Each business day HedgeCo.Net keeps you informed with the top hedge fund industry news, opinion and insight from around the globe. From the latest hedge fund launches, to the impact of regulation, competition, and investor activism - we track the topics and people that make a difference to you.
Bloomberg – Hedge fund managers gathering in Monaco this week said they have work to do to regain investors’ confidence after the industry’s record losses last year.
“We have to prove as an industry that we can provide absolute returns again,” Pierre Lagrange, co-founder of hedge fund GLG Partners Inc., told some of the 750 delegates at the GAIM International hedge fund conference in Monte Carlo. “We have to show that in the next year or two we can strike back.”
Hedge funds tumbled 19 percent in 2008, the worst year since Chicago-based Hedge Fund Research Inc. began keeping records almost two decades ago, prompting investors to pull money, and funds to shut or impose limits on withdrawals. Funds have started to rebound this year, rising 9.4 percent through May, according to the HFRI Fund Weighted Composite Index.
Nationalpost.com – The broad equity market rally helped hedge funds to their best performance in almost a decade in May, according to Chicago-based Hedge Fund Research. The firm’s Fund Weighted Composite Index rose more than 5.2% during the month, marking the largest single-month gain since February 2000.
Year-to-date, the HFRI Index is up more than 9%. This follows a decline of more than 19% in 2008. Strategies focused on energy and emerging markets posted the strongest gains in May.
Stuff – Mauled by the carnage on Wall Street, mutual funds are copying hedge fund strategies in an effort to regain some of the shine they have lost this decade.
Many investors have been burned investing in a single asset class and withdrew $234 billion (148 billion pounds) from U.S. stock funds last year as the deep bear market sparked the first annual outflow of long-term investment in mutual funds since 1988.
But as stocks sank, hedge funds soared. The Standard & Poor’s 500 Index, a benchmark for the broad U.S. stock market, returned a negative 40 percent this decade through the end of 2008. Hedge funds, meanwhile, gained 55 percent over the same period, Hedge Fund Research’s fund-weighted composite index shows.
Reuters UK – Mauled by the carnage on Wall Street, mutual funds are copying hedge fund strategies in an effort to regain some of the shine they have lost this decade.
Many investors have been burned investing in a single asset class and withdrew $234 billion (148 billion pounds) from U.S. stock funds last year as the deep bear market sparked the first annual outflow of long-term investment in mutual funds since 1988.
But as stocks sank, hedge funds soared. The Standard & Poor’s 500 Index .SPX, a benchmark for the broad U.S. stock market, returned a negative 40 percent this decade through the end of 2008. Hedge funds, meanwhile, gained 55 percent over the same period, Hedge Fund Research’s fund-weighted composite index shows.
Opalesque – Last week, we heard of fund launches from Galena (energy); Verulam (commodity); Twin Tree; Paulson & Co (distressed property); Abax (Asia macro); Odey (Ucits III); Pictet (agriculture); and Liontrust (European).
The Canadian Hedge Watch Hedge Fund Composite Index was up 2.26% in April (+4.66% YTD); RBC Hedge 250 Index 2.37%, 2.6% YTD; Morningstar 1000 Hedge Fund Index 3.4% (est.), 3.11% YTD; Lyxor’s investable Global Hedge Fund index -0.45%, 0.93% YTD; Greenwich Global Hedge Fund Index 3.49%, 3.91% YTD; Scotia Capital Canadian Hedge Fund Index -0.61%, 4.98% YTD; And the Eurekahedge April report showed hedge funds were up 3.9% YTD, and that the industry assets were now at $1.30tn.
Bloomberg – The global hedge fund industry may shrink by 11 percent this year as funds liquidate and investor withdrawals persist, a Deutsche Bank AG survey said.
Industry assets may fall to $1.33 trillion by December, according to 68 percent of the 1,000 investors surveyed by Germany’s largest bank last month. The respondents, which hold a combined $1.1 trillion of hedge-fund assets, on average expect outflows from the industry to accelerate to $168 billion this year, 8 percent faster than last year.
The deepest financial crisis since the 1930s led to the worst average hedge-fund performance in history last year, prompting funds managed by Citadel Investment Group LLC and D.E. Shaw & Co. LP. to limit withdrawals to stem record outflows.
“If 2008 was a story about performance of hedge funds, 2009 is very much going to be a story about restructuring,” said Sean Capstick, Deutsche Bank’s London-based global head of capital introduction. “Our survey indicates redemptions will continue as a phenomenon for the foreseeable future.”
In a March 13 note to investors, Sanford C. Bernstein & Co. analyst Brad Hintz forecast hedge-fund assets to fall 18 percent this year, dropping below $1 trillion before a recovery in 2013.
The HFRI Fund Weighted Composite Index retreated 18 percent in 2008, its steepest annual decline. Still, that was less than half the 42 percent slump of the MSCI World Index.
Hedge Week.com – Eiger Asset Management is planning to launch four coffee-related funds, comprising two index tracker funds, a hedge fund and a vehicle investing in the physical commodity.
Eiger is being assisted by London-based alternative investment consultancy firm Laven Partners.
Eiger is to launch tracker funds, one long and one short, that will follow the International Coffee Organization composite index. The trackers will trade coffee through derivatives and futures and offer investors a highly liquid strategy at a low cost.
West Palm Beach (HedgeCo.net) - Morningstar presented their monthly analysis of hedge fund performance for November and asset flows through October.
"Hedge funds have a long path to recovery ahead of them," said Hedge Fund Analyst Nadia Papagiannis. "November was a better month than the last two, mostly because hedge funds hoarded cash, but they are still losing money on their investments and facing the ongoing challenge of funding investor redemptions."
Hedge funds slid again in November, as the Morningstar 1000 Hedge Fund Index lost 2.5% for the month and 23.7% year to date. Hedged against the appreciating U.S. dollar, the asset-weighted Morningstar Composite Hedge Fund with MSCI Index fared better dropping only 0.8%. Hedge funds charge performance fees on any new profits earned, but those have been scarce since November 2007.
Compounding the funds’ pain, investors have responded to the lackluster performance by pulling more than $20 billion in October, which accounts for the bulk of the $29 billion withdrawn over the last 12 months from hedge funds.
Hedge funds of funds performed better than multi-strategy hedge funds this month, as the Morningstar Hedge Fund of Funds and the Morningstar Multi-Strategy Hedge Fund Indexes dropped 2.3% and 3.0% respectively.
November returns and October asset flows for the Morningstar Hedge Fund Indexes are based on funds that reported as of Dec. 16, 2008. Returns for the Morningstar Hedge Fund Indexes with MSCI are based on funds that reported November performance as of Dec. 14, 2008.
As announced in September 2008, Morningstar is also now calculating hedge fund indexes by applying the MSCI Hedge Fund Index Methodology and Hedge Fund Classification Standard to Morningstar’s hedge fund database. These indexes demonstrate the performance of hedge funds to investors who have hedged their currency exposure back into U.S. dollars. The MSCI Hedge Fund Index Methodology classifies hedge funds by investment process, geography, and asset class.
But the news was not all doom and gloom. Once again, the Morningstar Global Trend and Global Non-trend Hedge Fund Indexes performed well, funds in these categories experienced outflows during October, global trend funds saw overall inflows of $9 billion for the first 10 months of the year, more than every other category. Emerging markets fared poorly, as dwindling demand for commodities depressed the equities in commodity-based economies. The Morningstar Emerging Markets Hedge Fund Index lost 5.1% in November.
The Morningstar Developed Asia Hedge Fund Index’s relatively small loss of 0.3% was bolstered by the Bank of Japan’s interest rate cut and stimulus package announcement. The Morningstar Japan with MSCI Hedge Fund Index gained 0.5%. U.S. equity hedge funds performed among the worst this month, small capitalization equities took a beating in November, but most hedge funds hedged, as the Morningstar US Small Cap Equity Hedge Fund Index ended down only 4.6%, as compared to the Russell 2000 Index’s almost 12% decline.
The Morningstar Security Selection with MSCI Hedge Fund Index, with component funds that also take directional bets on equities, lost 2.7%. For the year to date through October, directional Europe and U.S. equity funds experienced significantly more outflows than other categories. Funds that kept a lid on market exposure fared relatively well this month. U.S. Treasuries across the board showed the largest monthly gain in decades amid poor economic data, fears of deflation, and a government plan to buy U.S. mortgage-backed securities.
The Morningstar 1000 Hedge Fund Index, a global, broadly representative benchmark for hedge fund performance, has return history from January 2003.
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Bloomberg – Komodo Capital Management Pte’s hedge fund outperformed rivals as Chief Investment Officer Angus Cameron employed strategies he developed during Japan’s slump in the 1990s to profit from the global financial turmoil.
The Singapore-based firm’s KC Asia Fund has gained 8.3 percent this year, Cameron said yesterday. Other macro hedge funds, which seek to profit from broad economic trends by trading currencies, bonds and stocks in the region, lost an average of 6.7 percent in the first nine months of the year, according to Eurekahedge, a Singapore-based data provider.
“We traded through Japan during the 1990s,” Cameron, 37, said in an interview. “The strategies that worked then will work now.”
Government bonds “should do well in most markets” as policy makers shift their focus to supporting growth from fighting inflation, Cameron said. Central banks from Australia to South Korea have joined a global effort to cut interest rates, following the year-long credit-market seizure that has toppled some of Wall Street’s biggest investment banks, including Lehman Brothers Holdings Inc.
TIMES – The ups and downs of the Dow are making Wall Street’s so-called "smart money" look dopey. Hedge funds lost nearly $300 billion due to bad investments in the first nine months of the year, according to an analysis of return data by TIME.com.
If the losses stand it would be by far the worst year for these funds, which are unregulated and open only to high-net worth investors, since their returns began being tracked in the mid-1970s. "It’s not going to be a good year," says Peter Laurelli, vice-president at HedgeFund.net. "We can be pretty sure of that."
The calculation does not include gains some of the funds may have made in Monday’s rally, but analysts say that won’t be nearly enough to erase the hundreds of billions of dollars the funds are down. "The losses should concern every investor because these are supposed to be the smartest guys out there," says Charles Gradante, who is the co-founder of hedge fund advisory firm Hennesse Group. "If they can’t manage their investments how is average person with a 401(k) supposed to cope?"
Bloomberg – The Artradis AB2 fund, run by Singapore’s biggest hedge-fund firm, gained 4.96 percent in September, when Asian equities had their worst month in 18 years, two people with knowledge of its performance said.
The $2.2 billion hedge fund, managed by the firm’s co- founders Stephen Diggle and Richard Magides, returned 20.64 percent in the first nine months of the year, the people said, asking not to be identified because details are private. Asia’s hedge-fund average returns fell 16.2 percent this year, the region’s worst annual performance, according to Singapore-based data provider Eurekahedge.
Hedge funds such as those run by Artradis Fund Management Pte, which manages more than $4 billion, tend to outperform when markets are falling because they trade on volatility, which increases when prices decline. The 30-day volatility of the MSCI Asia-Pacific Index, a gauge of the average fluctuation of 990 stocks, has almost tripled to 55 percent, from 21 percent at the end of August.
New York Times – Hedge funds’ annus horribilis is getting worse. The average fund, after losing nearly 5 percent in the first eight months of the year, was down an additional 7 percent in September, according to Hedge Fund Research. Many other factors are making life difficult for fund managers, too. An industry shakeout looks inevitable.
At the end of last month, many funds were expecting more than the usual level of requests from jittery investors to pull cash out. It’s hard to plan longer-term trades if your investment funds might suddenly be snatched away. And a flood of redemptions can force the sale of assets, hurting remaining investors — one reason that fund managers sometimes block withdrawals.
On top of that, hedge funds used to bolster returns with lots of borrowed money. Now that has become a scarce commodity. The ability to bet on price declines has also suffered, thanks to partial or complete bans on selling stocks short in markets around the world.
