Global macro was the strategy of choice for many of the big managers early in their careers. Big-name brands including Soros, Tudor and Moore saw the value of the strategy in the 1990s. This oft-misunderstood strategy is returning to the forefront. Diane Harrison looks at why.
Hedge Fund Strategies
Deloitte's pie graphs emphasize the degree to which both hedge funds and PE vehicles have become dependent upon institutions in general, and detached from the retail market. But Deloitte says that 2014 "will likely see additional efforts by alternative fund managers to engage the retail investor base by taking their alternative investment strategies mainstream."
Managed futures are performing quite poorly. They also have a higher standard deviation than the HF industry aggregate, so it seems that if you're invested there your losses are at least buying you greater risk. [Wait. That can't be right.]
A new white paper from Debtwire and Bingham McCutchen finds some reason to be bullish about the distressed debt market in 2014. The long-awaited tapering of the Federal Reserve's easy-money policy may set off a wave of defaults, creating opportunities for the wary.
Andrew Beer looks at hedge fund replication to see if it works.
Guest columnist Don Steinbrugge provides his thoughts on what the coming year will bring for hedge funds.
October saw some outflow of money from hedge funds in North (and Latin) America, though there were net inflows in the other regions. Eurekahedge attributes the North American outflow to profit taking and portfolio shuffling, and expects that money will be back.
Print 'em out and head to the beach for one last hurrah of summer!
Asset managers within the Asian boutique universe keep telling GFIA that "asset raising is hard" in the present climate. It isn't going to become easy any time soon, but there is a new level of stability.
On of the key points of the new report from Barclays, Making It Big, is that there are four broad business strategies that define hedge fund managers: product specialists (PS); asset class specialists (ACS); multi-strategy managers (MSM); and diversified alternative asset managers (DAAM). This classification has implications for growth.
It was surely not irrational for Starboard Value, a year ago, to ask its fellow AOL shareholders to withhold or withdraw the sort of 'trust' that Armstrong has requested of them on the subject of the hyper-local news experiment Patch.
PrevInvest begins a new report by documenting the doldrums in which long/short equity is stuck. As a first approximation because in the post-crisis world, certain traditional forms of stock-picker virtue have gone unrewarded.
This book, The Alternative Answer: The Nontraditional Investments that Drive the World's Best-Performing Portfolios is an appeal to the retail investor, to those author Bob Rice calls "typical investors," passing along the good news that they are no longer "stuck with the children's menu of investment options."
Twelve ministries in the People's Republic of China, including the Ministry of Industry and Information Technology, have together released guidelines for accelerating M&A activity in key industries. this is one of the "bright spots" that may lighten up the future for the M&A world, though macro-economic realities in the U.S. and Europe are holding it back.
Part II of a new SEI report on hedge funds and adapting to survival.
“Few managers would be surprised,” SEI says, “that nearly one-third of the institutions queried in SEI’s 2012 survey reported making their due diligence processes more robust over the last two years.” The new robustness in the search for the nature and sustainability of the funds’ edge involves a new granularity, the questioning of specific investment decisions in the context of portfolio construction models.
Beachhead Capital looks at performance in the long/short equity sector and finds that small funds outperform the large.
A recent investigation into merger arbitrage by Matthias Buehlmaier and Josef Zechner reduces what might seem qualitative considerations into a quantity. They use the wording of newspaper reports as a guide to the probability that an announced merger or acquisition will actually close.
Ineichen, the author of AIMA's updated roadmap to hedge funds, addresses some of the hot-button issues of investor/management interaction, including fees, leverage, and style drift. Although investors are naturally inclined to see style drift as a bad thing, they should be cautious about demanding that managers stay within a tightly-defined core area of expertise.
Mark Casella, leader of the U.S. alternatives group at PwC, explains that no manager "ever wants to put gates up or to announce a suspension," and talks about how the contract provisions that provide for such powers have been modified of late. This is part of the broader issue of the alignment of interests.
Mark Casella, leader of the U.S. alternatives group at PwC, tells us why he thinks funds of funds still have a role to play in the future of the hedge fund industry, although "we have seen more and more institutions invest directly in hedge funds rather than through funds of funds." This is the first part of a two-part transcript of a broader discussion.
The survey also asked that the asset managers state where their total assets are invested, using four geographical categories: Europe; Central/North America; Asia Pacific; Other. Commodity funds were easily the most heavily invested in C/NA, to the extent of 94 percent of their portfolios. Private equity funds are 61 percent invested in C/NA, and PE FoFs also have the majority of their portfolios there, at 54 percent.
Acceleration Capital Group says that there were 1,113 new hedge funds in 2011 (and 775 funds liquidated). The increase in the number of supplicants has coincided with a 'decline in [the] traditional seed capital currently deployed by fewer dedicated seeders.'
In the introduction to their report, the authors quote one of their interviewees, a leader at a European pension fund, who said: “To me, investing is about going back to the basics. Why do I want to be in this asset class? Why do I want this product? Where does it fit in my portfolio?” Much of the report is structured as a discussion of two distinct shifts in the answers that have been given and are being given to those old queries.
Institutions aren’t to be rushed into committing to a hedge fund. The process can take more than a year. Preqin asked institutions: once a fund has caught their attention, specifically once they have first seen a fund proposal, how much time typically passes before they actually make an investment, if they do?
A deeper look at alternatives with Dr. Bob Swarup, a world-renowned expert and commentator on alternatives and financial markets as well as being a visiting fellow at London School of Economics.
In a new paper, Andrew Lo has educed from his Adaptive Markets Hypothesis five practical conclusions, among them that during times of crisis, the usual positive relationship between risk and return may not hold. There is in general a "time-varying and often negative relationship between the two."
Although distressed“fire sales” are fewer in some periods than in others, it is true all around the business cycle that mutual fund managers face constraints related to the need “to cater to investors by investing in the hot stocks and by having a strong positive correlation between their flow and the value of the assets in which they invest,” as a new academic paper explains. Hedge funds, with their more professional investors, their deliberate opacity, and their constraints upon withdrawal, aren’t subject to those constraints. Thus, when mutual funds are constrained to follow a trend, hedge funds are in a position to be contrarians.
The parent corporation, Dynegy Inc. (NYSE: DYN) did not file for bankruptcy. As of August 31 of last year, Dynegy's only asset was the equity in Dynegy Holdings, which in turn owned various operating subsidiaries. But on September 1, Dynegy Holdings transferred its coal power facilities to Dynegy. Two months later Dynegy Holdings and related entities filed.
The Grant Thornton paper maintains that the asset management industry achieved "performance and operational efficiencies" during 2011, and this sounds like the sort of marginal adaptation that play a large part in Charles Darwins' writings, to which GT's Winstoin Wilson alluded. But ... the report also treats the regulatory environment as a meteor, capable of wiping out even the best-adapted of pre-collision dinosaurs. So "the Darwinian process" is an odd label for what it describes.
Funds of funds dominate the world of institutional investors in Day 1 or early stage (D1/ES) hedge funds, and they do so for a simple reason. That is their business model. They exist to invest in hedge funds, and their goal is to be fully invested at all times, not to have a lot of money sitting around as cash.
The question in 2012 is not whether hedge funds (and other alternative investment vehicles) can attract pension funds, but how they should go about it. Alternatives managers will benefit most from the heightened interest of pension funds if they address the continuing concerns of their pension fund colleagues. For example, pension fund managers are well aware that investment in exotic and illiquid products is something hedge funds do, and they know that these products can help make a quick exit impossible.
Some managers of HFT or algorithmic funds must have felt some relief upon the arrest of Sergey Aleynikov in July 2009, his conviction in December 2010, or his imprisonment the following March. Programmers in the financial world were put on notice that criminal prosecution was among the possible consequences were they to treat their knowledge of their employer's edge as a marketable commodity. Thus, the news on Friday [February 17, 2012] that Aleynikov is now a free man came as something of a jolt.
AAA sat down with Alex Gurvich and Jim Mitchell, both of The Rockledge Group, an investment advisory firm headquartered in Brooklyn, New York. We began by discussing the mid-January launch of a new product that gives the long-short equity strategy an ETF format, and ended up talking about a good deal else, such as the inherent superiority of ETFs over mutual funds, and Pimco's recent recognition of that fact.
The Mathema report is full of cautions, and indeed adopts a quite generally gloomy tone. The markets, it tells us, don’t lend any credence to the political fixes that have been offered for the eurozone and especially for its peripheral players. If the fixes did have credibility, then the PIIGS’ 10-year government benchmark yields would have been falling significantly of late vis-à-vis the 10 year German Bund yield. But there has been no such fall.
Guest columnist Charles Hage looks at hedge fund risk and discusses the long and the short of it.
Financial crises always turn up new risks – and new opportunities. Famously, George Soros bet against the Bank of England during a fiscally challenged time in the early 1990s and pocketed a billion and change for his troubles. Was that a spectacular guess in a geopolitical game of chicken, or was it true alpha? We don't know, because we don't have the data. Currencies didn't much matter then; they do now.
A new study from SEI shows If an alternative strategy can be offered in a mutual fund structure it has a much broader market opportunity than if not. Hedge fund managers want the mutual fund market just as mutual fund managers want to use the broader hedge fund range of strategies.
Amongst equity long-short funds, which constitute about half of the Asian hedge fund universe, the returns of hedge funds “were sometimes mean reverting but at other times displayed persistence in positive/negative momentum.” That is to say that sometimes a coin that has come up heads three times will come up tails the fourth time, but at other times it will persist in coming up heads the fourth time.
The true opportunities now lie in taking illiquidity. The panic – for there is no other word to describe this behaviour – today presents those who can afford to have a longer-term investment horizon with a unique time arbitrage.
Equity hedge fund performance has resembled the results of the S&P Index lately. We speculate that regression to the mean is because humans are involved, and find reasons to be cheerful for the group's future.
The world is a fairly small pond in which ripples anywhere soon shake the surface everywhere. Such an observation, like the word “globalization,” has become a cliché, but the truth behind them both becomes quite obvious in the course of a new “Viewpoint” paper by Ernst & Young that examines fund distribution strategies in the [...]
In spite of sketchy performance from some top managers, institutional investors remain committed to hedge funds and a large number are shopping for new relationships in 2012.
By Christopher Faille Charles Jones of Columbia Business School made a presentation at an SIFR event in Stockholm, titled “What do we know about algorithmic and high-frequency trading?” Although a distinguished professor like Jones would not put the matter this way, his thoughts do have me thinking of the old human-inhabited trading floors, and their [...]
Johan Bollen is associate professor at the Indiana University School of Informatics and Computing. He was formerly a staff scientist at the Los Alamos National Laboratory from 2005-2009, and an Assistant Professor at the Department of Computer Science of Old Dominion University from 2002 to 2005. He obtained his PhD in Experimental Psychology from the University of Brussels in 2001 on the subject of cognitive models of human hypertext navigation.
By Christopher Faille One of the great clichés used by reporters, commenters, bloggers and twitterers in recent months has been that the central bankers of the developed world, and/or their Treasuries, have “run out of bullets.” They have “spent all their ammunition” seeking stimulus already and will have nothing in reserve should there be another [...]
Alpha Hunters Andrew Timpson and Joseph Schlater of Busara Advisors talk about what it takes to get an emerging manager allocation.
By Christopher Faille A new report on hedge fund inflows indicates that the rate at which money is coming into the hedge fund industry reflects that industry’s improved performance, but that if these figures are segmented by strategy or geography, the different rates at which they are attracting money do not very accurately reflect their [...]
By Christopher Faille Passive and active investments are often contrasted as if the distinction is self-evident. It isn’t. Even for an unambitious long-only equity indexed fund, trades have to be executed in order to maintain the desired balance, and these trades can be executed either well or poorly, in ways that help or hurt the [...]