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Hedge fund winners & losers emerge as year ends on better note

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by December 20, 2016 General

This was the year to ridicule hedge funds

This was the year to ridicule hedge funds. Pension funds, politicians, Warren Buffett, even hedge fund managers themselves, they all had something to say about the disappointing performance, high fees and market saturation.


Well-known managers from Ray Dalio to John Paulson saw performance on their funds range from flat to double-digit losses, while some distressed-debt investors like Jason Mudrick benefited from the rally in commodities prices. Strategies focused on macro trends and equity hedges, which have seen returns crimped by swollen stock-market valuations and ultra-low interest rates — produced the worst returns.


But as the year draws to an end, the industry’s gotten an unexpected pick-me-up. The ripple across markets from the surprise victory of US President-elect Donald Trump bolstered returns — reversing the fortunes for some — and may prove to be a boon going forward. With his policies expected to increase interest rates, produce a wider dispersion in earnings across industries and trigger more merger activity, may soon be put back to work.

“The tide has definitely turned,” said Adam Blitz, chief investment officer at Evanston Capital Management, which farms out money to hedge funds. “Since the election I’ve definitely sensed a bit of a change in attitude among folks who are saying, ‘Boy, we don’t know exactly what the future’s going to hold, but it’s unlikely to be more of the same.”’


Macro funds disappoint


While betting on macroeconomic trends had one of the worst-performing strategies in 2016, the volatility spurred by Trump’s winchanged the course for managers such as Brevan Howard Asset Management and Rubicon Fund Management. Brevan Howard’s master fund rallied in November, erasing earlier declines and bringing returns for the year to 2.8 per cent, an investor letter shows. Rubicon’s Global Fund surged 21 per cent last month, returning it to a profit of 2.2 per cent from a loss, a person familiar with the matter said. Some macro funds like Dymon Asia Capital (Singapore)’s $721 million Asia Currency Value Fund, which focuses on exchange rates and gold, benefited this year from bearish bets on the region’s currencies — especially on the yen weakening against the dollar. That fund gained 22 per cent last month and surged 45 per cent this year through November.


Game changing’


Other marquee macro funds saw deep losses pared. The Pure Alpha II fund, run by Dalio’s Bridgewater Associates, was down 10.3 per cent at the end of September and has since surged, bringing losses through November 30 to 0.2 per cent, two people said.


Moore Capital Management’s Macro Managers fund trimmed losses for the year to 1.23 per cent through December 1, a person said.


Moore’s founder, Louis Bacon, said in a November 28 letter to investors that he’s “exceedingly upbeat” for the first time in several years about the “game-changing trading opportunities that lie ahead.” Moore pointed to Trump’s victory and the prospects for higher interest rates, a stronger dollar, booming corporate sector and improving market liquidity. 


“The recent election in the United States has, in our view, launched nothing short of a sea change in the potential opportunity set for trading markets globally,” Bacon said in the letter.


Long-short equity 


Long-short equity produced big losers and winners. The strategy returned an average two per cent in the first 11 months of the year on an asset-weighted basis, according to Hedge Fund Research Inc. In Europe the $9.2 billion Lansdowne Developed Markets Fund dropped 18 per cent and Crispin Odey’s flagship fund slumped 48 per cent. His fund gained more than 20 per cent in the two trading days after the UK’s June vote to exit the European Union, known as Brexit, but slipped after British stocks rebounded on a weaker pound.


“A number of managers were trapped by the selloff and sector rotation at the start of the year, while they failed to capitalize on post-Brexit rally due to lack of risk-taking,” Nicolas Roth, co-head of alternative assets at Geneva-based investment firm Reyl & Cie, said of European hedge funds.


In the US, Blackstone Group LP’s $1.8 billion Senfina Advisors lost 24 per cent this year through November and John Burbank’s Passport Capital saw its Global Strategy fund decline 15.2 per cent in the same period.


By comparison, New York-based Proxima Capital Management surged 14 per cent in November alone, extending gains for the year to 44 per cent, while the $1.2 billion Senvest Management surged almost 20 per cent over the same period in its master fund, according to people familiar.


Fund names, Returns

2016’s Double-Digit: The year saw a wide range of returns, even within the same strategies

Distressed-debt hedge funds, mostly concentrated in energy-related bets, profited from the rally in oil prices this year, returning 12 per cent on average. Mudrick Capital Management saw some of the biggest gains, soaring 35.5 per cent through the end of November. The $13 billion Marathon Asset Management’s Special Opportunity Fund rallied 18.5 per cent and the main fund for the $21 billion Canyon Capital Advisors gained 8.3 per cent, according to people with knowledge of the matter.


The LIM Asia Special Situations Fund, which has $304 million of assets, returned 10 per cent through November, boosted by gains in high-yield bonds that recovered with commodities prices, according to chief investment officer George Long.


With corporate defaults bound to increase alongside interest rates, distressed-debt look to remain strong with a wider range of opportunities arising in the next 12 to 18 months, said Panayiotis Lambropoulos, a money manager at the Employees Retirement System of Texas.


Stock pickers return


Next year stock-pickers, who struggled this year to stand out amid an almost all-encompassing equity rally, may also have their time to shine, according to David Saunders, chief executive officer at Franklin Resources Inc.’s hedge fund investor K2 Advisors.


With Trump focusing on deregulation and the repatriation of overseas cash, companies may step up stock buybacks, capital expenditures and takeovers, Saunders said. Changes to Obamacare, trade deals and infrastructure spending will impact the health-care, technology, steel and mining industries, he said.


“We’ve got some proposals on the table in the Trump administration which present potential opportunity,” Saunders said at a December 7 conference. “The best way to express that is through someone who has an ability to be long and short, go to cash, sit on the sidelines and move nimbly through the market.”


Across strategies, the environment will favor smaller, specialized over larger, more generalized ones, said Evanston’s Blitz.


“It’s all about finding the really good ones who have a real edge in a particular area,” said Blitz. “I still don’t think that, even with that better backdrop, the average hedge fund is going to perform particularly well.”

Bloomberg

Hedge fund winners & losers emerge as year ends on better note

This was the year to ridicule hedge funds

This was the year to ridicule hedge funds

This was the year to ridicule hedge funds. Pension funds, politicians, Warren Buffett, even hedge fund managers themselves, they all had something to say about the disappointing performance, high fees and market saturation.


Well-known managers from Ray Dalio to John Paulson saw performance on their funds range from flat to double-digit losses, while some distressed-debt investors like Jason Mudrick benefited from the rally in commodities prices. Strategies focused on macro trends and equity hedges, which have seen returns crimped by swollen stock-market valuations and ultra-low interest rates — produced the worst returns.


But as the year draws to an end, the industry’s gotten an unexpected pick-me-up. The ripple across markets from the surprise victory of US President-elect Donald Trump bolstered returns — reversing the fortunes for some — and may prove to be a boon going forward. With his policies expected to increase interest rates, produce a wider dispersion in earnings across industries and trigger more merger activity, may soon be put back to work.


“The tide has definitely turned,” said Adam Blitz, chief investment officer at Evanston Capital Management, which farms out money to hedge funds. “Since the election I’ve definitely sensed a bit of a change in attitude among folks who are saying, ‘Boy, we don’t know exactly what the future’s going to hold, but it’s unlikely to be more of the same.”’


Macro funds disappoint


While betting on macroeconomic trends had one of the worst-performing strategies in 2016, the volatility spurred by Trump’s winchanged the course for managers such as Brevan Howard Asset Management and Rubicon Fund Management. Brevan Howard’s master fund rallied in November, erasing earlier declines and bringing returns for the year to 2.8 per cent, an investor letter shows. Rubicon’s Global Fund surged 21 per cent last month, returning it to a profit of 2.2 per cent from a loss, a person familiar with the matter said. Some macro funds like Dymon Asia Capital (Singapore)’s $721 million Asia Currency Value Fund, which focuses on exchange rates and gold, benefited this year from bearish bets on the region’s currencies — especially on the yen weakening against the dollar. That fund gained 22 per cent last month and surged 45 per cent this year through November.


Game changing’


Other marquee macro funds saw deep losses pared. The Pure Alpha II fund, run by Dalio’s Bridgewater Associates, was down 10.3 per cent at the end of September and has since surged, bringing losses through November 30 to 0.2 per cent, two people said.


Moore Capital Management’s Macro Managers fund trimmed losses for the year to 1.23 per cent through December 1, a person said.


Moore’s founder, Louis Bacon, said in a November 28 letter to investors that he’s “exceedingly upbeat” for the first time in several years about the “game-changing trading opportunities that lie ahead.” Moore pointed to Trump’s victory and the prospects for higher interest rates, a stronger dollar, booming corporate sector and improving market liquidity. 


“The recent election in the United States has, in our view, launched nothing short of a sea change in the potential opportunity set for trading markets globally,” Bacon said in the letter.


Long-short equity 


Long-short equity produced big losers and winners. The strategy returned an average two per cent in the first 11 months of the year on an asset-weighted basis, according to Hedge Fund Research Inc. In Europe the $9.2 billion Lansdowne Developed Markets Fund dropped 18 per cent and Crispin Odey’s flagship fund slumped 48 per cent. His fund gained more than 20 per cent in the two trading days after the UK’s June vote to exit the European Union, known as Brexit, but slipped after British stocks rebounded on a weaker pound.


“A number of managers were trapped by the selloff and sector rotation at the start of the year, while they failed to capitalize on post-Brexit rally due to lack of risk-taking,” Nicolas Roth, co-head of alternative assets at Geneva-based investment firm Reyl & Cie, said of European hedge funds.


In the US, Blackstone Group LP’s $1.8 billion Senfina Advisors lost 24 per cent this year through November and John Burbank’s Passport Capital saw its Global Strategy fund decline 15.2 per cent in the same period.


By comparison, New York-based Proxima Capital Management surged 14 per cent in November alone, extending gains for the year to 44 per cent, while the $1.2 billion Senvest Management surged almost 20 per cent over the same period in its master fund, according to people familiar.


Fund names, Returns

2016’s Double-Digit: The year saw a wide range of returns, even within the same strategies

Distressed-debt hedge funds, mostly concentrated in energy-related bets, profited from the rally in oil prices this year, returning 12 per cent on average. Mudrick Capital Management saw some of the biggest gains, soaring 35.5 per cent through the end of November. The $13 billion Marathon Asset Management’s Special Opportunity Fund rallied 18.5 per cent and the main fund for the $21 billion Canyon Capital Advisors gained 8.3 per cent, according to people with knowledge of the matter.


The LIM Asia Special Situations Fund, which has $304 million of assets, returned 10 per cent through November, boosted by gains in high-yield bonds that recovered with commodities prices, according to chief investment officer George Long.


With corporate defaults bound to increase alongside interest rates, distressed-debt look to remain strong with a wider range of opportunities arising in the next 12 to 18 months, said Panayiotis Lambropoulos, a money manager at the Employees Retirement System of Texas.


Stock pickers return


Next year stock-pickers, who struggled this year to stand out amid an almost all-encompassing equity rally, may also have their time to shine, according to David Saunders, chief executive officer at Franklin Resources Inc.’s hedge fund investor K2 Advisors.


With Trump focusing on deregulation and the repatriation of overseas cash, companies may step up stock buybacks, capital expenditures and takeovers, Saunders said. Changes to Obamacare, trade deals and infrastructure spending will impact the health-care, technology, steel and mining industries, he said.


“We’ve got some proposals on the table in the Trump administration which present potential opportunity,” Saunders said at a December 7 conference. “The best way to express that is through someone who has an ability to be long and short, go to cash, sit on the sidelines and move nimbly through the market.”


Across strategies, the environment will favor smaller, specialized over larger, more generalized ones, said Evanston’s Blitz.


“It’s all about finding the really good ones who have a real edge in a particular area,” said Blitz. “I still don’t think that, even with that better backdrop, the average hedge fund is going to perform particularly well.”

Bloomberg


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Business Standard

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