Hedge Fund Performance, Trades and Industry Trends – September 2016
Author – Colin Lloyd
Performance and Trades
September saw a bifurcation between the performance of hedge funds and managed futures with the former rising while the latter mostly declined.
|Hedge Funds Barclay Hedge Fund Indices||Sept||No. of Funds||YTD|
|Barclay Hedge Fund Index||0.81%||2292||4.27%|
|Healthcare & Biotechnology Index||5.39%||38||0.65%|
|Distressed Securities Index||0.94%||30||8.12%|
|Emerging Markets Index||0.88%||318||10.08%|
|Merger Arbitrage Index||0.86%||35||4.28%|
|Multi Strategy Index||0.81%||81||3.73%|
|Equity Long/Short Index||0.76%||365||0.88%|
|Fixed Income Arbitrage Index||0.74%||20||2.73%|
|Pacific Rim Equities Index||0.65%||27||-1.42%|
|European Equities Index||0.64%||94||-4.95%|
|Equity Market Neutral Index||0.57%||76||-0.82%|
|Event Driven Index||0.57%||83||8.50%|
|Convertible Arbitrage Index||0.42%||22||4.10%|
|Global Macro Index||-0.55%||134||-1.42%|
The Barclayhedge Hedge Fund Index rose during September to finish +0.82%, which brings it to a respectable +4.27% YTD – it is shaping up to be the best year since 2013, but anything less than double digits is unlikely to reduce the downward pressure on hedge fund fees.
Healthcare and Biotech staged a spectacular rebound in last month (+5.39%) helping the sub-index into positive territory for the year (+0.65%). Stocks like Gilead Sciences (GILD) Celgene (CELG) Allergan (AGN) and Regeneron (REGN) all rebounded after summer weakness. October has been a different story.
Technology was also well supported, with buying of EMC Corp (EMC) Nvidia (NVDA) and Infosys (INFY) to name but a few. A September return of +1.88% takes the index to +4.66% YTD.
Distressed securities had another positive month (+0.94%). Many of the names which had a strong month were in the energy sector where an increase in crude oil, amid hopes of an OPEC deal may have been a contributing factor.
Emerging Markets continued to perform as capital flowed into the sector. This is the only hedge fund index to achieve double digit YTD returns (+10.08%) although Event Driven (+8.5%) is not far behind.
M&A deals which raised the Event Driven sector again included, Bayer (BAYN) raising its bid for Monsanto (MON) to $66bln – but there will be a long wait for regulatory approval, so the pair trades cheap. The AB Inbev (BUD) merger with SABMiller (SAB) finally closed, however, which should free up cash and will allow funds to crystallise their gains.
On the short side, high profile short seller Jim Chanos (Kynikos Associates) has been selling Tesla (TSLA) as they attempt to acquire Solar City (SCTY) but Japanese banks have been a favourite short-selling target, as the dual Bank of Japan and Ministry of Finance stimulus fails to deliver growth and the flatness of the yield curve cuts into bank profits. In Europe the dismal fortunes of Deutsche Bank (DB) encouraged a rise in short-sales, although, since month end larger hedge funds have been exiting shorts. Other shorts which have been pared during the month include Aberdeen Asset Management (AND) and Ashmore (ASHM) amid signs of a sustained recovery in asset flows, especially to emerging markets.
|Managed Futures Barclay CTA Indices||Sept||% of Funds||YTD|
|Barclay CTA Index||-0.41%||85.41%||0.09%|
|Agricultural Traders Index||0.49%||96.30%||-1.38%|
|Discretionary Traders Index||-0.17%||92.63%||-1.81%|
|Fin./Met. Traders Index||-0.22%||91.78%||2.09%|
|Systematic Traders Index||-0.39%||84.44%||0.31%|
|Currency Traders Index||-0.78%||79.59%||0.25%|
|Diversified Traders Index||-0.81%||84.13%||-0.46%|
Managed futures (-0.41%) and Global Macro (-0.55%) by contrast had another difficult month. Agricultural traders benefitted from trends in Lean Hogs, Orange Juice and Sugar – one of the year’s top performers and up more than 100% since 2015. The rally in oil also helped the larger futures operators but, elsewhere, reversals in interest rates, which spilled over into stocks, put the majority of systematic diversified traders on the defensive.
September is always a time for new fund launches and credit strategies have seen significant interest from investors this year. For example, hedge fund seeder, Protégé Partners announced that they are backing Mill Hill Capital, a new start up in the US Credit space. Another theme, supported by performance year to date, is Emerging Markets; Marble Bar Asset Management launched Elephant Asset Management on their hedge fund platform last month. Direct lending by hedge funds, filling the role vacated by traditional banks, has been another theme this year. Omni Partners applied for a banking licence for Amicus Finance. Also in this sector, ex-Blue Bay PM, Klaus Petersen, launched Apera Capital to focus on direct lending.
With disappointing single digit returns in many strategies this year, much has been written about the decline in hedge fund assets under management. Here are some of the winners and losers in asset gathering this year.
Brevan Howard has now seen AUM fall to $18bln from $23.7bln. At the end of August the BH Master Fund was down 3.4%, which, after losses in 2015 (-2%) and 2014 (-0.8%) seems to have tired investors patience. The fact that ex-Brevan PM, Chris Rokos, is up 8% YTD can only aggravate the situation. Brevan are rumoured to have reduced fees for some clients. BH Macro, the LSE listed vehicle, waved management fees as of 3rd October.
Tudor Investment Corporation has also reduced management fees to 2.25% from 2.75% and performance fees from 27% to 25% as AUM has declined from $17bln to $15bln. They still have some room to manoeuvre, but the knock on effect is unwelcome.
Omega Partners, run by Goldman Sachs alumni Leon Cooperman, has seen a 16% decline in assets, to $6.9bln, as it prepares to counter SEC allegations of insider trading. Apparently $300mln has been redeemed by Goldman employees.
Bridgewater Associates continue to garner assets despite unspectacular performance. They have increased AUM by $22bln (16%) mostly for the Optimal Strategy and less so for Pure Alpha.
Renaissance Technologies has seen AUM rise by more than $7bln to $36bln. According to the Wall Street Journal, the Renaissance Institutional Equity Fund (RIEF) was up 15.3% on the year to 23rd September. This follows 17% in 2015 and 15% in 2014. Diversified Alpha was not far behind +12% to 23rd September.
Paloma Partners, who are also backing a credit fund launch later this year, have continued to grow AUM adding $1.3bln this year to reach $5.3bln – up from $2.3bln in January 2015. Paloma, which was founded in 1981, is one of the oldest hedge fund investors. That they are expanding, even as others decline, bodes well for the industry.
After a period of relative retrenchment, Asian hedge fund activity is on the rise once more, helped by the recovery in emerging markets. Steve Cohen’s Point72 Asset Management are hiring as are Caxton Associates and Brevan Howard.
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