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.
Wednesday, February 8, 2012
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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Tuesday, January 24, 2012
SEI Study: Hedge Fund Managers Must Make Strategies More Understandable Amid Performance Pressure
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Institutional investors continue to deepen their commitment to hedge funds, but expect much more from managers in terms of articulating their value proposition, risk mitigation methodology, and performance expectations, according to the fifth annual global study released today by SEI (NASDAQ: SEIC) in collaboration with Greenwich Associates. The report, entitled “The Shifting Hedge Fund Landscape: Institutions Put Fund Managers to the Test,” indicates a need for hedge fund managers to help clients clearly understand their investment strategies, performance expectations, and the tradeoffs between risk and reward to maintain investor confidence and attract new capital.
The study results found that institutional investors’ allocation in hedge funds continues to rise, as more than a third (38 percent) of all survey respondents said they plan to increase target allocations over the next 12 months. While that number is lower than in past years, it comes on top of a 54 percent increase in 2010. At the same time, hedge fund allocations represent a greater share of respondents’ overall portfolios, at nearly 18 percent, up from 12 percent in 2008. When asked why they invest in hedge funds, absolute return was named as the top objective by nearly a third of respondents, passing non-correlated investment strategies as the top priority.
“Although returns are understandably a top objective, risk management also remains at the front of investors’ minds,” said Rodger Smith, Managing Director of Greenwich Associates. “Three of the top four goals named by respondents— accessing non-correlated strategies, diversification, and lowering volatility —address investment risks. This suggests that institutions today use hedge funds to help them lower portfolio risks in addition to boosting returns.”
“The study shows that investors want the best of both worlds when it comes to hedge fund investing – better returns, as well as lower correlations and better overall management of risk,” said Ross Ellis, Vice President, Knowledge Partnership for SEI’s Investment Manager Services division. “To differentiate themselves, managers must articulate the strategy and processes they are using to generate returns, and clearly explain to their investors how they are mitigating risk. In the Era of the Investor™, investors need to be involved and confident in the overall investing process, while pushing towards institutional standards.”
Reinforcing the demand for more understandable, less opaque strategies, the overwhelming majority of respondents (82 percent) named long/short equity among the top three strategies they presently employ, followed by event-driven and credit, named by 53 percent and 42 percent, respectively. Only a small group (15 percent) said they intend to divert some share of hedge fund allocations to regulated products such as alternative mutual funds or UCITS in the coming year.
The report also noted that while average annualized returns are down to 6 percent from 9 percent in 2010, only about 7 percent of investors polled reported any level of dissatisfaction with their returns. The survey points to some concern related to hedge fund performance, as investors were split, by a margin of 41-to-25 percent, on the question of whether they would be able to meet return objectives without having hedge funds in their toolkits. Also of note is the fact that direct hedge fund investing continues to gain momentum, as 40 percent of investors said they invest solely via single-manager funds, up from 24 percent in 2010. More than half (56 percent) of respondents with more than $5 billion in assets said they use single-manager funds exclusively.
The white paper is published by the SEI Knowledge Partnership, which provides ongoing business intelligence and guidance to SEI’s investment manager clients. To request the full paper, visit http://www.seic.com/2012HedgeResearch.
Institutional investors continue to deepen their commitment to hedge funds, but expect much more from managers in terms of articulating their value proposition, risk mitigation methodology, and performance expectations, according to the fifth annual global study released today by SEI (NASDAQ: SEIC) in collaboration with Greenwich Associates. The report, entitled “The Shifting Hedge Fund Landscape: Institutions Put Fund Managers to the Test,” indicates a need for hedge fund managers to help clients clearly understand their investment strategies, performance expectations, and the tradeoffs between risk and reward to maintain investor confidence and attract new capital.
The study results found that institutional investors’ allocation in hedge funds continues to rise, as more than a third (38 percent) of all survey respondents said they plan to increase target allocations over the next 12 months. While that number is lower than in past years, it comes on top of a 54 percent increase in 2010. At the same time, hedge fund allocations represent a greater share of respondents’ overall portfolios, at nearly 18 percent, up from 12 percent in 2008. When asked why they invest in hedge funds, absolute return was named as the top objective by nearly a third of respondents, passing non-correlated investment strategies as the top priority.
“Although returns are understandably a top objective, risk management also remains at the front of investors’ minds,” said Rodger Smith, Managing Director of Greenwich Associates. “Three of the top four goals named by respondents— accessing non-correlated strategies, diversification, and lowering volatility —address investment risks. This suggests that institutions today use hedge funds to help them lower portfolio risks in addition to boosting returns.”
“The study shows that investors want the best of both worlds when it comes to hedge fund investing – better returns, as well as lower correlations and better overall management of risk,” said Ross Ellis, Vice President, Knowledge Partnership for SEI’s Investment Manager Services division. “To differentiate themselves, managers must articulate the strategy and processes they are using to generate returns, and clearly explain to their investors how they are mitigating risk. In the Era of the Investor™, investors need to be involved and confident in the overall investing process, while pushing towards institutional standards.”
Reinforcing the demand for more understandable, less opaque strategies, the overwhelming majority of respondents (82 percent) named long/short equity among the top three strategies they presently employ, followed by event-driven and credit, named by 53 percent and 42 percent, respectively. Only a small group (15 percent) said they intend to divert some share of hedge fund allocations to regulated products such as alternative mutual funds or UCITS in the coming year.
The report also noted that while average annualized returns are down to 6 percent from 9 percent in 2010, only about 7 percent of investors polled reported any level of dissatisfaction with their returns. The survey points to some concern related to hedge fund performance, as investors were split, by a margin of 41-to-25 percent, on the question of whether they would be able to meet return objectives without having hedge funds in their toolkits. Also of note is the fact that direct hedge fund investing continues to gain momentum, as 40 percent of investors said they invest solely via single-manager funds, up from 24 percent in 2010. More than half (56 percent) of respondents with more than $5 billion in assets said they use single-manager funds exclusively.
The white paper is published by the SEI Knowledge Partnership, which provides ongoing business intelligence and guidance to SEI’s investment manager clients. To request the full paper, visit http://www.seic.com/2012HedgeResearch.
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