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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.
Thursday, February 23, 2012
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% |
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