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Mercom Capital Group, llc, a global market intelligence, consulting and communications firm, today released 2010 funding and merger and acquisition (M&A) activity for the healthcare IT sector.
The Healthcare IT sector had $211 million in venture capital (VC) funding in 2010 in 22 deals. Sixty-two different investors participated in these funding rounds. $629 million was raised by Healthcare IT companies outside of VC funding, through various forms of debt and credit facilities, which is a positive sign for the sector. Significant VC transactions included a $60 million Series C raise by Castlight Health, a $30 million raise by PatientSafe Solutions and a $20 million Series D raise by Phreesia. The top five investors in the sector for 2010 included VantagePoint Venture Partners, Long River Ventures, Morgenthaler Ventures, OpenView Venture Partners and Osage Partners.
M&A activity was robust in the Healthcare IT sector totaling almost $4 billion in 85 different deals. Only 21 deals were disclosed, indicating a much larger M&A activity number. Notable transactions included the $1.3 billion merger of Allscripts and Eclipsys, the acquisition of Phase Forward by Oracle for $685 million and the acquisition of Medicity by Aetna for $500 million. “Consolidation and strategic acquisitions among Healthcare IT companies helped fuel this surge in M&A activity,” commented Raj Prabhu, Managing Partner at Mercom Capital Group.
Healthcare IT – Fourth Quarter
VC funding activity decreased in Q4 coming in at $11 million in five transactions out of which three were disclosed, compared to $62 million for seven transactions during Q3. Notable VC transactions included a Series A raise of $7.5 million by DICOM Grid and a $2.6 million raise by Halfpenny Technologies. Debt and other funding activity amounted to $567 million in two disclosed transactions, Agfa’s $130 million loan by the European Investment Bank and the $394 million loan provided to CompuGroup Medical underwritten by SEB.
M&A activity for the sector saw a surge in the number of deals compared to Q3. Out of 30 M&A transactions, seven were disclosed for a total of $860 million compared to the third quarter that had a total of 19 deals of which three were disclosed for $326 million. The $500 million acquisition of Medicity by Aetna and the $250 million acquisition of PHNS by The ConJoin Group were the notable transactions that took place in Q4.
Mr. Prabhu continued, “Healthcare IT funding steadily dropped in Q4, while the number of M&A transactions almost doubled, indicating that we might be seeing some consolidation in the industry.”
Download healthcare IT funding reports.
Download charts and graphs.
Monday, January 24, 2011
Friday, January 21, 2011
HEDGE FUNDS END 2010 WITH RECORD QUARTERLY ASSET INCREASE
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Investors favor Macro, Arbitrage funds as industry nears pre-crisis asset level; Increasing risk tolerance and falling volatility influence investor allocations
The hedge fund industry concluded 2010 with the largest quarterly increase in assets in its history, according to data released today by Hedge Fund Research (HFR), the leading provider of hedge fund industry data. Total industry assets grew to $1.917 trillion, reflecting a quarterly increase of nearly $149 billion, topping the previous record increase of $140 billion in 2Q07. The year-end figure approaches the historical asset peak of $1.93 trillion set in 2Q08 and represents an asset increase of 44 percent since 1Q09. Hedge funds as represented by the broad-based HFRI Fund Weighted Composite Index posted a gain of 10.5 percent, but full-year gains were concentrated into year end, with the HFRI gaining over 5.5 percent in 4Q10.
Investors continued to increase allocations to the hedge fund industry, committing $13.1 Billion net new capital to hedge funds in 4Q. This figure follows $19 billion of new capital from the prior quarter and brings full-year 2010 net inflows to $55.5 billion, the highest annual total since 2007. In contrast to prior years, falling volatility contributed to a more narrow performance dispersion among hedge fund strategies, with Relative Value Arbitrage gaining +11.7 percent, while Macro strategies posted a gain of +8.6 percent, bounding gains of +11.5 and +10.6 percent for Event- Driven and Equity Hedge strategies, respectively.
Investors exhibited a clear preference for Macro strategies in 4Q, allocating $6.6 Billion of new capital to Macro funds, while Equity Hedge experienced a small net redemption of $620 Million. For the full year, $21.5 billion in new inflows went to Relative Value strategies, with Macro and Event Driven adding $17.3 billion and $14.0 billion. Equity Hedge, the largest strategy area by assets, experienced an increase of $2.6 billion for 2010. Investors allocated $1.8 billion to Funds of Hedge Funds (FOFs) in 4Q10, the second consecutive quarter of inflows for FOFs.
Increasing investor risk tolerance also contributed to a moderation in the concentration of quarterly allocations to the industry’s largest firms. While more than 80 percent of net new assets were allocated to firms with more than $5 billion in AUM for the entire year, only 51.6 percent of inflows went to the industry’s largest firms in 4Q.
Investors favor Macro, Arbitrage funds as industry nears pre-crisis asset level; Increasing risk tolerance and falling volatility influence investor allocations
The hedge fund industry concluded 2010 with the largest quarterly increase in assets in its history, according to data released today by Hedge Fund Research (HFR), the leading provider of hedge fund industry data. Total industry assets grew to $1.917 trillion, reflecting a quarterly increase of nearly $149 billion, topping the previous record increase of $140 billion in 2Q07. The year-end figure approaches the historical asset peak of $1.93 trillion set in 2Q08 and represents an asset increase of 44 percent since 1Q09. Hedge funds as represented by the broad-based HFRI Fund Weighted Composite Index posted a gain of 10.5 percent, but full-year gains were concentrated into year end, with the HFRI gaining over 5.5 percent in 4Q10.
Investors continued to increase allocations to the hedge fund industry, committing $13.1 Billion net new capital to hedge funds in 4Q. This figure follows $19 billion of new capital from the prior quarter and brings full-year 2010 net inflows to $55.5 billion, the highest annual total since 2007. In contrast to prior years, falling volatility contributed to a more narrow performance dispersion among hedge fund strategies, with Relative Value Arbitrage gaining +11.7 percent, while Macro strategies posted a gain of +8.6 percent, bounding gains of +11.5 and +10.6 percent for Event- Driven and Equity Hedge strategies, respectively.
Investors exhibited a clear preference for Macro strategies in 4Q, allocating $6.6 Billion of new capital to Macro funds, while Equity Hedge experienced a small net redemption of $620 Million. For the full year, $21.5 billion in new inflows went to Relative Value strategies, with Macro and Event Driven adding $17.3 billion and $14.0 billion. Equity Hedge, the largest strategy area by assets, experienced an increase of $2.6 billion for 2010. Investors allocated $1.8 billion to Funds of Hedge Funds (FOFs) in 4Q10, the second consecutive quarter of inflows for FOFs.
Increasing investor risk tolerance also contributed to a moderation in the concentration of quarterly allocations to the industry’s largest firms. While more than 80 percent of net new assets were allocated to firms with more than $5 billion in AUM for the entire year, only 51.6 percent of inflows went to the industry’s largest firms in 4Q.
Tuesday, January 18, 2011
Are hedge funds all buying the same stocks?
A study of hedge fund performance by Andrew Lo, an MIT researcher, shows that fund returns have been moving more closely together over the past five years, according to a WSJ report.
Lo’s analysis found a roughly 79% chance “any randomly selected pair of hedge funds will move up and down in tandem in a given month from 2006 to 2010.”
A probable reason: they are all buying the same stocks.
Complete article
Lo’s analysis found a roughly 79% chance “any randomly selected pair of hedge funds will move up and down in tandem in a given month from 2006 to 2010.”
A probable reason: they are all buying the same stocks.
Complete article
ILLIQUIDITY PREMIA IN ASSET RETURNS: AN EMPIRICAL ANALYSIS OF HEDGE FUNDS, MUTUAL FUNDS, AND U.S. EQUITY PORTFOLIOS
Amir E. Khandani and Andrew W. Lo•
The authors of this study establish a link between illiquidity and positive autocorrelation in asset returns among a sample of hedge funds, mutual funds, and various equity portfolios. For hedge funds, this link can be confirmed by comparing the return autocorrelations of funds with shorter vs. longer redemption-notice periods. The authors also document significant positive return-autocorrelation in portfolios of securities that are generally considered less liquid, e.g., small-cap stocks, corporate bonds, mortgage-backed securities, and emerging-market investments.
Using a sample of 2,927 hedge funds, 15,654 mutual funds, and 100 size- and book-to-market-sorted portfolios of U.S. common stocks, we construct autocorrelation-sorted long/short portfolios and conclude that illiquidity premia are generally positive and significant, ranging from 2.74% to 9.91% per year among the various hedge funds and fixed-income mutual funds.
The authors do not find evidence for this premium among equity and asset-allocation mutual funds, or among the 100 U.S. equity portfolios. The time variation in our aggregated illiquidity premium shows that while 1998 was a difficult year for most funds with large illiquidity exposure, the following four years yielded significantly higher illiquidity premia that led to greater competition in credit markets, contributing to much lower illiquidity premia in the years leading up to the Financial Crisis of 2007--2008.
The authors of this study establish a link between illiquidity and positive autocorrelation in asset returns among a sample of hedge funds, mutual funds, and various equity portfolios. For hedge funds, this link can be confirmed by comparing the return autocorrelations of funds with shorter vs. longer redemption-notice periods. The authors also document significant positive return-autocorrelation in portfolios of securities that are generally considered less liquid, e.g., small-cap stocks, corporate bonds, mortgage-backed securities, and emerging-market investments.
Using a sample of 2,927 hedge funds, 15,654 mutual funds, and 100 size- and book-to-market-sorted portfolios of U.S. common stocks, we construct autocorrelation-sorted long/short portfolios and conclude that illiquidity premia are generally positive and significant, ranging from 2.74% to 9.91% per year among the various hedge funds and fixed-income mutual funds.
The authors do not find evidence for this premium among equity and asset-allocation mutual funds, or among the 100 U.S. equity portfolios. The time variation in our aggregated illiquidity premium shows that while 1998 was a difficult year for most funds with large illiquidity exposure, the following four years yielded significantly higher illiquidity premia that led to greater competition in credit markets, contributing to much lower illiquidity premia in the years leading up to the Financial Crisis of 2007--2008.
2010 Infrastructure Fundraising Up Almost Fourfold from 2009
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Aggregate $27.7bn raised, eclipsing 2009 total of $7.7bn 25 funds closed, suggesting recovery well under way
2010 was a good year for infrastructure fundraising despite a slow Q4, during which just four infrastructure funds closed raising a collective $1.4bn. The annual aggregate capital raised did not fall far short of the $34.9bn raised in 2008 and a total of 25 funds closed, eight more than in 2009.
Infrastructure in 2010:
- Q3 2010 was the most lucrative of the year; five funds closed having raised an aggregate $10.9bn.
- The largest fund to have closed in 2010 was Energy Capital Partners II, managed by US-based Energy Capital Partners,
which closed on $4.3bn
- Other notable closes included GS Infrastructure Partners II, which raised $3.1bn, and Macquarie European Infrastructure
Fund III, which closed on €1.2bn.
- There are now 122 infrastructure funds on the road seeking a combined $85.8bn.
- Infrastructure deal flow continues to be restricted by the contracted credit markets and high asset valuations, despite positive growth in the fundraising market. 49 deals were completed in Q4 2010 compared to 75 in the same period the
year before.
- 187 deals were completed in 2010; 216 were completed in the previous year. Future deals will rely heavily on an increased equity-to-debt ratio and a decrease in vendors’ asset valuations.
Please see full results here.
“The positive fundraising figures seen in 2010 suggest that the unlisted infrastructure market is well on the road to recovery following the global financial crisis. This looks set to continue in 2011 with a record number of funds on the road and a growing number of investors returning to market and wishing to make infrastructure fund commitments. Our June 2010 investor survey found that 70% of investors planned to make commitments in the following 12 months, many of which expected to make multiple investments.
However, investors are likely to be more conservative in the future, meaning fund managers will need to be creative in terms of their fund and fee structures in order to be successful in a competitive fundraising market.
Future deal flow will rely heavily on an increase in the availability of long-term debt financing that will enable fund managers to source and execute profitable transactions.” Elliot Bradbrook, Manager - Infrastructure
Aggregate $27.7bn raised, eclipsing 2009 total of $7.7bn 25 funds closed, suggesting recovery well under way
2010 was a good year for infrastructure fundraising despite a slow Q4, during which just four infrastructure funds closed raising a collective $1.4bn. The annual aggregate capital raised did not fall far short of the $34.9bn raised in 2008 and a total of 25 funds closed, eight more than in 2009.
Infrastructure in 2010:
- Q3 2010 was the most lucrative of the year; five funds closed having raised an aggregate $10.9bn.
- The largest fund to have closed in 2010 was Energy Capital Partners II, managed by US-based Energy Capital Partners,
which closed on $4.3bn
- Other notable closes included GS Infrastructure Partners II, which raised $3.1bn, and Macquarie European Infrastructure
Fund III, which closed on €1.2bn.
- There are now 122 infrastructure funds on the road seeking a combined $85.8bn.
- Infrastructure deal flow continues to be restricted by the contracted credit markets and high asset valuations, despite positive growth in the fundraising market. 49 deals were completed in Q4 2010 compared to 75 in the same period the
year before.
- 187 deals were completed in 2010; 216 were completed in the previous year. Future deals will rely heavily on an increased equity-to-debt ratio and a decrease in vendors’ asset valuations.
Please see full results here.
“The positive fundraising figures seen in 2010 suggest that the unlisted infrastructure market is well on the road to recovery following the global financial crisis. This looks set to continue in 2011 with a record number of funds on the road and a growing number of investors returning to market and wishing to make infrastructure fund commitments. Our June 2010 investor survey found that 70% of investors planned to make commitments in the following 12 months, many of which expected to make multiple investments.
However, investors are likely to be more conservative in the future, meaning fund managers will need to be creative in terms of their fund and fee structures in order to be successful in a competitive fundraising market.
Future deal flow will rely heavily on an increase in the availability of long-term debt financing that will enable fund managers to source and execute profitable transactions.” Elliot Bradbrook, Manager - Infrastructure
Investor Demands on Private Equity Returns Increase Significantly
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Study reveals increasing returns expectations relative to public markets
Interviews conducted by Preqin with over 100 leading investors in private equity funds reveal that demands on private equity portfolios are now higher than ever before relative to public markets. 63% of investors expect to receive returns of more than four percentage points over public markets at present. In comparison, just 17% of investors interviewed in December 2007 shared these expectations. These findings come as investors prepare to ramp up activity in private equity during 2011 to take advantage of opportunities in the market.
Other key findings following Preqin’s interviews with 100 leading investors include:
• In pursuit of higher returns, investors are becoming increasingly receptive to forging new fund manager relationships. 71% of investors are considering investing with managers they have no prior relationship with in 2011 compared to 59% the year before.
• Fundraising activity was low in 2010 but 2011 will see the return of many investors to the market. 62% of investors interviewed expect to make new fund commitments in 2011 and a further 30% have yet to finalize their plans for the year, suggesting the proportion active in 2011 could be much higher.
• Investors are making more capital available for private equity investments in 2011 to take advantage of attractive opportunities: 54% expect to commit more capital to funds in 2011 than in 2010.
• 90% of investors interviewed intend to increase or maintain their private equity allocations over the next three to five years, showing continued appetite for the asset class in the longer term.
• Key areas of interest for investors in 2011 include small to mid-market buyout funds and distressed private equity, which are seen as attractive by 55% and 20% of investors respectively. 70% currently invest in or are considering investing in emerging markets.
Study reveals increasing returns expectations relative to public markets
Interviews conducted by Preqin with over 100 leading investors in private equity funds reveal that demands on private equity portfolios are now higher than ever before relative to public markets. 63% of investors expect to receive returns of more than four percentage points over public markets at present. In comparison, just 17% of investors interviewed in December 2007 shared these expectations. These findings come as investors prepare to ramp up activity in private equity during 2011 to take advantage of opportunities in the market.
Other key findings following Preqin’s interviews with 100 leading investors include:
• In pursuit of higher returns, investors are becoming increasingly receptive to forging new fund manager relationships. 71% of investors are considering investing with managers they have no prior relationship with in 2011 compared to 59% the year before.
• Fundraising activity was low in 2010 but 2011 will see the return of many investors to the market. 62% of investors interviewed expect to make new fund commitments in 2011 and a further 30% have yet to finalize their plans for the year, suggesting the proportion active in 2011 could be much higher.
• Investors are making more capital available for private equity investments in 2011 to take advantage of attractive opportunities: 54% expect to commit more capital to funds in 2011 than in 2010.
• 90% of investors interviewed intend to increase or maintain their private equity allocations over the next three to five years, showing continued appetite for the asset class in the longer term.
• Key areas of interest for investors in 2011 include small to mid-market buyout funds and distressed private equity, which are seen as attractive by 55% and 20% of investors respectively. 70% currently invest in or are considering investing in emerging markets.
SEI Study: Hedge Fund Managers Must Focus On Risk Management To Capitalize On Renewed Investor Commitment
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Risk Management Infrastructure and Risk Reporting Take on New Prominence for Institutional Investors
Institutional investors are bolstering their commitment to hedge funds, but expect greater transparency and solid risk management infrastructures from managers, according to an annual global study released today by SEI (NASDAQ: SEIC) in collaboration with Greenwich Associates. The report, entitled “Institutional Hedge Fund Investing Comes of Age: A New Perspective on the Road Ahead” and available at www.seic.com/2011HedgeResearch, indicates a need for hedge fund managers to enhance their risk management infrastructure and risk reporting, and institutionalize transparency policies to attract new capital, satisfy anxious investors, and protect their reputations. The study also revealed the importance of fund managers clearly articulating how their investment strategies add value to investors’ portfolios, which presents an opportunity for managers to differentiate themselves through market-leading client service, reporting, and education.
The study results found that institutional investors’ confidence in hedge funds is growing, as more than half (54 percent) of all survey respondents said they plan to increase target allocations over the next 12 months. That confidence is conditional, however, as the demand for increased transparency and risk management were recurring themes throughout this year’s study. In fact, the focus on risk management infrastructure emerged as the second most important hedge fund selection criteria this year, with 75 percent of respondents deeming it “very important.” Notably, it was not among the top ten selection factors in SEI’s report last year. Only clarity of investment philosophy ranked higher than risk management, with 79 percent deeming it “very important” – emphasizing the growing demand among investors for transparency and understandable investment strategies.
“The study confirms what we have been seeing and hearing from our clients – that investors are committed to hedge funds, but managers must get and keep investors comfortable with their investment decision,” said Phil Masterson, Managing Director for SEI’s Investment Manager Services division. “Managers must differentiate themselves through increased transparency, enhanced risk management, and reporting as well as better overall client service to gain and retain assets post-financial crisis and post-Madoff. We’ve been making investments in new technologies and enhancing our services to help our clients do just that over the past 18 months and we’ll continue to help them stay ahead of the curve.”
Transparency is still a concern, as more than two-thirds (70 percent) of those polled pointed to a lack of transparency as their biggest worry, up from 56 percent in 2009. As for the types of information sought, more than three out of four respondents want risk analytics from managers – a category of information that didn’t even appear in the top 10 last year. Liquidity remains top-of-mind as well, as more than half (58 percent) of investors named liquidity risk their biggest worry in hedge fund investing, with more than 40 percent saying they have taken steps to enhance the liquidity of their hedge fund investments.
The report also noted that investors are not relying on regulation to improve hedge fund disclosure, liquidity, or risk management. Nearly one-third (30 percent) of respondents cite “limited regulation” as a primary concern of hedge fund investing. As investors are proactively seeking to have their concerns addressed, managers are responding.
”The hedge fund managers best equipped to compete prospectively will be those able to clearly articulate their value proposition and source of alpha, as well as demonstrate institutional-quality operations and risk management infrastructure,” says Masterson.
The white paper is published by the SEI Knowledge Partnership, which provides ongoing business intelligence and guidance to SEI’s investment manager clients.
Risk Management Infrastructure and Risk Reporting Take on New Prominence for Institutional Investors
Institutional investors are bolstering their commitment to hedge funds, but expect greater transparency and solid risk management infrastructures from managers, according to an annual global study released today by SEI (NASDAQ: SEIC) in collaboration with Greenwich Associates. The report, entitled “Institutional Hedge Fund Investing Comes of Age: A New Perspective on the Road Ahead” and available at www.seic.com/2011HedgeResearch, indicates a need for hedge fund managers to enhance their risk management infrastructure and risk reporting, and institutionalize transparency policies to attract new capital, satisfy anxious investors, and protect their reputations. The study also revealed the importance of fund managers clearly articulating how their investment strategies add value to investors’ portfolios, which presents an opportunity for managers to differentiate themselves through market-leading client service, reporting, and education.
The study results found that institutional investors’ confidence in hedge funds is growing, as more than half (54 percent) of all survey respondents said they plan to increase target allocations over the next 12 months. That confidence is conditional, however, as the demand for increased transparency and risk management were recurring themes throughout this year’s study. In fact, the focus on risk management infrastructure emerged as the second most important hedge fund selection criteria this year, with 75 percent of respondents deeming it “very important.” Notably, it was not among the top ten selection factors in SEI’s report last year. Only clarity of investment philosophy ranked higher than risk management, with 79 percent deeming it “very important” – emphasizing the growing demand among investors for transparency and understandable investment strategies.
“The study confirms what we have been seeing and hearing from our clients – that investors are committed to hedge funds, but managers must get and keep investors comfortable with their investment decision,” said Phil Masterson, Managing Director for SEI’s Investment Manager Services division. “Managers must differentiate themselves through increased transparency, enhanced risk management, and reporting as well as better overall client service to gain and retain assets post-financial crisis and post-Madoff. We’ve been making investments in new technologies and enhancing our services to help our clients do just that over the past 18 months and we’ll continue to help them stay ahead of the curve.”
Transparency is still a concern, as more than two-thirds (70 percent) of those polled pointed to a lack of transparency as their biggest worry, up from 56 percent in 2009. As for the types of information sought, more than three out of four respondents want risk analytics from managers – a category of information that didn’t even appear in the top 10 last year. Liquidity remains top-of-mind as well, as more than half (58 percent) of investors named liquidity risk their biggest worry in hedge fund investing, with more than 40 percent saying they have taken steps to enhance the liquidity of their hedge fund investments.
The report also noted that investors are not relying on regulation to improve hedge fund disclosure, liquidity, or risk management. Nearly one-third (30 percent) of respondents cite “limited regulation” as a primary concern of hedge fund investing. As investors are proactively seeking to have their concerns addressed, managers are responding.
”The hedge fund managers best equipped to compete prospectively will be those able to clearly articulate their value proposition and source of alpha, as well as demonstrate institutional-quality operations and risk management infrastructure,” says Masterson.
The white paper is published by the SEI Knowledge Partnership, which provides ongoing business intelligence and guidance to SEI’s investment manager clients.
Barclay CTA Index Up 2.85% in December
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Rallies in Stocks, Bonds, and Commodities Contribute to 6.26% Gain for 2010
Managed futures gained 2.85% in December according to the Barclay CTA Index compiled by BarclayHedge. The Index was up 6.26% for the year.
“As investor psychology fluctuated between risk-on and risk-off during 2010, the major market sectors – equities, bonds, currencies, and commodities – alternated rallies with price declines,” says Sol Waksman, founder and president of BarclayHedge.
All eight of Barclay’s CTA indices had gains in December. The Barclay Diversified Traders Index was up 4.19%, Systematic Traders gained 3.17%, Discretionary Traders were up 1.83%, and Agricultural Traders gained 1.74%.
“Renewed optimism for growth in 2011 helped to propel prices upward for equities and commodities while simultaneously depressing bond prices,” says Waksman.
There were no losing managed futures strategies in 2010. The Barclay Agricultural Traders Index was up 10.74% for the year, Diversified Traders gained 8.69%, Systematic Traders rose 6.97%, and Discretionary Traders were up 5.01%.
“In spite of several sharp loss-generating price reversals, the major price moves were to the upside and provided sufficient gains to more than offset most losses,” says Waksman.
"At year-end, more than 81 percent of the CTAs tracked by BarclayHedge had generated profits for their investors.”
Rallies in Stocks, Bonds, and Commodities Contribute to 6.26% Gain for 2010
Managed futures gained 2.85% in December according to the Barclay CTA Index compiled by BarclayHedge. The Index was up 6.26% for the year.
“As investor psychology fluctuated between risk-on and risk-off during 2010, the major market sectors – equities, bonds, currencies, and commodities – alternated rallies with price declines,” says Sol Waksman, founder and president of BarclayHedge.
All eight of Barclay’s CTA indices had gains in December. The Barclay Diversified Traders Index was up 4.19%, Systematic Traders gained 3.17%, Discretionary Traders were up 1.83%, and Agricultural Traders gained 1.74%.
“Renewed optimism for growth in 2011 helped to propel prices upward for equities and commodities while simultaneously depressing bond prices,” says Waksman.
There were no losing managed futures strategies in 2010. The Barclay Agricultural Traders Index was up 10.74% for the year, Diversified Traders gained 8.69%, Systematic Traders rose 6.97%, and Discretionary Traders were up 5.01%.
“In spite of several sharp loss-generating price reversals, the major price moves were to the upside and provided sufficient gains to more than offset most losses,” says Waksman.
"At year-end, more than 81 percent of the CTAs tracked by BarclayHedge had generated profits for their investors.”
Barclay Hedge Fund Index Gains 2.88% in December; Up 10.86% in 2010
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Most Hedge Funds Recoup 2008 Losses
Hedge funds gained 2.88% in December according to the Barclay Hedge Fund Index compiled by BarclayHedge. The Index is up 10.86% in 2010.
“After two years of strong gains, close to 64 percent of the hedge funds that report data to us have now recovered from losses in 2008,” says Sol Waksman, founder and president of BarclayHedge.
"Although hedge funds underperformed US equities in 2010, +15.07 percent for the S&P 500 versus +10.95 percent for the Barclay Hedge Fund Index, the S&P 500 still remains 8.3 percent below its year-end 2007 close, while the hedge fund index is up 7.59 percent."
Overall, 17 of Barclay’s 18 hedge fund indices had a positive return in December. The Barclay Equity Long Bias Index was up 5.41%, Healthcare & Biotechnology gained 3.37%, Equity Long/Short rose 3.07%, Pacific Rim Equities gained 2.62%, and the Event Driven Index was up 2.43%.
“Equity markets rallied as bullish sentiment returned in December, with investors focused on upward revisions of GDP growth estimates for 2011,” says Waksman.
The same 17 indices all had gains at the end of 2010. Equity Long Bias was up 14.33% for the year, Distressed Securities were up 12.57%, Technology gained 12.41%, Convertible Arbitrage rose 12.23%, and Emerging Markets were up 12.05%.
"Global rallies in equity and fixed income markets in 2010 and compression of credit spreads were the main drivers of return across all hedge fund strategies other than short equities," says Waksman.
The only losing strategy in December was Equity Short Bias, which fell 6.15%. Following a record gain of 40.91% in 2008 when equity markets plummeted, Equity Short Bias lost 18.80% in 2009, and another 14.67% in 2010.
The Barclay Fund of Funds Index gained 1.94% in December, and is up 4.73% for the year.
Most Hedge Funds Recoup 2008 Losses
Hedge funds gained 2.88% in December according to the Barclay Hedge Fund Index compiled by BarclayHedge. The Index is up 10.86% in 2010.
“After two years of strong gains, close to 64 percent of the hedge funds that report data to us have now recovered from losses in 2008,” says Sol Waksman, founder and president of BarclayHedge.
"Although hedge funds underperformed US equities in 2010, +15.07 percent for the S&P 500 versus +10.95 percent for the Barclay Hedge Fund Index, the S&P 500 still remains 8.3 percent below its year-end 2007 close, while the hedge fund index is up 7.59 percent."
Overall, 17 of Barclay’s 18 hedge fund indices had a positive return in December. The Barclay Equity Long Bias Index was up 5.41%, Healthcare & Biotechnology gained 3.37%, Equity Long/Short rose 3.07%, Pacific Rim Equities gained 2.62%, and the Event Driven Index was up 2.43%.
“Equity markets rallied as bullish sentiment returned in December, with investors focused on upward revisions of GDP growth estimates for 2011,” says Waksman.
The same 17 indices all had gains at the end of 2010. Equity Long Bias was up 14.33% for the year, Distressed Securities were up 12.57%, Technology gained 12.41%, Convertible Arbitrage rose 12.23%, and Emerging Markets were up 12.05%.
"Global rallies in equity and fixed income markets in 2010 and compression of credit spreads were the main drivers of return across all hedge fund strategies other than short equities," says Waksman.
The only losing strategy in December was Equity Short Bias, which fell 6.15%. Following a record gain of 40.91% in 2008 when equity markets plummeted, Equity Short Bias lost 18.80% in 2009, and another 14.67% in 2010.
The Barclay Fund of Funds Index gained 1.94% in December, and is up 4.73% for the year.
Hedge Fund Managers Turn Extremely Bullish on U.S. Equities According to Survey
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Hedge Fund Managers Betting Aggressively on Economic Recovery and Many Increase Leverage
Hedge fund managers have turned extremely upbeat on U.S. equities, according to the TrimTabs/BarclayHedge Survey of Hedge Fund Managers for December. About 46% of the 92 hedge fund managers the firms surveyed in the past week are bullish on the S&P 500, while only 19% are bearish.
“These bullish and bearish readings are the highest and lowest, respectively, since the inception of our survey in May,” said Sol Waksman, founder and President of BarclayHedge. “The enthusiasm is not surprising. Our Hedge Fund Index shows consistent gains in 13 of the past 14 years, and hedge funds are firmly on track for a profitable 2010.”
About 54% of hedge fund managers are bearish on the 10-year Treasury note, while only 14% are bullish. These readings are the highest and lowest, respectively, since May. In contrast, 39% of managers are bullish on the U.S. dollar index, while only 13% are bearish. These readings are also the highest and lowest since May. Meanwhile, 23% of managers aim to lever up in the coming weeks, the largest share in six months.
“Managers are betting aggressively on the economic recovery,” explained Vincent Deluard, Executive Vice President at TrimTabs. “While markets spent most of 2010 oscillating between overblown fears of a double-dip recession and irrational exuberance about a V-shaped recovery, an inflationary growth consensus has emerged heading into 2011. Moreover, the fact that every sentiment measure under the sun shows sky-high confidence could indicate that investors are a touch too jubilant. The bandwagon might be overly packed.”
About half of managers attribute higher Treasury yields to expectations of higher inflation and stronger economic growth, while only 4% cite the negative debt implications of the extension of the Bush tax cuts. Meanwhile, a majority of managers feels precious metals are the most overbought asset.
“We are a little surprised to see precious metals top the list,” noted Deluard. “Gold funds generally took in more money in 2009 than they have received in 2010, and our flow data suggests bonds are much more overbought than metals. Mom and pop have been dumping bond ETFs and mutual funds for two months, but only after they poured a staggering $705.5 billion into them between January 2009 and October 2010. If a bubble is to burst in 2011, we believe bonds are the strongest candidate.”
Hedge Fund Managers Betting Aggressively on Economic Recovery and Many Increase Leverage
Hedge fund managers have turned extremely upbeat on U.S. equities, according to the TrimTabs/BarclayHedge Survey of Hedge Fund Managers for December. About 46% of the 92 hedge fund managers the firms surveyed in the past week are bullish on the S&P 500, while only 19% are bearish.
“These bullish and bearish readings are the highest and lowest, respectively, since the inception of our survey in May,” said Sol Waksman, founder and President of BarclayHedge. “The enthusiasm is not surprising. Our Hedge Fund Index shows consistent gains in 13 of the past 14 years, and hedge funds are firmly on track for a profitable 2010.”
About 54% of hedge fund managers are bearish on the 10-year Treasury note, while only 14% are bullish. These readings are the highest and lowest, respectively, since May. In contrast, 39% of managers are bullish on the U.S. dollar index, while only 13% are bearish. These readings are also the highest and lowest since May. Meanwhile, 23% of managers aim to lever up in the coming weeks, the largest share in six months.
“Managers are betting aggressively on the economic recovery,” explained Vincent Deluard, Executive Vice President at TrimTabs. “While markets spent most of 2010 oscillating between overblown fears of a double-dip recession and irrational exuberance about a V-shaped recovery, an inflationary growth consensus has emerged heading into 2011. Moreover, the fact that every sentiment measure under the sun shows sky-high confidence could indicate that investors are a touch too jubilant. The bandwagon might be overly packed.”
About half of managers attribute higher Treasury yields to expectations of higher inflation and stronger economic growth, while only 4% cite the negative debt implications of the extension of the Bush tax cuts. Meanwhile, a majority of managers feels precious metals are the most overbought asset.
“We are a little surprised to see precious metals top the list,” noted Deluard. “Gold funds generally took in more money in 2009 than they have received in 2010, and our flow data suggests bonds are much more overbought than metals. Mom and pop have been dumping bond ETFs and mutual funds for two months, but only after they poured a staggering $705.5 billion into them between January 2009 and October 2010. If a bubble is to burst in 2011, we believe bonds are the strongest candidate.”
Thursday, January 13, 2011
Hedge funds may finally be losing their sex appeal
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A small but growing number of investors believe these once-free spirited portfolios, viewed as the cutting edge of finance for most of the past decade, have become too conservative and boring.
Large and cautious pension fund and endowment clients are increasingly calling the shots in the industry, and investors such as funds of funds and rich individuals need to take matters into their own hands if they want higher returns.
"Some managers ... over the past two years have become too dull and the probability that they will become dead wood in the portfolio is too high," said Morten Spenner, chief executive of funds of hedge funds firm International Asset Management IAM.L.
Managers made 10.2 percent last year, according to Hennessee Group, lagging behind the S&P's .SPX 12.8 percent gain and 17.5 percent at the average stock mutual fund...
Complete article
A small but growing number of investors believe these once-free spirited portfolios, viewed as the cutting edge of finance for most of the past decade, have become too conservative and boring.
Large and cautious pension fund and endowment clients are increasingly calling the shots in the industry, and investors such as funds of funds and rich individuals need to take matters into their own hands if they want higher returns.
"Some managers ... over the past two years have become too dull and the probability that they will become dead wood in the portfolio is too high," said Morten Spenner, chief executive of funds of hedge funds firm International Asset Management IAM.L.
Managers made 10.2 percent last year, according to Hennessee Group, lagging behind the S&P's .SPX 12.8 percent gain and 17.5 percent at the average stock mutual fund...
Complete article
U.S. Private Equity Fund-Raising Falls 16% In 2010 Despite High Hopes From GPs
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Dow Jones LP Source Private Equity Funds Raised $86.3 Billion in 2010
Buyout, Venture Fund-Raising Declined as Distressed Debt, Mezzanine Fortunes Rose
U.S. private equity fund-raising defied expectations in 2010, declining even further from the low levels of 2009 as 336 funds raised $86.3 billion, down 16% from the $102.2 billion raised by 366 funds in 2009, according to figures from Dow Jones LP Source. While most sectors experienced a slowdown, 2010 saw a few bright spots as Distressed Debt funds, Mezzanine funds and Industry-focused funds raised more money than they did in 2009.
Although overall fund-raising was down for the year, in the fourth quarter, firms raised $26.7 billion in 65 funds, up 19% from the $22.5 billion raised by 101 funds in the same period in 2009.
“Despite high expectations for fund-raising in 2010, many firms ended up sitting by the edge of the pool so that they could focus on returning capital to investors,” said Laura Kreutzer, managing editor of Dow Jones Private Equity Analyst. “As we head into 2011, more firms are diving into the fund-raising market, either because they have a better story to tell or because they can’t afford to wait any longer.”
Dow Jones LP Source classifies multiple fund closings (first, interim, final) separately, based on the year of the closing, to provide an accurate view of the annual fund-raising environment.
Mid-Market Buyout Funds Outshine Mega Funds
Buyout fund-raising garnered $53.3 billion across 138 funds in 2010, a 9% decrease from the $58.4 billion raised by 148 funds in 2009. In the fourth quarter, 32 Buyout funds raised $19.8 billion, a 53% increase from the same period last year.
Within the Buyout industry, Mid–market funds – those less than $1 billion in size – shined as firms with a tight focus on a specific industry managed to capture limited partners’ (LP) attention. Industry–focused funds collected $15.2 billion in 2010, up from $10.1 billion in 2009. Overall, Mid–market funds accounted for more than half of total Buyout fund-raising.
Mega funds, which are funds of $6 billion or more, continued to have a difficult time raising money in 2010. Only one U.S. fund, Blackstone Capital Partners VI LP, reached the mega-fund threshold in 2010, raising $14 billion. The $5 billion raised in 2010 for the Blackstone fund accounted for25% of buyout funds raised in the fourth quarter and 9% of buyout funds raised in 2010.
Distressed Debt, Mezzanine Fortunes Rise
Firms focused on Distressed Debt and turnaround investments represented a bright spot in 2010 fund-raising, as Distressed Debt funds attracted $18.4 billion, a 30% increase from 2009. Oaktree Capital Management LLC topped the distressed debt fund charts with a $4.4 billion final closing of Oaktree Opportunities Fund VIII LP, almost $3 billion of which was raised in 2010.
Mezzanine strategies also found favor among LPs in 2010, attracting $6.2 billion for 27 funds, up from $3.4 billion raised for 20 funds in 2009.
“In 2010, investors continued to bet that the economic recovery will be a lengthy one and that access to capital will remain constrained,” said Kreutzer. “They also had the benefit of a healthy supply of experienced distressed debt and mezzanine firms that were marketing new funds.”
Venture Capital Continues to Slide; Hits 7-Year Low
Venture Capital fund-raising fell to $11.6 billion across 119 funds, a 14% drop from the $13.5 billion collected by 133 funds in 2009. In the fourth quarter, 15 venture funds raised $2.4 billion, a 48% drop from the same period last year.
While LPs remained skeptical of the sector, a few firms pushed the envelope, notably Institutional Venture Partners. The firm raised $750 million for its latest fund, exceeding a $600 million target.
A complete overview of Venture Capital fund-raising.
Dow Jones LP Source Private Equity Funds Raised $86.3 Billion in 2010
Buyout, Venture Fund-Raising Declined as Distressed Debt, Mezzanine Fortunes Rose
U.S. private equity fund-raising defied expectations in 2010, declining even further from the low levels of 2009 as 336 funds raised $86.3 billion, down 16% from the $102.2 billion raised by 366 funds in 2009, according to figures from Dow Jones LP Source. While most sectors experienced a slowdown, 2010 saw a few bright spots as Distressed Debt funds, Mezzanine funds and Industry-focused funds raised more money than they did in 2009.
Although overall fund-raising was down for the year, in the fourth quarter, firms raised $26.7 billion in 65 funds, up 19% from the $22.5 billion raised by 101 funds in the same period in 2009.
“Despite high expectations for fund-raising in 2010, many firms ended up sitting by the edge of the pool so that they could focus on returning capital to investors,” said Laura Kreutzer, managing editor of Dow Jones Private Equity Analyst. “As we head into 2011, more firms are diving into the fund-raising market, either because they have a better story to tell or because they can’t afford to wait any longer.”
Dow Jones LP Source classifies multiple fund closings (first, interim, final) separately, based on the year of the closing, to provide an accurate view of the annual fund-raising environment.
Mid-Market Buyout Funds Outshine Mega Funds
Buyout fund-raising garnered $53.3 billion across 138 funds in 2010, a 9% decrease from the $58.4 billion raised by 148 funds in 2009. In the fourth quarter, 32 Buyout funds raised $19.8 billion, a 53% increase from the same period last year.
Within the Buyout industry, Mid–market funds – those less than $1 billion in size – shined as firms with a tight focus on a specific industry managed to capture limited partners’ (LP) attention. Industry–focused funds collected $15.2 billion in 2010, up from $10.1 billion in 2009. Overall, Mid–market funds accounted for more than half of total Buyout fund-raising.
Mega funds, which are funds of $6 billion or more, continued to have a difficult time raising money in 2010. Only one U.S. fund, Blackstone Capital Partners VI LP, reached the mega-fund threshold in 2010, raising $14 billion. The $5 billion raised in 2010 for the Blackstone fund accounted for25% of buyout funds raised in the fourth quarter and 9% of buyout funds raised in 2010.
Distressed Debt, Mezzanine Fortunes Rise
Firms focused on Distressed Debt and turnaround investments represented a bright spot in 2010 fund-raising, as Distressed Debt funds attracted $18.4 billion, a 30% increase from 2009. Oaktree Capital Management LLC topped the distressed debt fund charts with a $4.4 billion final closing of Oaktree Opportunities Fund VIII LP, almost $3 billion of which was raised in 2010.
Mezzanine strategies also found favor among LPs in 2010, attracting $6.2 billion for 27 funds, up from $3.4 billion raised for 20 funds in 2009.
“In 2010, investors continued to bet that the economic recovery will be a lengthy one and that access to capital will remain constrained,” said Kreutzer. “They also had the benefit of a healthy supply of experienced distressed debt and mezzanine firms that were marketing new funds.”
Venture Capital Continues to Slide; Hits 7-Year Low
Venture Capital fund-raising fell to $11.6 billion across 119 funds, a 14% drop from the $13.5 billion collected by 133 funds in 2009. In the fourth quarter, 15 venture funds raised $2.4 billion, a 48% drop from the same period last year.
While LPs remained skeptical of the sector, a few firms pushed the envelope, notably Institutional Venture Partners. The firm raised $750 million for its latest fund, exceeding a $600 million target.
A complete overview of Venture Capital fund-raising.
Monday, January 10, 2011
HEDGE FUNDS ADVANCE +3.04% IN DECEMBER
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Strong December Helps Drive Double-Digit Hedge Fund Returns for 2010
Hennessee Group LLC, an adviser to hedge fund investors, announced today that the Hennessee Hedge Fund Index advanced + 3.04% in December (+10.05% YTD), while the S&P 500 increased +6.53% (+12.79% YTD), the Dow Jones Industrial Average advanced +5.19% (+11.02% YTD), and the NASDAQ Composite Index increased +6.19% (+16.91% YTD). The Barclays Aggregate Bond Index declined -1.08% (+6.56% YTD) while the Barclays High Yield Credit Bond Index advanced +1.81% in December (+15.11%). Global financial markets finished 2010 on a positive note as global equity, commodity and credit markets all strengthened in December.
"Hedge funds experienced their best monthly gain of the year, advancing +3.04% in December. The strong month drove hedge fund performance to +10.05% for 2010, " said Lee Hennessee, Managing Principal of Hennessee Group. "The best performing strategies for the year were event driven, distressed, fixed income and emerging markets."
"Hedge funds underperformed traditional equity benchmarks in 2010. However, based upon historical analysis, it is typical for hedge funds to underperform in markets driven more by momentum than equity fundamentals. Since March 2009, when the market bottomed, the Hennessee Hedge Fund Index is up +39%, while the S&P 500 +71%," commented Charles Gradante, Co-Founder of Hennessee Group. "The real value of hedge funds is in risk-adjusted returns and downside protection. Since the beginning of the credit crisis in September 2008, the Hennessee Hedge Fund Index was up +16%, while the S&P 500 was down -2%. Hedge funds have also generated these returns with half the volatility."
The Hennessee Long/Short Equity Index advanced +3.08% in December to finish the year up +9.11%. Economic activity continued to strengthen in December, and the S&P ended the year with its best December since 1987. The month's +6.5% gain represented almost half the index's appreciation for the entire year. Managers benefited from increasing net and gross exposure levels in order to participate in the continued market rally. For the year, many long/short equity hedge funds struggled to outperform on a relative basis due in large part to the "risk on and risk off" trading environment that characterized most of the year.
Major macro themes such as the sovereign debt crisis and introduction of QE2 led to extreme levels of volatility and heightened correlations amongst stocks, making security selection very challenging, particularly for fundamentally based investors (See Hennessee Group's "Hedge Funds Struggle with New Market Order" White Paper from October 2010). In addition, many managers were conservatively positioned for most of the year with net and gross exposures levels below historical averages, resulting in additional underperformance. With the equity markets trading at 13x 2011 earnings, many long/short equity managers believe equities are still reasonably valued and also remain attractive from a technical standpoint. That said, they are concerned about the numerous headwinds that could derail the economic recovery and market rally, and therefore remain cautious entering 2011.
"Managers have long-term concerns about the current U.S. fiscal policy. The U.S. is spending $1.60 for every $1.00 of tax revenue. This is not sustainable. Either taxes will have increase or spending has to decline. In reality, it will likely be a combination of both, but any result is not good news for the market as it will be a drag on economic growth," commented Charles Gradante. "In the short term, the market seems to be overlooking this. Equities are reasonably priced resulting in the expectation that this rally will continue into 2011."
Arbitrage and event driven managers posted gains in December as the Hennessee Arbitrage/Event Driven Index advanced +2.66%. In addition, arbitrage and event driven sub-strategy was the top performing sub strategy for the year, increasing +12.35% in 2010. In December and for the year, managers benefited from a tightening of credit spreads and a continued rally in risk assets. The Barclays High Yield Credit Bond Index advanced +1.81% in December (+15.11%) as spreads reached levels not seen since November 2007 despite an increase Treasury interest rates. High-yield issuance remained strong, and for the year, issuance has surged 50% to a record $353 billion. The Hennessee Distressed Index increased +3.14% in December (+14.76% YTD). Distressed managers experienced gains as long biased portfolios benefited from increased risk appetites of investors. In the U.S., the default rate ended the year at 3.3%, down from 4% at the end of the third quarter and from 14.1% a year earlier. For the year, several restructured companies emerged from bankruptcy and provided significant positive performance for hedge funds.
The Hennessee Merger Arbitrage Index increased +2.55% in December (+7.17% YTD). Managers benefited from a market rally and continued deal activity. Global mergers-and-acquisitions activity for 2010 reached $2.74 trillion, up from $2.2 trillion in 2009, according to Dealogic. Credit markets continue to be supportive of deal making, and managers expect mergers to increase in 2011 as companies look past economic uncertainty to address long-term growth. The Hennessee Convertible Arbitrage Index advanced +1.36% (+10.44% YTD) in December. Convertibles followed equities and ended out the year with a strong performance in December. Credit tightened as investors continue to search for yield. Convertible valuations richened while the new issue calendar remained quiet.
"Although Germany benefits from a weaker Euro, managers fear that the EU one trillion-dollar bail out fund will not be enough to handle future problems," commented Charles Gradante. "A potential result could be that Germany will force a restructuring of the monetary union to have parallel authority to regulate fiscal discipline resulting in macro-economic uncertainty and global market disruption." (See Hennessee Group's "Is This the Tip of Iceberg?" White Paper from February 2009)
The Hennessee Global/Macro Index advanced +2.70% in December (+9.32% YTD). Positive global markets helped drive gains as the Hennessee International Index climbed +2.64% during the month (+12.08% YTD) and the Hennessee Emerging Markets Index gained +2.83% (+13.65% YTD). For the year, despite the fact that global stock markets faced multiple sovereign debt scares in Europe and worries about a double-dip recession in the U.S., global markets posted gains. In Europe, positive performance was driven by Germany and England, while the PIIGS ( Portugual, Ireland, Italy, Greece and Spain) detracted from performance. In Asia, several markets posted strong gains, but the largest economies, China and Japan, experienced declines. Emerging markets were strong, and managers remain optimistic on the longer term outlook. The Hennessee Macro Index advanced +3.27% for the month (+7.96% YTD). Macro funds were a top performing strategy in December as they experienced one of their best months of the year. Managers profited from positions in long equities, long precious metals and other commodities, long oil, short the U.S. dollar, and short Treasuries. For the year, commodities have been a major source of profits as the Dow Jones-UBS Commodity Index rose +16.8% in 2010. Gold, a common hedge fund position, ended the year up +29.8%. Silver and palladium were also significant gainers, up + 83.8% and +97.3%, respectively. Oil prices stayed in a narrow band between $68 and $92 a barrel, but ended the year up +15%. Throughout the year, managers made gains in currencies by being short the euro and long the yen. The European debt crisis battered the euro, which declined against the U.S. dollar.
"Some macro managers are short silver going into 2011 after silver outperformed most major commodities in metals and agriculture," Commented Charles Gradante. "Silver was up 84% in 2010 while gold increased +30%." (See Hennessee Group's "Silver Poised to Outperform Gold" White Paper from March 2009).
* For a more in depth monthly review of the economy, capital markets, and hedge fund performance and strategies, the Hennessee Group offers the monthly Hennessee Hedge Fund Review (www.hennesseegroup.com/hhfr/).
About the Hennessee Group LLC
Hennessee Group LLC is a Registered Investment Adviser that consults direct investors in hedge funds on asset allocation, manager selection, and ongoing monitoring of hedge fund managers. Hennessee Group LLC is not a tracker of hedge funds. The Hennessee Hedge Fund Indices® are for the sole purpose of benchmarking individual hedge fund manager performance. The Hennessee Group does not sell a hedge fund-of-funds product nor does it market individual hedge fund managers. For additional Hennessee Group Press Releases, please visit the Hennessee Group's website. The Hennessee Group also publishes the Hennessee Hedge Fund Review monthly, which provides a comprehensive hedge fund performance review, statistics, and market analysis; all of which is value added to hedge fund managers and investors alike.
Description of Hennessee Hedge Fund Indices®
The Hennessee Hedge Fund Indices® are calculated from performance data reported to the Hennessee Group by a diversified group of over 1,000 hedge funds. The Hennessee Hedge Fund Index is an equally weighted average of the funds in the Hennessee Hedge Fund Indices®. The funds in the Hennessee Hedge Fund Index are derived from the Hennessee Group's database of over 3,500 hedge funds and are net of fees and unaudited.
Strong December Helps Drive Double-Digit Hedge Fund Returns for 2010
Hennessee Group LLC, an adviser to hedge fund investors, announced today that the Hennessee Hedge Fund Index advanced + 3.04% in December (+10.05% YTD), while the S&P 500 increased +6.53% (+12.79% YTD), the Dow Jones Industrial Average advanced +5.19% (+11.02% YTD), and the NASDAQ Composite Index increased +6.19% (+16.91% YTD). The Barclays Aggregate Bond Index declined -1.08% (+6.56% YTD) while the Barclays High Yield Credit Bond Index advanced +1.81% in December (+15.11%). Global financial markets finished 2010 on a positive note as global equity, commodity and credit markets all strengthened in December.
"Hedge funds experienced their best monthly gain of the year, advancing +3.04% in December. The strong month drove hedge fund performance to +10.05% for 2010, " said Lee Hennessee, Managing Principal of Hennessee Group. "The best performing strategies for the year were event driven, distressed, fixed income and emerging markets."
"Hedge funds underperformed traditional equity benchmarks in 2010. However, based upon historical analysis, it is typical for hedge funds to underperform in markets driven more by momentum than equity fundamentals. Since March 2009, when the market bottomed, the Hennessee Hedge Fund Index is up +39%, while the S&P 500 +71%," commented Charles Gradante, Co-Founder of Hennessee Group. "The real value of hedge funds is in risk-adjusted returns and downside protection. Since the beginning of the credit crisis in September 2008, the Hennessee Hedge Fund Index was up +16%, while the S&P 500 was down -2%. Hedge funds have also generated these returns with half the volatility."
The Hennessee Long/Short Equity Index advanced +3.08% in December to finish the year up +9.11%. Economic activity continued to strengthen in December, and the S&P ended the year with its best December since 1987. The month's +6.5% gain represented almost half the index's appreciation for the entire year. Managers benefited from increasing net and gross exposure levels in order to participate in the continued market rally. For the year, many long/short equity hedge funds struggled to outperform on a relative basis due in large part to the "risk on and risk off" trading environment that characterized most of the year.
Major macro themes such as the sovereign debt crisis and introduction of QE2 led to extreme levels of volatility and heightened correlations amongst stocks, making security selection very challenging, particularly for fundamentally based investors (See Hennessee Group's "Hedge Funds Struggle with New Market Order" White Paper from October 2010). In addition, many managers were conservatively positioned for most of the year with net and gross exposures levels below historical averages, resulting in additional underperformance. With the equity markets trading at 13x 2011 earnings, many long/short equity managers believe equities are still reasonably valued and also remain attractive from a technical standpoint. That said, they are concerned about the numerous headwinds that could derail the economic recovery and market rally, and therefore remain cautious entering 2011.
"Managers have long-term concerns about the current U.S. fiscal policy. The U.S. is spending $1.60 for every $1.00 of tax revenue. This is not sustainable. Either taxes will have increase or spending has to decline. In reality, it will likely be a combination of both, but any result is not good news for the market as it will be a drag on economic growth," commented Charles Gradante. "In the short term, the market seems to be overlooking this. Equities are reasonably priced resulting in the expectation that this rally will continue into 2011."
Arbitrage and event driven managers posted gains in December as the Hennessee Arbitrage/Event Driven Index advanced +2.66%. In addition, arbitrage and event driven sub-strategy was the top performing sub strategy for the year, increasing +12.35% in 2010. In December and for the year, managers benefited from a tightening of credit spreads and a continued rally in risk assets. The Barclays High Yield Credit Bond Index advanced +1.81% in December (+15.11%) as spreads reached levels not seen since November 2007 despite an increase Treasury interest rates. High-yield issuance remained strong, and for the year, issuance has surged 50% to a record $353 billion. The Hennessee Distressed Index increased +3.14% in December (+14.76% YTD). Distressed managers experienced gains as long biased portfolios benefited from increased risk appetites of investors. In the U.S., the default rate ended the year at 3.3%, down from 4% at the end of the third quarter and from 14.1% a year earlier. For the year, several restructured companies emerged from bankruptcy and provided significant positive performance for hedge funds.
The Hennessee Merger Arbitrage Index increased +2.55% in December (+7.17% YTD). Managers benefited from a market rally and continued deal activity. Global mergers-and-acquisitions activity for 2010 reached $2.74 trillion, up from $2.2 trillion in 2009, according to Dealogic. Credit markets continue to be supportive of deal making, and managers expect mergers to increase in 2011 as companies look past economic uncertainty to address long-term growth. The Hennessee Convertible Arbitrage Index advanced +1.36% (+10.44% YTD) in December. Convertibles followed equities and ended out the year with a strong performance in December. Credit tightened as investors continue to search for yield. Convertible valuations richened while the new issue calendar remained quiet.
"Although Germany benefits from a weaker Euro, managers fear that the EU one trillion-dollar bail out fund will not be enough to handle future problems," commented Charles Gradante. "A potential result could be that Germany will force a restructuring of the monetary union to have parallel authority to regulate fiscal discipline resulting in macro-economic uncertainty and global market disruption." (See Hennessee Group's "Is This the Tip of Iceberg?" White Paper from February 2009)
The Hennessee Global/Macro Index advanced +2.70% in December (+9.32% YTD). Positive global markets helped drive gains as the Hennessee International Index climbed +2.64% during the month (+12.08% YTD) and the Hennessee Emerging Markets Index gained +2.83% (+13.65% YTD). For the year, despite the fact that global stock markets faced multiple sovereign debt scares in Europe and worries about a double-dip recession in the U.S., global markets posted gains. In Europe, positive performance was driven by Germany and England, while the PIIGS ( Portugual, Ireland, Italy, Greece and Spain) detracted from performance. In Asia, several markets posted strong gains, but the largest economies, China and Japan, experienced declines. Emerging markets were strong, and managers remain optimistic on the longer term outlook. The Hennessee Macro Index advanced +3.27% for the month (+7.96% YTD). Macro funds were a top performing strategy in December as they experienced one of their best months of the year. Managers profited from positions in long equities, long precious metals and other commodities, long oil, short the U.S. dollar, and short Treasuries. For the year, commodities have been a major source of profits as the Dow Jones-UBS Commodity Index rose +16.8% in 2010. Gold, a common hedge fund position, ended the year up +29.8%. Silver and palladium were also significant gainers, up + 83.8% and +97.3%, respectively. Oil prices stayed in a narrow band between $68 and $92 a barrel, but ended the year up +15%. Throughout the year, managers made gains in currencies by being short the euro and long the yen. The European debt crisis battered the euro, which declined against the U.S. dollar.
"Some macro managers are short silver going into 2011 after silver outperformed most major commodities in metals and agriculture," Commented Charles Gradante. "Silver was up 84% in 2010 while gold increased +30%." (See Hennessee Group's "Silver Poised to Outperform Gold" White Paper from March 2009).
* For a more in depth monthly review of the economy, capital markets, and hedge fund performance and strategies, the Hennessee Group offers the monthly Hennessee Hedge Fund Review (www.hennesseegroup.com/hhfr/).
About the Hennessee Group LLC
Hennessee Group LLC is a Registered Investment Adviser that consults direct investors in hedge funds on asset allocation, manager selection, and ongoing monitoring of hedge fund managers. Hennessee Group LLC is not a tracker of hedge funds. The Hennessee Hedge Fund Indices® are for the sole purpose of benchmarking individual hedge fund manager performance. The Hennessee Group does not sell a hedge fund-of-funds product nor does it market individual hedge fund managers. For additional Hennessee Group Press Releases, please visit the Hennessee Group's website. The Hennessee Group also publishes the Hennessee Hedge Fund Review monthly, which provides a comprehensive hedge fund performance review, statistics, and market analysis; all of which is value added to hedge fund managers and investors alike.
Description of Hennessee Hedge Fund Indices®
The Hennessee Hedge Fund Indices® are calculated from performance data reported to the Hennessee Group by a diversified group of over 1,000 hedge funds. The Hennessee Hedge Fund Index is an equally weighted average of the funds in the Hennessee Hedge Fund Indices®. The funds in the Hennessee Hedge Fund Index are derived from the Hennessee Group's database of over 3,500 hedge funds and are net of fees and unaudited.
Hedge Funds Post Inflow of $13.0 Billion in November, Fifth Straight Inflow as Well as Heaviest Since February 2010
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Risk Appetite Healthy: Equity Long-Short, Event Driven, and Emerging Markets Hedge Funds Post Large Inflows
TrimTabs Investment Research and BarclayHedge reported that the hedge fund industry posted an estimated inflow of $13.0 billion (0.8% of assets) in November 2010, the fifth straight inflow as well as the heaviest since February 2010.
“The year ahead looks bright for the hedge fund industry,” said Sol Waksman, founder and President of BarclayHedge. “Hedge funds returned 11.6% in 2010, and investors continue to pump money into the space. Additionally, we suspect pension managers will need to chase active returns because plans are underfunded and market yields are far too low to get the job done.”
Equity long-short funds hauled in $2.5 billion (1.3% of assets) in November 2010, the heaviest inflow of any hedge fund strategy, while event driven funds took in $2.2 billion (1.0% of assets) and emerging markets funds received $1.8 billion (0.8% of assets). Meanwhile, fixed income funds attracted $1.9 billion (1.2% of assets), the seventh straight inflow.
“Hedge fund investors have been much less bearish on bonds than mom and pop,” explained Vincent Deluard, Executive Vice President of Research at TrimTabs. “Retail investors have been dumping muni, Treasury, and multisector bond mutual funds since prices started to tank, but seasoned market participants have yet to redeem fixed income assets. We are fundamentally bearish on bonds, but we expect to see bouts of bullishness when the economic outlook seems uncertain and crises in Europe bubble to the surface.”
Commodity trading advisors (CTAs) posted an outflow of $3.9 billion (1.4% of assets) in November, the first in nine months, although the redemption owed to a single large fund. Funds of hedge funds took in $473 million 0.1% of assets), the fifth straight inflow. Meanwhile, hedge fund managers could help juice equities in 2011.
“We estimate that about 50% of hedge fund managers will collect fees for their performance in 2010,” noted Deluard. “This is better than just 32% in 2009 and only 16% in 2008, but it is nowhere near the record 90% we saw in 2006. We think many managers are likely to invest aggressively in 2011. If they do, their purchasing will be a plus for asset prices.”
The TrimTabs/BarclayHedge database tracks hedge fund flows on a monthly basis. The TrimTabs/BarclayHedge Hedge Fund Flow Report provides detailed analysis of these flows as well as relevant topical studies. Click here for further information.
BarclayHedge is a leading hedge fund data vendor and one of the foremost sources for proprietary research in the field of alternative investments. From its origin as a research specialist and performance measurement firm, BarclayHedge has developed complete client services as a publisher, database and software provider, and industry consultant.
TrimTabs Investment Research is the only independent research service that publishes detailed daily coverage of U.S. stock market liquidity--including mutual fund flows and exchange-traded fund flows--as well as weekly withheld income and employment tax collections. Founded by Charles Biderman, TrimTabs has provided institutional investors with trading strategies since 1990. Go here for more information.
Risk Appetite Healthy: Equity Long-Short, Event Driven, and Emerging Markets Hedge Funds Post Large Inflows
TrimTabs Investment Research and BarclayHedge reported that the hedge fund industry posted an estimated inflow of $13.0 billion (0.8% of assets) in November 2010, the fifth straight inflow as well as the heaviest since February 2010.
“The year ahead looks bright for the hedge fund industry,” said Sol Waksman, founder and President of BarclayHedge. “Hedge funds returned 11.6% in 2010, and investors continue to pump money into the space. Additionally, we suspect pension managers will need to chase active returns because plans are underfunded and market yields are far too low to get the job done.”
Equity long-short funds hauled in $2.5 billion (1.3% of assets) in November 2010, the heaviest inflow of any hedge fund strategy, while event driven funds took in $2.2 billion (1.0% of assets) and emerging markets funds received $1.8 billion (0.8% of assets). Meanwhile, fixed income funds attracted $1.9 billion (1.2% of assets), the seventh straight inflow.
“Hedge fund investors have been much less bearish on bonds than mom and pop,” explained Vincent Deluard, Executive Vice President of Research at TrimTabs. “Retail investors have been dumping muni, Treasury, and multisector bond mutual funds since prices started to tank, but seasoned market participants have yet to redeem fixed income assets. We are fundamentally bearish on bonds, but we expect to see bouts of bullishness when the economic outlook seems uncertain and crises in Europe bubble to the surface.”
Commodity trading advisors (CTAs) posted an outflow of $3.9 billion (1.4% of assets) in November, the first in nine months, although the redemption owed to a single large fund. Funds of hedge funds took in $473 million 0.1% of assets), the fifth straight inflow. Meanwhile, hedge fund managers could help juice equities in 2011.
“We estimate that about 50% of hedge fund managers will collect fees for their performance in 2010,” noted Deluard. “This is better than just 32% in 2009 and only 16% in 2008, but it is nowhere near the record 90% we saw in 2006. We think many managers are likely to invest aggressively in 2011. If they do, their purchasing will be a plus for asset prices.”
The TrimTabs/BarclayHedge database tracks hedge fund flows on a monthly basis. The TrimTabs/BarclayHedge Hedge Fund Flow Report provides detailed analysis of these flows as well as relevant topical studies. Click here for further information.
BarclayHedge is a leading hedge fund data vendor and one of the foremost sources for proprietary research in the field of alternative investments. From its origin as a research specialist and performance measurement firm, BarclayHedge has developed complete client services as a publisher, database and software provider, and industry consultant.
TrimTabs Investment Research is the only independent research service that publishes detailed daily coverage of U.S. stock market liquidity--including mutual fund flows and exchange-traded fund flows--as well as weekly withheld income and employment tax collections. Founded by Charles Biderman, TrimTabs has provided institutional investors with trading strategies since 1990. Go here for more information.
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