Investors Expect Frequent Communication and Direct Manager Access Amid Risk Concerns
With significant dollars poised to flow into hedge funds in 2012, managers must address investor transparency and liquidity concerns to take advantage of new funding opportunities, according to the fifth annual global study released by SEI (NASDAQ: SEIC) in collaboration with Greenwich Associates. The second report in the two-part series, entitled “The New Dynamics of Hedge Fund Competitiveness,” indicates a need for hedge fund managers to move beyond portfolio transparency to provide investors with consistent and insightful communications along with direct access to investment teams. Liquidity and the inability to control exit strategies have also emerged as key concerns for hedge fund investors.
“Client expectations are changing, and despite managers demonstrating improvements in reporting, the study shows that portfolio transparency is simply not enough to satisfy investors anymore,” said Ross Ellis, Vice President, Knowledge Partnership for SEI’s Investment Manager Services division. “Managers have focused on improving reporting data in recent years, but in order to be successful going forward, their focus must expand to meet emerging client demands for increased personal interaction and dialogue. The playing field has changed and that’s clearly the next level of transparency it will take to win in the Era of the Investor™.”
Beyond communication, the survey shows that investors want greater detail in terms of security-level disclosure, including leverage detail, valuation methodology, and risk analytics. The study also showed that liquidity has emerged as a key area of concern among investors. Nearly a third of respondents (31 percent) cited ongoing liquidity risk among their biggest hedge fund investing worries, while “an inability to control exit strategy” was named by 46 percent of respondents.
“Evaluating and selecting fund managers has always been a top-of-mind concern for investors,” said Rodger Smith, Managing Director of Greenwich Associates. “What this study brought to light is that, as long as they can articulate their value proposition and differentiate themselves from their peers, there is a place for smaller and newer funds in institutional portfolios. In fact, one in five investors polled said they have no asset minimum requirements in order to invest, and while a majority of those surveyed said they seek hedge funds with a history of at least three years, roughly a quarter would consider less, and 14 percent would not eliminate a fund without a track record at all.”
Highlighting the increasing inability of investors to distinguish among strategies, 17 percent of respondents said manager selection is the single most important challenge facing hedge fund investors today. While 95 percent of respondents said clarity of investment philosophy is important or very important in the selection process, more than half of respondents (61 percent) said there are too many look-alike strategies in the hedge fund industry. Given that challenge, more than half of respondents (51 percent) said hedge funds are too complex to evaluate without a consultant’s help. Respondents were decidedly mixed on the importance of brand in the selection process, while operations are clearly a critical aspect in selecting managers, with 80 percent of those polled agreeing that operational strength is a hallmark of an institutional-quality fund.
The white paper is published by the SEI Knowledge Partnership, which provides ongoing business intelligence and guidance to SEI’s investment manager clients.
Executive Summary
To request the full paper, visit http://www.seic.com/HedgeResearch2012.
Wednesday, February 29, 2012
Tuesday, February 28, 2012
eVestment|HFN Strategy Focus Report: Macro
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Complete report
The eVestment|HFN active and inactive databases have performance
and asset information for 468 unique funds that invest across a variety
of markets with a macro approach. The macro fund universe is one of
the more diverse in approaches to trading. There are very large funds
investing across the spectrum of markets to funds focusing on specific
regional markets and securities. The common thread is that macro, or
large scale trends are the primary influence in the trade decision making
process, whether those be employed in a full systematic or discretionary
approach or a combination of both.
Macro funds generally outperformed the aggregate hedge fund
industry in 2011 (-3.7% vs. -5.0%) and on an asset weighted
basis, performed significantly better (+1.2% vs. -1.6%).
Macro fund assets under management ended 2011 at an
estimated $200.2 billion, an increase of 2.0% during the year.
Investor flows were positive, but below the average rate of
growth for the industry in 2011.
The equity market rebound to begin 2012 resulted in macro
funds lagging the industry in January. Smaller funds performed
better than large, but were still behind the aggregate industry.
The global environment for economic, political and financial markets in
2011 was ripe with large scale influences that could have greatly
benefited those macro funds with a firm grasp of how events would
influence certain assets and in turn how shifts in different asset prices
could impact others. The remainder of the report compares performance
and flows across macro strategies and the various sub-classifications
eVestment|HFN is able to track to get a better idea of who was able to
perform well in 2011 and what that means for 2012.
Complete report
The eVestment|HFN active and inactive databases have performance
and asset information for 468 unique funds that invest across a variety
of markets with a macro approach. The macro fund universe is one of
the more diverse in approaches to trading. There are very large funds
investing across the spectrum of markets to funds focusing on specific
regional markets and securities. The common thread is that macro, or
large scale trends are the primary influence in the trade decision making
process, whether those be employed in a full systematic or discretionary
approach or a combination of both.
Macro funds generally outperformed the aggregate hedge fund
industry in 2011 (-3.7% vs. -5.0%) and on an asset weighted
basis, performed significantly better (+1.2% vs. -1.6%).
Macro fund assets under management ended 2011 at an
estimated $200.2 billion, an increase of 2.0% during the year.
Investor flows were positive, but below the average rate of
growth for the industry in 2011.
The equity market rebound to begin 2012 resulted in macro
funds lagging the industry in January. Smaller funds performed
better than large, but were still behind the aggregate industry.
The global environment for economic, political and financial markets in
2011 was ripe with large scale influences that could have greatly
benefited those macro funds with a firm grasp of how events would
influence certain assets and in turn how shifts in different asset prices
could impact others. The remainder of the report compares performance
and flows across macro strategies and the various sub-classifications
eVestment|HFN is able to track to get a better idea of who was able to
perform well in 2011 and what that means for 2012.
Monday, February 27, 2012
Deutsche Bank publishes tenth annual Alternative Investment Survey
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Deutsche Bank today announced the results of its tenth annual Alternative Investment Survey, which was conducted in December 2011 by the Bank’s Global Prime Finance business. Approximately 400 investor entities worldwide, representing more than $1.35 trillion in hedge fund assets and over two thirds of the entire market by assets under management (AUM), participated in the industry’s largest and longest standing comprehensive hedge fund investor survey.
Nearly half of the investors surveyed individually manage and/or advise over $1bn in hedge fund assets. Respondents include public and private pensions, foundations and endowments, government organizations, funds of funds, private banks, investment consultants and family offices. To commemorate its tenth anniversary, this year’s survey includes ten trends to watch in the hedge fund industry.
“The past 10 years have seen hedge funds add an impressive $1.39tn in assets,” said Barry Bausano, Co-Head of Global Prime Finance and Head of Equities in the Americas. “Investors are committed to top performing managers, with cash holdings potentially adding an extra $39bn to the industry over the next six months.”
“Performance continues to be key, and an increasing number of institutional investors recognize the added benefits hedge funds offer to their portfolios,” said Anita Nemes, Global Head of Capital Introduction. “An impressive 80% of institutional investors either grew or maintained their hedge fund holdings in 2011 in a bullish endorsement of the hedge fund industry.”
Highlights of Deutsche Bank’s tenth annual Alternative Investment Survey
- Investors predict continued growth, with an estimated net inflow of $140bn in 2012, taking industry AUM to an all time high of $2.26tn by year end.
Increased institutional participation is driving growth as hedge funds become an established and formidable part of the investment landscape. Institutions now account for approximately two thirds of hedge fund assets compared to less than one fifth in 2003.
- Consolidation will continue and large, successful funds will become even bigger. 44% of respondents are invested in managers with over $1bn in AUM, up from 25% in 2009. Nearly a third of respondents plan to allocate to managers with more than $1bn in AUM.
- Performance has consistently ranked as a key criterion for manager selection over the past 10 years. 80% of respondents ranked performance as one of the five most important factors this year, as investors remain committed to seeking talented, top performing managers irrespective of size.
Deutsche Bank today announced the results of its tenth annual Alternative Investment Survey, which was conducted in December 2011 by the Bank’s Global Prime Finance business. Approximately 400 investor entities worldwide, representing more than $1.35 trillion in hedge fund assets and over two thirds of the entire market by assets under management (AUM), participated in the industry’s largest and longest standing comprehensive hedge fund investor survey.
Nearly half of the investors surveyed individually manage and/or advise over $1bn in hedge fund assets. Respondents include public and private pensions, foundations and endowments, government organizations, funds of funds, private banks, investment consultants and family offices. To commemorate its tenth anniversary, this year’s survey includes ten trends to watch in the hedge fund industry.
“The past 10 years have seen hedge funds add an impressive $1.39tn in assets,” said Barry Bausano, Co-Head of Global Prime Finance and Head of Equities in the Americas. “Investors are committed to top performing managers, with cash holdings potentially adding an extra $39bn to the industry over the next six months.”
“Performance continues to be key, and an increasing number of institutional investors recognize the added benefits hedge funds offer to their portfolios,” said Anita Nemes, Global Head of Capital Introduction. “An impressive 80% of institutional investors either grew or maintained their hedge fund holdings in 2011 in a bullish endorsement of the hedge fund industry.”
Highlights of Deutsche Bank’s tenth annual Alternative Investment Survey
- Investors predict continued growth, with an estimated net inflow of $140bn in 2012, taking industry AUM to an all time high of $2.26tn by year end.
Increased institutional participation is driving growth as hedge funds become an established and formidable part of the investment landscape. Institutions now account for approximately two thirds of hedge fund assets compared to less than one fifth in 2003.
- Consolidation will continue and large, successful funds will become even bigger. 44% of respondents are invested in managers with over $1bn in AUM, up from 25% in 2009. Nearly a third of respondents plan to allocate to managers with more than $1bn in AUM.
- Performance has consistently ranked as a key criterion for manager selection over the past 10 years. 80% of respondents ranked performance as one of the five most important factors this year, as investors remain committed to seeking talented, top performing managers irrespective of size.
Thursday, February 23, 2012
Street of Walls 4Q11 Hedge Fund Intelligence Report
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Street of Walls is out with the 4Q11 Hedge Fund Intelligence Report. Some really interesting additions in the quarter including LMCA, DLPH, GOOG, more AAPL, and more AMT.
Key Findings:
- Fund managers are adding exposure back into Financials and Healthcare after huge declines the last several quarters. Government reimbursement risks associated with the Healthcare sector and low rates and mortgage related put-back problems in Financials may have led managers to trim and exit positions within the space over 2Q11 and 3Q11 and re-enter under attractive valuations in 4Q11.
- A majority of hedge funds largest positions were shared amongst the hedge funds in the universe surveyed . AAPL was by far the most crowded position in the top 8 holdings for hedge funds: Greenlight, Lone Pine, Blue Ridge, Coatue, and Tiger all have AAPL as the largest position in their holdings. Other large crowded positions include GOOG, QCOM, LMCA, and AMT.
- On average the funds listed below bought companies with a 2011 forward price to earnings ratio of 18.6x. Appaloosa and Baupost bought into the higher valuation stocks at 47.4x and 28.6x respectively while Glenview and Greenlight bought into much lower valuations at 13.4x and 14.1x respectively.
Street of Walls is out with the 4Q11 Hedge Fund Intelligence Report. Some really interesting additions in the quarter including LMCA, DLPH, GOOG, more AAPL, and more AMT.
Key Findings:
- Fund managers are adding exposure back into Financials and Healthcare after huge declines the last several quarters. Government reimbursement risks associated with the Healthcare sector and low rates and mortgage related put-back problems in Financials may have led managers to trim and exit positions within the space over 2Q11 and 3Q11 and re-enter under attractive valuations in 4Q11.
- A majority of hedge funds largest positions were shared amongst the hedge funds in the universe surveyed . AAPL was by far the most crowded position in the top 8 holdings for hedge funds: Greenlight, Lone Pine, Blue Ridge, Coatue, and Tiger all have AAPL as the largest position in their holdings. Other large crowded positions include GOOG, QCOM, LMCA, and AMT.
- On average the funds listed below bought companies with a 2011 forward price to earnings ratio of 18.6x. Appaloosa and Baupost bought into the higher valuation stocks at 47.4x and 28.6x respectively while Glenview and Greenlight bought into much lower valuations at 13.4x and 14.1x respectively.
SEWARD &KISSEL LLP 2011 New Hedge Fund Study
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Complete report
Seward & Kissel
Key findings relating to hedge funds launched in 2011 or that were expected to be launched in the first quarter of 2012:
Investment Strategies
About 50% of the funds included in the study involved an equity or equity-related strategy (not including multi-strategy offerings which generally involved both equity-related as well as other strategies). About 1/3 of the equity/equity-related offerings were focused on U.S. equities, while the rest had a global focus.
About 1/4 of the equity/equity-related strategies had a sector focus, with the most popular focuses being healthcare and financial services. About 20% of the funds included in the study were multi-strategy offerings, approximately 10% were credit or credit-related strategies, and the balance consisted of structured products, managed futures, commodities and miscellaneous other strategies.
Incentive Allocations/Management Fees
Generally, incentive allocations/fees continued to be pegged at 20% of annual net profits. Moreover, all funds had high water mark provisions. Less than 10% of funds, in the aggregate, had modified high water mark provisions, hurdle rates or incentive allocation/fees measured over multi-year periods.
With respect to the management fees charged, there was a wider dispersion in management fee rates. The mean per annum rate was 1.71% per annum of net assets, with a majority of funds charging 2%, 26% charging 1.5% and 13% charging 1%. This trend was pretty similar within the broader represented investment strategies of equity and multi-strat.
About 40% of the funds offered lower incentive allocation/management fee structures for investors who agreed to greater than one year lockups, typically represented by different fund series, classes or sub-classes.
Liquidity
About 75% of the funds in the study permitted quarterly redemptions and the balance allowed for monthly exits (some subject to lockups, as discussed in further detail below). Notice periods were usually 30, 45 or 60 days.
Approximately 60% of the funds had a soft lockup (usually, one year at 3% - 4% payable to the fund), 30% had no lockup and the rest had a hard lockup (usually, one year and non-rolling).
About 1/4 of the funds in the study had an investor level gate (typically triggered if the investor sought to withdraw more than 25% of its investment) and a very small minority had a fund level gate. The vast majority had no gate.
Structures
Sponsors who offered both U.S. and offshore funds set up master-feeder fund structures approximately 80% of the time. Most offshore funds were established in the Cayman Islands. There were a fair number of managers who initially launched just a U.S. standalone fund, many of whom were seeking to build a track record in order to attract offshore and U.S. tax-exempt investor interest down the road. Most managers opted to have their funds rely on the Section 3(c)(7) exemption, with less than 25% of the funds relying on the Section 3(c)(1) exemption. Finally, the stated minimum initial investment was typically set at $1,000,000, with some outlier funds having a stated minimum of $250,000 on the low end and $5,000,000 on the high end.
Founders, Seed or other Strategic Capital
Given the still rather challenging capitalraising environment that existed in 2011, it is not surprising that approximately 45% of the funds obtained some form of founders (i.e., typically, early stage investors who are offered better fees often in exchange for a lockup), seed or other type of strategic capital. With respect to "founders classes", there was a fairly even split between those managers who built them into the offering documents and those who took a side letter approach. With respect to seed deals, the 2011 environment saw a number of prominent “seed capital” investors assisting the launch of a select group of wellpedigreed managers. The initial funding in many of those instances was between $75 million and $150 million typically locked up for two to three years. A number of less prominent “seed capital” investors (many being newer entrants into the space) sought to fill the void by funding less well-known managers with smaller amounts, typically ranging from $25 million to $50 million.
Complete report
Seward & Kissel
Key findings relating to hedge funds launched in 2011 or that were expected to be launched in the first quarter of 2012:
Investment Strategies
About 50% of the funds included in the study involved an equity or equity-related strategy (not including multi-strategy offerings which generally involved both equity-related as well as other strategies). About 1/3 of the equity/equity-related offerings were focused on U.S. equities, while the rest had a global focus.
About 1/4 of the equity/equity-related strategies had a sector focus, with the most popular focuses being healthcare and financial services. About 20% of the funds included in the study were multi-strategy offerings, approximately 10% were credit or credit-related strategies, and the balance consisted of structured products, managed futures, commodities and miscellaneous other strategies.
Incentive Allocations/Management Fees
Generally, incentive allocations/fees continued to be pegged at 20% of annual net profits. Moreover, all funds had high water mark provisions. Less than 10% of funds, in the aggregate, had modified high water mark provisions, hurdle rates or incentive allocation/fees measured over multi-year periods.
With respect to the management fees charged, there was a wider dispersion in management fee rates. The mean per annum rate was 1.71% per annum of net assets, with a majority of funds charging 2%, 26% charging 1.5% and 13% charging 1%. This trend was pretty similar within the broader represented investment strategies of equity and multi-strat.
About 40% of the funds offered lower incentive allocation/management fee structures for investors who agreed to greater than one year lockups, typically represented by different fund series, classes or sub-classes.
Liquidity
About 75% of the funds in the study permitted quarterly redemptions and the balance allowed for monthly exits (some subject to lockups, as discussed in further detail below). Notice periods were usually 30, 45 or 60 days.
Approximately 60% of the funds had a soft lockup (usually, one year at 3% - 4% payable to the fund), 30% had no lockup and the rest had a hard lockup (usually, one year and non-rolling).
About 1/4 of the funds in the study had an investor level gate (typically triggered if the investor sought to withdraw more than 25% of its investment) and a very small minority had a fund level gate. The vast majority had no gate.
Structures
Sponsors who offered both U.S. and offshore funds set up master-feeder fund structures approximately 80% of the time. Most offshore funds were established in the Cayman Islands. There were a fair number of managers who initially launched just a U.S. standalone fund, many of whom were seeking to build a track record in order to attract offshore and U.S. tax-exempt investor interest down the road. Most managers opted to have their funds rely on the Section 3(c)(7) exemption, with less than 25% of the funds relying on the Section 3(c)(1) exemption. Finally, the stated minimum initial investment was typically set at $1,000,000, with some outlier funds having a stated minimum of $250,000 on the low end and $5,000,000 on the high end.
Founders, Seed or other Strategic Capital
Given the still rather challenging capitalraising environment that existed in 2011, it is not surprising that approximately 45% of the funds obtained some form of founders (i.e., typically, early stage investors who are offered better fees often in exchange for a lockup), seed or other type of strategic capital. With respect to "founders classes", there was a fairly even split between those managers who built them into the offering documents and those who took a side letter approach. With respect to seed deals, the 2011 environment saw a number of prominent “seed capital” investors assisting the launch of a select group of wellpedigreed managers. The initial funding in many of those instances was between $75 million and $150 million typically locked up for two to three years. A number of less prominent “seed capital” investors (many being newer entrants into the space) sought to fill the void by funding less well-known managers with smaller amounts, typically ranging from $25 million to $50 million.
Wednesday, February 15, 2012
Barclay CTA Index Gains 0.05% in January; Seven of Eight Sectors Start Year in the Black
Managed futures gained 0.05% in January according to the Barclay CTA Index compiled by BarclayHedge.
“CTAs have gotten off to a slow start in 2012,” says Sol Waksman, founder and president of BarclayHedge.
“Even though seven of Barclay’s eight CTA indices had positive returns in January, the overall performance was basically flat.”
The Currency Traders Index gained 0.69%, Discretionary Traders were up 0.25%, Financial & Metals Traders gained 0.24%, and Agricultural Traders added 0.16%.
However, a 0.13% loss in the Barclay Diversified Traders Index brought down the overall average of the Barclay CTA Index. Since Diversified Traders make up a larger percentage of the CTA database, a loss in that index can cancel out gains in other strategies.
“Although various market segments such as equities, precious metals, and gasoline performed well during the month, there were enough losses in other corners of a diversified portfolio that drove returns into the loss column for the sector,” says Waksman.
The Barclay BTOP50 Index, which measures performance of the largest CTAs, gained 0.23% in January.
Click here to view 32 years of Barclay CTA Index data.
BarclayHedge was founded in 1985 and actively tracks more than 6,200 hedge funds, funds of hedge funds, and managed futures programs. Each month Barclay provides updated performance rankings for 38 Hedge Fund categories, 16 CTA categories, and 7 UCITS categories.
Institutional investors, brokerage firms, and private banks worldwide utilize BarclayHedge indices as performance benchmarks for the hedge fund and managed futures industries.
Barclay Hedge Fund Index Gains 2.93% in January
Hedge funds gained 2.93% in January, according to the Barclay Hedge Fund Index compiled by BarclayHedge.
“The Fed’s announcement that they will keep interest rates near zero percent through 2014 helped to fuel the equity rally that began in mid-December,” says Sol Waksman, founder and president of BarclayHedge.
All but one of the 18 indices tracked by BarclayHedge had gains in January. The Barclay Equity Long Bias Index was up 4.99%, Healthcare & Biotechnology gained 4.96%, Emerging Markets were up 4.40%, the Event Driven Index added 2.79%, and European Equities gained 2.49%.
“Although investor money flowed into risk assets, bonds prices also rose with the JP Morgan World Government Bond Index gaining 61 bps,” says Waksman.
“Favorable market conditions set the stage for a strong showing with roughly 85 percent of hedge funds reporting profits in January.”
After leading all BarclayHedge indices in 2011 with an overall return of 6.57%, the Equity Short Bias Index dropped 10.48% in January.
“The Equity Short Bias Index suffered its worst January performance in 15 years, since we began tracking the returns of short sellers in 1997,” says Waksman. “The previous low for January was a 3.36 percent loss in 2006.”
The Barclay Fund of Funds Index was up 2.08% in January, its best start since a 2.85% gain in January of 2006.
Click here to view five years of Barclay Hedge Fund Index data, or download 13 years of monthly data.
“The Fed’s announcement that they will keep interest rates near zero percent through 2014 helped to fuel the equity rally that began in mid-December,” says Sol Waksman, founder and president of BarclayHedge.
All but one of the 18 indices tracked by BarclayHedge had gains in January. The Barclay Equity Long Bias Index was up 4.99%, Healthcare & Biotechnology gained 4.96%, Emerging Markets were up 4.40%, the Event Driven Index added 2.79%, and European Equities gained 2.49%.
“Although investor money flowed into risk assets, bonds prices also rose with the JP Morgan World Government Bond Index gaining 61 bps,” says Waksman.
“Favorable market conditions set the stage for a strong showing with roughly 85 percent of hedge funds reporting profits in January.”
After leading all BarclayHedge indices in 2011 with an overall return of 6.57%, the Equity Short Bias Index dropped 10.48% in January.
“The Equity Short Bias Index suffered its worst January performance in 15 years, since we began tracking the returns of short sellers in 1997,” says Waksman. “The previous low for January was a 3.36 percent loss in 2006.”
The Barclay Fund of Funds Index was up 2.08% in January, its best start since a 2.85% gain in January of 2006.
Click here to view five years of Barclay Hedge Fund Index data, or download 13 years of monthly data.
Tuesday, February 14, 2012
Hennessee Hedge Fund Index advanced +2.51% in January
Hennessee Group LLC, an adviser to hedge fund investors, announced today that the Hennessee Hedge Fund Index advanced +2.51% in January, while the S&P 500 advanced +4.36%, the Dow Jones Industrial Average increased +3.40%, and the NASDAQ Composite Index climbed +8.01%. Bonds also advanced, as the Barclays Aggregate Bond Index increased +0.88% and the Barclays High Yield Credit Bond Index advanced +3.04%.
“After several months of treading water, managers posted profits as stocks rallied on fundamentals, being driven less by macroeconomic and political news and more by underlying company specific fundamentals,” commented Charles Gradante, Co-Founder of Hennessee Group. “The top performing managers were positioned for a January rally and were long stocks that underperformed in 2011.”
“January was a good month for hedge funds. After a -4.6% decline last year, the industry has a more positive outlook for 2012,” said Lee Hennessee, Managing Principal of Hennessee Group. “It is encouraging to see a respectable gain even with managers conservatively positioned. Looking forward, managers are still cautious but are optimistic on the potential to generate positive alpha.”
Equity long/short was one of the best performing strategies in January, as the Hennessee Long/Short Equity Index advanced +2.47%. Stocks pushed higher in January, led by technology and financials, as U.S. economic data continued to show signs of improvement. In addition, volatility declined as investor sentiment around the European sovereign debt crisis improved. Managers benefitted from improving conditions. Stock-picking generated alpha as volatility and correlation declined, equity market inflows increased, and investors started actively allocating capital to new ideas. Many managers took advantage of the “January Effect” by increasing exposures at the beginning of the month. While hedge funds lagged long only benchmarks on a relative basis as shorts and hedges detracted from performance, long/short equity were able to generate a significant in January with average exposure levels, an encouraging sign for 2012.
Generally, managers commented that it seems the market wants to go higher as long as Europe stabilizes. Managers are still monitoring the situation in Europe as Greece’s debt problems have not been resolved. However, it seems most feel that the debt issues will be resolved in the long run and are focusing less on short-term political noise, resulting in a decline in volatility.
The Hennessee Arbitrage/Event Driven Index advanced +2.31% in January. The strategy posted its best month since December 2010, with positive contributions across all strategies. Along with an equity market rally, credit markets advanced for the month, with the exception of Treasuries. Spreads on high yield bonds tightened to 654 basis points from 723 basis points, the narrowest level since August 2011, according to the Bank of America. The Hennessee Distressed Index increased +3.24% in January. Long-biased portfolios benefited from the continued market rally and outperformance of underperforming 2011 stocks. The outlook for distressed managers has improved as investors start increasing risk and investing on fundamentals. The Hennessee Merger Arbitrage Index advanced +1.25% in January. During the month, corporate credit and M&A deal spreads tightened. While the NYSE/Deutsche Borse deal fell apart, managers benefited from significant activity in the healthcare and technology sectors. While January deal flow was lacking, managers expect acceleration in deal activity as company valuations are low, interest rates are low, and corporate cash is high. The Hennessee Convertible Arbitrage Index returned +1.91% as the convertible space richened in January. Tightening of spreads and improved equity markets were positive drivers for convertible strategies. Non-traditional outright buyers of convertibles remain very active, providing a floor for valuations.
“During the month, bullish sentiment was boosted by dovish Fed comments which left the door open to additional quantitative easing.” commented Charles Gradante. “Many managers remain concerned about the long term ramifications of continued monetary easing, causing managers to hold gold as a long term hedge. While the precious metal has been volatile, up +14% in January, managers still see significant upside. Most managers have already built full positions but will add on pullbacks greater than 10%.”
The Hennessee Global/Macro Index advanced +2.89% in January. International equities advanced, driven by Emerging Markets, as the MSCI EAFE Index increased +5.25%. International managers underperformed due to conservative positioning. Emerging market hedge funds were top performers for the month, as the Hennessee Emerging Market Index advanced +6.15%. In addition to the European sovereign debt crisis and a possible slowdown in China, managers are closely monitoring the political and social unrest in the Middle East and several have concerns about Iran and Syria. The Hennessee Macro Index increased +1.46% for the month. Manager benefited from gains in global equity and credit markets. The U.S. Dollar declined against the Euro and Yen. In fixed income, the U.S. treasury curved steepened as longer dated yields rose. Commodity metals rallied, with the S&P Goldman Sachs Commodity Index returning +2.23%. Precious metals outperformed, with gold advancing +13.9% and silver climbing +19.2%. Managers also had gains in agricultural commodities.
“After several months of treading water, managers posted profits as stocks rallied on fundamentals, being driven less by macroeconomic and political news and more by underlying company specific fundamentals,” commented Charles Gradante, Co-Founder of Hennessee Group. “The top performing managers were positioned for a January rally and were long stocks that underperformed in 2011.”
“January was a good month for hedge funds. After a -4.6% decline last year, the industry has a more positive outlook for 2012,” said Lee Hennessee, Managing Principal of Hennessee Group. “It is encouraging to see a respectable gain even with managers conservatively positioned. Looking forward, managers are still cautious but are optimistic on the potential to generate positive alpha.”
Equity long/short was one of the best performing strategies in January, as the Hennessee Long/Short Equity Index advanced +2.47%. Stocks pushed higher in January, led by technology and financials, as U.S. economic data continued to show signs of improvement. In addition, volatility declined as investor sentiment around the European sovereign debt crisis improved. Managers benefitted from improving conditions. Stock-picking generated alpha as volatility and correlation declined, equity market inflows increased, and investors started actively allocating capital to new ideas. Many managers took advantage of the “January Effect” by increasing exposures at the beginning of the month. While hedge funds lagged long only benchmarks on a relative basis as shorts and hedges detracted from performance, long/short equity were able to generate a significant in January with average exposure levels, an encouraging sign for 2012.
Generally, managers commented that it seems the market wants to go higher as long as Europe stabilizes. Managers are still monitoring the situation in Europe as Greece’s debt problems have not been resolved. However, it seems most feel that the debt issues will be resolved in the long run and are focusing less on short-term political noise, resulting in a decline in volatility.
The Hennessee Arbitrage/Event Driven Index advanced +2.31% in January. The strategy posted its best month since December 2010, with positive contributions across all strategies. Along with an equity market rally, credit markets advanced for the month, with the exception of Treasuries. Spreads on high yield bonds tightened to 654 basis points from 723 basis points, the narrowest level since August 2011, according to the Bank of America. The Hennessee Distressed Index increased +3.24% in January. Long-biased portfolios benefited from the continued market rally and outperformance of underperforming 2011 stocks. The outlook for distressed managers has improved as investors start increasing risk and investing on fundamentals. The Hennessee Merger Arbitrage Index advanced +1.25% in January. During the month, corporate credit and M&A deal spreads tightened. While the NYSE/Deutsche Borse deal fell apart, managers benefited from significant activity in the healthcare and technology sectors. While January deal flow was lacking, managers expect acceleration in deal activity as company valuations are low, interest rates are low, and corporate cash is high. The Hennessee Convertible Arbitrage Index returned +1.91% as the convertible space richened in January. Tightening of spreads and improved equity markets were positive drivers for convertible strategies. Non-traditional outright buyers of convertibles remain very active, providing a floor for valuations.
“During the month, bullish sentiment was boosted by dovish Fed comments which left the door open to additional quantitative easing.” commented Charles Gradante. “Many managers remain concerned about the long term ramifications of continued monetary easing, causing managers to hold gold as a long term hedge. While the precious metal has been volatile, up +14% in January, managers still see significant upside. Most managers have already built full positions but will add on pullbacks greater than 10%.”
The Hennessee Global/Macro Index advanced +2.89% in January. International equities advanced, driven by Emerging Markets, as the MSCI EAFE Index increased +5.25%. International managers underperformed due to conservative positioning. Emerging market hedge funds were top performers for the month, as the Hennessee Emerging Market Index advanced +6.15%. In addition to the European sovereign debt crisis and a possible slowdown in China, managers are closely monitoring the political and social unrest in the Middle East and several have concerns about Iran and Syria. The Hennessee Macro Index increased +1.46% for the month. Manager benefited from gains in global equity and credit markets. The U.S. Dollar declined against the Euro and Yen. In fixed income, the U.S. treasury curved steepened as longer dated yields rose. Commodity metals rallied, with the S&P Goldman Sachs Commodity Index returning +2.23%. Precious metals outperformed, with gold advancing +13.9% and silver climbing +19.2%. Managers also had gains in agricultural commodities.
Hedge funds gain 2.15% in Jan 2012, the strongest monthly return since Dec 2010
The Eurekahedge Hedge Fund Index was up 2.15%1 in January amid a strong resurgence in risk appetite, making it the strongest monthly return for the index since December 2010. The MSCI World Index gained 4.96%2 as markets overcame lingering concerns about the European debt situation and posted strong rallies. The capital-weighted Mizuho-Eurekahedge Index was up 1.80% during the month.
Key highlights for January 2012:
Hedge funds posted their best monthly returns since December 2010, gaining 2.15% in January 2012.
All regions and strategies delivered positive returns in January.
Hedge funds investing in insurance linked securities continue to post excellent profits with low volatility – the funds have delivered annualised returns of 7% and a sharpe ratio of 2, over the last 6 years.
Emerging market macro managers have gained 7.59% in the past 12 months.
Small hedge funds outperformed large hedge funds in January 2012.
Funds of hedge funds witnessed their best monthly return since December 2010.
Early reporting funds indicate that between all the strategies, equity investing funds attracted the largest inflows in January 2012.
Key highlights for January 2012:
Hedge funds posted their best monthly returns since December 2010, gaining 2.15% in January 2012.
All regions and strategies delivered positive returns in January.
Hedge funds investing in insurance linked securities continue to post excellent profits with low volatility – the funds have delivered annualised returns of 7% and a sharpe ratio of 2, over the last 6 years.
Emerging market macro managers have gained 7.59% in the past 12 months.
Small hedge funds outperformed large hedge funds in January 2012.
Funds of hedge funds witnessed their best monthly return since December 2010.
Early reporting funds indicate that between all the strategies, equity investing funds attracted the largest inflows in January 2012.
Wednesday, February 8, 2012
The Dow Jones Credit Suisse Core Hedge Fund Index Closed Up 2.26% in January
Early estimates indicate the Dow Jones Credit Suisse Hedge Fund Index (“Broad Index”) finished up 2.34% in January (based on 82% of assets in the index reporting)
The Dow Jones Credit Suisse Core Hedge Fund Index closed up 2.26% in January as all of the component strategies reported positive results.
The Dow Jones Credit Suisse Core Hedge Fund Index provides daily published index values which enable investors to track the impact of market events on the hedge fund industry. January 2012, December 2011 and year-to-date 2012 performances are available at www.hedgeindex.com.
Strategy Estimates
Index | Jan-12 |
Broad Benchmark Index | 2.34% |
Convertible Arbitrage | 2.43% |
Dedicated Short Bias | -8.05% |
Emerging Markets | 5.53% |
Equity Market Neutral | 0.80% |
Event Driven | 3.15% |
Distressed | 2.94% |
Event Driven Multi-Strategy | 3.26% |
Risk Arbitrage | 0.86% |
Fixed Income Arbitrage | 1.07% |
Global Macro | 1.11% |
Long/Short Equity | 3.76% |
Managed Futures | 1.11% |
Multi-Strategy | 2.35% |
New Dow Jones Credit Suisse Hedge Fund Index Commentary Reviews Hedge Fund Performance in 2011
The Dow Jones Credit Suisse Hedge Fund Index team has released its 2011 Hedge Fund Market Review. The report examines the drivers of hedge fund performance and asset growth in 2011. Some key conclusions from the report include:
Hedge funds, as measured by the Dow Jones Credit Suisse Hedge Fund Index, finished the fourth quarter up 0.71%; however, the overall performance for the year was down 2.52%;
The industry saw an estimated $15 billion in inflows in 2011, bringing overall assets under management for the industry to approximately $1.71 trillion. Assets have remained relatively stable, up 1% from 2010;
The Managed Futures and Fixed Income Arbitrage sectors experienced the largest asset inflows on a percentage basis in 2011, with inflows of 23% and 19% respectively;
On an industry-wide basis, a larger percentage of asset inflows went to funds with monthly or better liquidity, suggesting greater investor demand for liquid hedge fund structures; and
Overall, hedge funds, as represented by the Dow Jones Credit Suisse Hedge Fund Index, continued to provide positive risk-adjusted returns relative to other strategies.
Hedge funds, as measured by the Dow Jones Credit Suisse Hedge Fund Index, finished the fourth quarter up 0.71%; however, the overall performance for the year was down 2.52%;
The industry saw an estimated $15 billion in inflows in 2011, bringing overall assets under management for the industry to approximately $1.71 trillion. Assets have remained relatively stable, up 1% from 2010;
The Managed Futures and Fixed Income Arbitrage sectors experienced the largest asset inflows on a percentage basis in 2011, with inflows of 23% and 19% respectively;
On an industry-wide basis, a larger percentage of asset inflows went to funds with monthly or better liquidity, suggesting greater investor demand for liquid hedge fund structures; and
Overall, hedge funds, as represented by the Dow Jones Credit Suisse Hedge Fund Index, continued to provide positive risk-adjusted returns relative to other strategies.
HEDGE FUND INVESTORS ROTATE INTO MACRO, ARBITRAGE STRATEGIES FOR 2012
Performance gains in 4Q offset modest net outflow as total hedge fund assets retake $2 Trillion mark;
Net Inflows for 2011 exceed $70 Billion, highest since 2007
Total capital invested in the hedge fund industry regained the $2 trillion milestone to conclude 2011, according to data released by HFR (Hedge Fund Research, Inc.), the leading provider of data, indices and analysis of hedge funds. The industry originally eclipsed $2 trillion in AUM in 1Q11 and peaked at $2.04 trillion at mid-year before declining to $1.97 trillion to end the volatile 3Q11. Total hedge fund AUM finished the year at $2.01 trillion, as 4Q11 performance gains offset a nominal net capital outflow of $127 million, a figure representing approximately 0.007% of total industry AUM. For the full year 2011, investors allocated $70 billion of net new capital to hedge funds, a volatile performance year in which the HFRI Fund Weighted Composite Index declined by -5.0 percent, only the 3rd calendar year decline since 1990.
Macro, Arbitrage lead strategy allocation divergences
Investors exhibited a clear preference for Macro and Relative Value Arbitrage strategies in both the fourth quarter and the full year, while equity strategies experienced net withdrawals for 4Q. Discretionary and quantitative Macro hedge funds, which actively position across liquid currency, commodity, fixed income and equity markets experienced net inflows of $7.9 billion for 4Q and $27.9 billion for 2011. Relative Value Arbitrage (RVA) strategies, which are primarily fixed income-based, attracted a net inflow of $5.9 billion in 4Q and $35.9 billion for 2011; RVA was the only main strategy to post a performance gain for 2011, with the HFRI Relative Value Index gaining +0.51 percent for the year. Following the difficult 3Q11, Equity Hedge and Event Driven experienced net outflows in 4Q11 of $8.6 and $5.3 billion, respectively, reducing full year inflows to $2.2 billion in Equity Hedge and $4.6 billion in Event Driven.
Nearly 60 percent of all hedge funds experienced outflows for the quarter, while just over 40 percent attracted inflows. For the full year 2011, investors allocated $50.7 billion of net new capital to firms with greater than $5 billion in AUM, while firms with less than $5 billion experienced a combined net inflow of $20 billion. Concluding a difficult year for Funds of Hedge Funds (FOF), investors withdrew $7.2 billion in 4Q11, bringing FOF total capital to $629 billion.
“Capital flows in both 4Q and 2011 have followed a consistent theme of reducing directional equity market beta while increasing exposure across currency, commodity and fixed income strategies, as investors position for continuing macro volatility and spread convergence in 2012,” said Kenneth J. Heinz, President of HFR. “The complexity and breadth of the European debt and currency crisis contributed to a challenging environment for hedge funds in 2011 and, as a result, investors are tactically positioning exposures to provide positive portfolio optionality and to monetize opportunities created by fluid developments in this ongoing crisis.”
ASIAN HEDGE FUNDS TOP EQUITY MARKETS AGAIN IN 2011
Strategy evolution, risk management integral to 2nd consecutive year of outperformance;
China overtakes US as top location for Asian-focused hedge funds in 2011
Global investors remain cautious on Asia as redemptions continue
Asian hedge funds outperformed volatile regional equity markets in 2011, marking the second consecutive year of such outperformance, according to data released today by HFR (Hedge Fund Research, Inc.), the leading provider of data, indices and analysis of the global hedge fund industry. In a year marked by a difficult cycle of navigating steep equity market declines in Japan and Emerging Asia, the benchmark HFRX Asia with Japan Index posted a narrow gain of +0.4 percent in 4Q11 to end 2011 with a decline of -5.2 percent, mirroring the performance of the broad-based HFRI Fund Weighted Composite Index and topping the Nikkei 225 and the Shanghai Composite Index by 1,200 and nearly 1,700 basis points (bps), respectively. The recently launched HFRX Korea Index posted a gain of +4.8 percent for 4Q11 and, despite declining -7.5 percent for the full calendar year, also topped the benchmark Kospi Index by nearly 350 bps for 2011.
Total capital in Asian hedge funds rises in 2011, despite outflow in 4Q
Global investors reduced capital invested in the Asian hedge fund industry by $1.04 billion in 4Q11, the first quarterly net outflow to Asian hedge funds since 1Q10. For the full year 2011, Asian hedge funds experienced a net inflow of $6.6 billion, representing a +7.5 percent increase in total AUM in these funds, bringing total estimated capital in Asian hedge funds to $82.1 billion to conclude the year. Contrary to trends across the global hedge fund industry, two- thirds of the new capital invested in Asian hedge funds in 2011 went to Equity Hedge strategies, with Event Driven and Relative Value Arbitrage also experiencing net increases in capital. While the largest sub-strategy for Asian hedge funds continues to be Equity Hedge: Fundamental Growth, funds executing on Distressed, Market Neutral and Event Driven: Multi-Strategy have experienced capital increases, while AUM dedicated to Macro and Activist funds has declined over the past year.
The total number of Asian hedge funds has also continued to increase, ending 2011 at nearly 1,100 funds, a gain of 4 percent for the year, and growth which has been consistent across both Emerging and Developed Asia. In addition, the number of funds choosing to locate in Asia also increased for the year, with China, Singapore and Australia all showing increases, while the number located in the US declined for the year. The percentage of Asian-focused hedge funds located in China increased to 28.6 percent in the second half of 2011, while the percentage located in the US declined to 26.4 percent.
“2011 was a challenging year for Asian hedge funds not only as a function of complexities associated with Asian inflation, natural disasters and speculation on currency policy, but also as related to assessing the potential impact that the European sovereign debt crisis could have on Asian trade, financial market liquidity and currency levels,” said Kenneth J. Heinz, President of HFR. “The increased proliferation of specialized, Asian-located funds executing on uncorrelated, market neutral strategies and the relative performance benefits these offer are likely to attract capital from both Asian and global investors as cyclical risk tolerance increases in 2012.”
HEDGE FUNDS BEGIN NEW YEAR WITH STRONG GAINS
HFRI Equity Hedge Index gains +3.84 percent in January;
Emerging Markets gain +5.3 percent, leading broad-based advance
Hedge funds opened 2012 by posting broad-based gains in January, with the HFRI Fund Weighted Composite Index gaining +2.63 percent, the second highest monthly performance figure since December 2010, according to data released today by HFR, the leading global provider of data, analysis and indexation of the hedge fund industry.
Equity Hedge strategies performed the strongest in January, with the HFRI Equity Hedge Index gaining +3.84 percent, led by Fundamental Growth, Value and Energy/Basic Materials sub-strategies. Event Driven and Relative Value Arbitrage strategies posted gains of +2.4 percent and +2.3 percent, respectively, with contributions from ED: Special Situations and Activist funds, as well as RV: Yield Alternative and Convertible Arbitrage exposures. Macro strategies posted a gain of +1.1 percent, with strong contributions from Discretionary strategies, and complemented by gains in quantitative, trend-following strategies. Both Currency and Commodity focused funds posted January gains despite underlying asset volatility; the HFRI Macro: Systematic Diversified Index posted a gain of +0.32 percent. The lone sub-strategy of negative industry performance was Equity Hedge: Short Bias, which declined by -8.3 percent in January, following a +0.4 percent gain in FY2011.
After trailing other strategies in 2011, hedge funds investing in Emerging Markets experienced a sharp reversal to start 2012, with the HFRI Emerging Markets Index gaining +5.3 percent, its strongest performance since May 2009, when it returned +9.6 percent. Hedge funds focusing on Russia/Eastern Europe and Latin America exposures led EM performance, with these gaining +9.2 and +6.9 percent, respectively.
“January performance for hedge funds was driven by a number of positive factors, with these generally constituting a reversal of the cyclically high levels of risk aversion which influenced not only fundamental asset price convergence, but also capital allocations by leading investors throughout 2011,” said Kenneth J. Heinz, President of HFR. “While equity markets are off to a strong start, investors should remain cognizant of the dynamic risk environment across currencies, commodities, strategic acquisitions, fixed income and emerging markets which will continue to create opportunities both long and short throughout 2012.”
About HFR
HFR (Hedge Fund Research, Inc.) is the global leader in the alternative investment industry. Established in 1992, HFR specializes in the areas of indexation and analysis of hedge funds. HFR Database, the most comprehensive resource available for hedge fund investors, includes fund-level detail on historical performance and assets, as well as firm characteristics on both the broadest and most influential hedge fund managers. HFR has developed the industry’s most detailed fund classification system, enabling granular and specific queries for relative performance measurement, peer group analysis and benchmarking. HFR produces over 100 indices of hedge fund performance ranging from industry-aggregate levels down to specific, niche areas of sub-strategy and regional investment focus. With performance dating back to 1990, the HFRI Fund Weighted Composite Index is the industry’s most widely used standard benchmark of hedge fund performance globally. The HFR suite of Analysis Products leverages the HFR Database to provide detailed, current, comprehensive and relevant aggregate reference points on all facets of the hedge fund industry. HFR also offers consulting services for clients seeking customized top-level or more nuanced analysis. For the hedge fund industry’s leading investors and hedge fund managers,
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Hedge Fund Managers More Bullish on S&P 500 in January 2012
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The latest TrimTabs/BarclayHedge Survey of Hedge Fund Managers reveals growing numbers of fund managers are becoming more optimistic about the prospects of U.S. equities. The survey of 108 hedge fund managers found bullish sentiment on the S&P 500 at 45.4% in January 2012, up from 42% in December and the second-highest reading since December 2010. Managers were surveyed in the third week of January.
While hedge fund managers are seeing brighter days ahead, the TrimTabs Demand Index is far less optimistic. "The Demand Index is down more than 50% since the beginning of January, which stands as a warning to bullish market participants,” Mirochnik says. The Demand Index, which monitors 21 key sentiment indicators to time U.S. equities, signaled a strong bullish stance in late November, just before the markets surged. “This sudden reversal in January is cause for caution,” Mirochnik says.
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The latest TrimTabs/BarclayHedge Survey of Hedge Fund Managers reveals growing numbers of fund managers are becoming more optimistic about the prospects of U.S. equities. The survey of 108 hedge fund managers found bullish sentiment on the S&P 500 at 45.4% in January 2012, up from 42% in December and the second-highest reading since December 2010. Managers were surveyed in the third week of January.
While hedge fund managers are seeing brighter days ahead, the TrimTabs Demand Index is far less optimistic. "The Demand Index is down more than 50% since the beginning of January, which stands as a warning to bullish market participants,” Mirochnik says. The Demand Index, which monitors 21 key sentiment indicators to time U.S. equities, signaled a strong bullish stance in late November, just before the markets surged. “This sudden reversal in January is cause for caution,” Mirochnik says.
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Hedge Funds Redeem $5.2 Billion in December 2011
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Industry Assets Sink to Lowest Level in Nearly Two Years
BarclayHedge and TrimTabs Investment Research reported today that hedge funds redeemed an estimated $5.2 billion in December 2011 and underperformed the S&P 500 for the year. Industry assets fell to $1.64 trillion, down 7.7% for 2011, and hit their lowest level since February 2010.
“The Barclay Hedge Fund Index fell 0.4% in December after decreasing 1.4% in November,” says Sol Waksman, founder and President of BarclayHedge. “From May 2011 onward, hedge fund performance was negative in every month except October.”
“Hedge funds underperformed the S&P 500 last year, falling 5.5% compared to a flat return for the S&P 500,” says Leon Mirochnik, an analyst at TrimTabs. In December, only three of 14 major hedge fund categories tracked by TrimTabs and BarclayHedge — Equity Market Neutral, Merger Arbitrage and Fixed Income — showed positive returns.
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Industry Assets Sink to Lowest Level in Nearly Two Years
BarclayHedge and TrimTabs Investment Research reported today that hedge funds redeemed an estimated $5.2 billion in December 2011 and underperformed the S&P 500 for the year. Industry assets fell to $1.64 trillion, down 7.7% for 2011, and hit their lowest level since February 2010.
“The Barclay Hedge Fund Index fell 0.4% in December after decreasing 1.4% in November,” says Sol Waksman, founder and President of BarclayHedge. “From May 2011 onward, hedge fund performance was negative in every month except October.”
“Hedge funds underperformed the S&P 500 last year, falling 5.5% compared to a flat return for the S&P 500,” says Leon Mirochnik, an analyst at TrimTabs. In December, only three of 14 major hedge fund categories tracked by TrimTabs and BarclayHedge — Equity Market Neutral, Merger Arbitrage and Fixed Income — showed positive returns.
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