losses) on closed positions: Futures and forward currency contracts” and “Net change in unrealized: Futures and forward currency contracts.” These trading gains and losses are detailed below. Trading gains (losses) of futures and forward currency contracts for the three and nine months ended September 30, 2021 and 2020 Sector Three months ended: September 30, 2021 Three months ended: September 30, 2020 Nine months ended: September 30, 2021 Nine months ended: September 30, 2020 Futures contracts: Energies $ 829,098 $ 593,366 $ 5,393,975 $ 5,582,670 Grains 236,185 ( 435,375 ) 555,414 384,196 Interest rates ( 2,079,622 ) ( 1,813,422 ) ( 1,648,007 ) ( 2,448,170 ) Livestock ( 14,170 ) 56,980 ( 119,210 ) 322,100 Metals ( 698,008 ) 548,309 502,339 121,408 Softs 25,586 ( 3,277 ) ( 491,105 ) ( 258,749 ) Stock indices ( 2,655,873 ) 3,842,827 7,904,992 ( 24,972,026 ) Total futures contracts ( 4,356,804 ) 2,789,408 12,098,398 ( 21,268,571 ) Forward currency contracts ( 2,779,866 ) 2,040,739 ( 5,135,487 ) 3,620,544 Total futures and forward currency contracts $ ( 7,136,670 ) $ 4,830,147 $ 6,962,911 $ ( 17,648,027 ) The following table presents average notional value by sector of open futures and forward currency contracts for the nine months ended September 30, 2021 and 2020 in U.S. dollars. The Partnership’s average net asset value for the nine months ended September 30, 2021 and 2020 was approximately $ 122,000,000 and $ 134,000,000 , respectively. Average notional value by sector of futures and forward currency contracts for the nine months ended September 30, 2021 and 2020 2021 2020 Sector Long positions Short positions Long positions Short positions Futures contracts: Energies $ 23,113,846 $ 1,275,987 $ 8,911,277 $ 6,718,330 Grains 6,147,309 9,342,858 4,539,716 4,543,772 Interest rates 244,089,488 42,428,068 210,815,600 54,680,755 Livestock 383,165 428,088 155,158 139,923 Metals 15,210,281 1,738,667 13,333,707 2,316,727 Softs 1,383,740 1,491,688 1,190,563 1,040,801 Stock indices 67,108,290 17,592,848 56,641,598 11,141,806 Total futures contracts 357,436,119 74,298,204 295,587,619 80,582,114 Forward currency contracts 50,342,715 49,671,763 45,720,939 24,124,986 Total futures and forward currency contracts $ 407,778,834 $ 123,969,967 $ 341,308,558 $ 104,707,100 Notional values in the interest rate sector were calculated by converting the notional value in local currency of open interest rate futures positions with maturities less than 10 years to 10 -year equivalent fixed income instruments and translated to U.S. dollars at September 30, 2021 and 2020. The 10-year note is often used as a benchmark for many types of fixed-income instruments and the General Partner believes it is a more meaningful representation of notional values of the Partnership’s open interest rate positions. The averages have been calculated based on the amounts outstanding at the end of each quarter during the calculation period. The customer agreements between the Partnership, the futures clearing brokers, including Deutsche Bank Securities Inc. (a wholly-owned subsidiary of Deutsche Bank AG), BofA Securities, Inc. (formerly Merrill Lynch Pierce, Fenner & Smith Inc.) and Goldman Sachs & Co. LLC, as well as the FX prime brokers, Deutsche Bank AG (“DB”) and Bank of America, N.A. (“BA”), give the Partnership the legal right to net unrealized gains and losses on open futures and foreign currency contracts. The Partnership ceased clearing futures trades through SG Americas Securities, LLC. during November 2020. The Partnership netted, for financial reporting purposes, the unrealized gains and losses on open futures and forward currency contracts on the Statements of Financial Condition as the criteria under Balance Sheet (Topic 210) of the codification were met. The following tables present gross amounts of assets or liabilities which qualify for offset as presented in the Statements of Financial Condition as of September 30, 2021 and December 31, 2020. Offsetting derivative assets and liabilities at September 30, 2021 Assets Gross amounts of recognized assets Gross amounts offset in the Statement of Financial Condition Net amounts of assets presented in the Statement of Financial Condition Futures contracts Counterparty J $ 721,819 $ ( 372,649 ) $ 349,170 Counterparty L 2,402,224 ( 1,916,744 ) 485,480 Total assets $ 3,124,043 $ ( 2,289,393 ) $ 834,650 Liabilities Gross amounts of recognized liabilities Gross amounts offset in the Statement of Financial Condition Net amounts of liabilities presented in the Statement of Financial Condition Futures contracts Counterparty C $ 450,334 $ ( 194,126 ) $ 256,208 Total futures contracts 450,334 ( 194,126 ) 256,208 Forward currency contracts Counterparty G $ 2,041,348 $ ( 1,388,883 ) $ 652,465 Counterparty K 3,915,009 ( 3,339,447 ) 575,562 Total liabilities $ 6,406,691 $ ( 4,922,456 ) $ 1,484,235 Amounts Not Offset in the Statement of Financial Condition Counterparty Net amounts of assets presented in the Statement of Financial Condition Financial Instruments Collateral Received (1)(2) Net Amount (3) Counterparty J $ 349,170 $ - $ ( 349,170 ) - Counterparty L 485,480 - ( 485,480 ) - Total $ 834,650 $ - $ ( 834,650 ) $ - Amounts Not Offset in the Statement of Financial Condition Counterparty Net amounts of liabilities presented in the Statement of Financial Condition Financial Instruments Collateral Pledged (1)(2) Net Amount (4) Counterparty C $ 256,208 $ - $ ( 256,208 ) $ - Counterparty G 652,465 - ( 652,465 ) $ - Counterparty K 575,562 - ( 575,562 ) $ - Total $ 1,484,235 $ - $ ( 1,484,235 ) $ - (1) Collateral received includes trades made on exchanges. These trades are subject to central counterparty clearing where settlement is guaranteed by the exchange. Collateral pledged includes both cash and U.S. Treasury notes held at each respective counterparty. (2) Collateral disclosed is limited to an amount not to exceed 100 % of the net amount of assets and liabilities presented in the Statement of Financial Condition for each respective counterparty. (3) Net amount represents the amount that is subject to loss in the event of a counterparty failure as of September 30, 2021. (4) Net amount represents the amounts owed by the Partnership to each counterparty as of September 30, 2021. Offsetting derivative assets and liabilities at December 31, 2020 Assets Gross amounts of recognized assets Gross amounts offset in the Statement of Financial Condition Net amounts of assets presented in the Statement of Financial Condition Futures contracts Counterparty C $ 856,082 $ ( 137,105 ) $ 718,977 Counterparty J 667,834 ( 91,621 ) 576,213 Counterparty L 2,303,401 ( 585,455 ) 1,717,946 Total futures contracts 3,827,317 ( 814,181 ) 3,013,136 Forward currency contracts Counterparty G 1,263,361 ( 926,520 ) 336,841 Total assets $ 5,090,678 $ ( 1,740,701 ) $ 3,349,977 (Continued) Liabilities Gross amounts of recognized liabilities Gross amounts offset in the Statement of Financial Condition Net amounts of liabilities presented in the Statement of Financial Condition Forward currency contracts Counterparty K 1,496,181 ( 1,473,602 ) 22,579 Total liabilities $ 1,496,181 $ ( 1,473,602 ) $ 22,579 (Concluded) Amounts Not Offset in the Statement of Financial Condition Counterparty Net amounts of assets presented in the Statement of Financial Condition Financial Instruments Collateral Received (1)(2) Net Amount (3) Counterparty C $ 718,977 $ - $ ( 718,977 ) $ - Counterparty G 336,841 - - 336,841 Counterparty J 576,213 - ( 576,213 ) - Counterparty L 1,717,946 - ( 1,717,946 ) - Total $ 3,349,977 $ - $ ( 3,013,136 ) $ 336,841 Amounts Not Offset in the Statement of Financial Condition Counterparty Net amounts of liabilities presented in the Statement of Financial Condition Financial Instruments Collateral Pledged (1)(2) Net Amount (4) Counterparty K $ 22,579 $ - $ ( 22,579 ) $ - Total $ 22,579 $ - $ ( 22,579 ) $ - (1) Collateral received includes trades made on exchanges. These trades are subject to central counterparty clearing where settlement is guaranteed by the exchange. Collateral pledged includes both cash and U.S. Treasury notes held at each respective counterparty. (2) Collateral disclosed is limited to an amount not to exceed 100% of the net amount of assets presented in the Statement of Financial Condition for each respective counterparty. (3) Net amount represents the amount that is subject to loss in the event of a counterparty failure as of December 31, 2020. (4) Net amount represents the amounts owed by the Partnership to each counterparty as of December 31, 2020. CONCENTRATION OF CREDIT RISK Credit risk is the possibility that a loss may occur due to the failure of a counterparty to perform according to the terms of a contract. Credit risk is normally reduced to the extent that an exchange or clearing organization acts as a counterparty to futures transactions since typically the collective credit of the members of the exchange is pledged to support the financial integrity of the exchange. The General Partner seeks to minimize credit risk primarily by depositing and maintaining the Partnership’s assets at financial institutions and trading counterparties which the General Partner believes to be creditworthy. In addition, for OTC forward currency contracts, the Partnership enters into master netting agreements with its counterparties. Collateral posted at the various counterparties for trading of futures and forward currency contracts includes cash and U.S. Treasury notes. The Partnership’s forward currency trading activities are cleared through DB and BA. The Partnership’s concentration of credit risk associated with DB or BA nonperformance includes unrealized gains inherent in such contracts, which are recognized in the Statements of Financial Condition plus the value of margin or collateral held by DB and BA. The amount of such credit risk was $ 14,155,803 and $ 7,519,618 at September 30, 2021 and December 31, 2020, respectively. |
