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Hedge Fund Performance & Industry Trends – August 2017

Colin Lloyd provides a review on the latest hedge fund performance and trends. 

Hedge funds and managed futures managers generally delivered positive performance once again during August. Some of the sub-strategies struggled but the majority benefited from a continuation of the trends and drivers seen in July.

Hedge Funds

The Barclayhedge Hedge Fund Index rose 65 basis points in August – the tenth straight monthly increase. Its YTD performance almost matches the full year returns seen in 2016.

The leading sub-sector was Technology (+2.81%, +16.34% YTD) although there are indications that some of the largest technology focused managers have reduced their long exposures over the past few weeks.

Emerging Markets also saw another month of strong performance, rising 1.81% on the month (+13.01% YTD). In its H2 report HFR observed a net inflow of $800mln to Emerging Market managers – the first inflow since Q2 2015.

Ranked third on the month was Biotech & Healthcare (+1.75%) which leaves it in second place YTD +13.90%. Pacific Rim Equities followed close behind, rising 1.43%, however, they are considerably further behind YTD (+7.57%).

The poorest performance, last month, was seen from Event Driven, down 55 basis points. Hardly cause for alarm. Whilst Global Macro remains the laggard YTD +1.40%. This sub-strategy has seen inflows, nonetheless, as investors’ hedge against the risk of a sudden increase in volatility later this
year.

 

Managed Futures

The Barclayhedge CTA Index was up 56 basis points last month, leaving it down 49 basis points YTD. All the sub-indices were positive apart from Systematic Managers (-0.56%). French based alternatives manager, Lyxor, reports that many of their CTA managers have seen outflows throughout most of 2017 as drawdowns have shaken investor confidence. They go on to note that performance has improved since July, just as the last of the redemptions have been processed – plus ca change!

Interestingly, despite strong performance from a number of the industrial metals Financial & Metals Traders only managed to mark time last month. These markets have been technically strong but the underlying fundamental drivers of demand as not obvious. Capital preservation is a key function of absolute return management, this cautious approach to the metals rally may well prove justified.

 

Industry Trends and News

eVestment reports that Hedge Funds saw $8bln of inflows in July bringing the YTD total to $30.5bln. This is mirrored by reports from Man Group who announced increased H1 AUM of $8.2bln, of which $3bln came from their Fund of Fund group Man FRM. Whilst one swallow doesn’t make a summer, it is encouraging to see an inflow into Hedge Fund of Funds.

On the subject of Fund of Funds, Emerging Manager, Fund of Funds, Blueprint Capital Advisors, founded by a team from Ramius HVB, announced that they have invested in eight additional managers – all involved in Credit strategies. The obsession with yield was also evident in the launch
of a new High Yield fund by Cheyne Capital. Their new portfolio manager previously ran the leveraged finance business for Blue Bay Asset Management.

In the quant space, Credit Suisse announced that they are spinning-off QSAM – Quantitative Systematic Asset Management – which will launch with $1bln AUM. The new company will have four offices globally and employ more than 100 staff. Meanwhile AQR have applied for a license to offer ETFs based on their strategies, further blurring the lines between traditional and alternative investments. This trend is also evident in the doubling of AUM since January for the Blackrock Style Advantage Fund. This product has garnered $1.6bln of assets – a management fee of 95 basis points
and no performance fee are clearly a part of the appeal. A three day redemption notice period
maybe another factor.

Finally, a regulatory development. Brevan Howard, Tudor Investment and Finisterre Capital have all announced that they intend to develop AIFM regulatory structures rather than comply with the onerous requirements of MiFid II. For many smaller managers the private placement regime may suffice after all.

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