November 12, 2018
In a major test for the “big three” who started hedge funds this year – Dan Sundheim, Steve Cohen and Michael Gelband – none of them reportedly made money in October. Daniel Sundheim’s D1 Capital Partners lost money last month and is down about 5% on the year. One of Pelham Capital’s hedge funds plunged last month, joining a host of other firms that struggled to perform in October; Tiger Global Management posted a 9.4% net loss in its tech-focused hedge fund last month. On the other side, Crispin Odey, fighting to recover from three successive years of losses in his main hedge fund, made money last month as his long-running bearish bets paid off.
Still, there may be a small silver lining for investors if they have focused on manager selection. A deeper dive into October performance shows a significant dispersion of returns across almost all strategies.
HTL Capital’s Alpha Now Long/Short Equity fund which is composed of several strategies that trade alternative data was up +0.43% in October and is up +1.90% year to date.
Short-term trend followers were also positioned well in October. In an interview, Marc Malek, Managing Partner at Conquest Capital Group told Opalesque that “diversifying across timeframes has helped us to be up compared to others in our category.” Conquest’s Star program, which is an all-weather momentum based CTA strategy, was positive in October and benefitted from capturing trends that lasted anywhere from 5-42 days.
Short positions in crude oil helped the St.Gallen I Counter-trend strategy put up positive returns in October. The fund is up +1.61% through October 31 and +8.46% YTD. The fund trades against market trends on a systematic and short-term basis. Another short-term trading program – Amplitude Capital’s Vivace Trading Strategy was up +6.44% bringing year to date returns to a whopping +34.81%.
As as a group, the hedge-fund industry is on track to post its worst performance since Lehman Brothers went bankrupt in 2008; October was the worst month for hedge funds in seven years, according to the latest performance data from Hedge Fund Research; Hedge fund returns since October 26th are up +0.5%, primarily led by L/S Equity strategies, as investors’ hesitation gradually started to fade amid improving earnings reports, said Lyxor in its weekly brief.
In line with that, new data from EY’s 2018 Global Alternative Fund Survey shows that as much as 20 percent of investors planned to scale back allocations to hedge funds in 2018 and the size of the global private credit market is on course to break the $1tn mark by 2020 as the sector remains on track.
Meanwhile, Hedge fund Astellon Capital Partners said that it will return investors’ money and turn into a family office by the beginning of next year, the latest to succumb to an increasingly hostile market for money managers and Rhicon Currency Management, the $700 million hedge fund, shut down the bulk of its positions roughly three weeks ago, according to managing director Peter Jacobson.
CTAs reported negative performance in October following a slightly challenging September period – In October, the SG CTA Index was down -2.79% and the SG Trend Index was down -4.29%. In equities, Goldman Sachs strategists are estimating a 5% gain in the S&P 500 next year.
London-based asset manager Trium Capital announced the launch of a long-short credit UCITS fund with seeding from credit expert Ellington Global Asset Management and Toscafund Asset Management and ML Capital have launched the Tosca UCITS Fund, a global long/short equity fund hosted on the MontLake UCITS Platform.
In other new launches, German asset management giant DWS has launched a new sustainability-focused fund, the DWS Invest SDG Global Equities fund; Brazilian venture capital firm monashees announced today it has closed on $150 million for its eighth investment fund; CI Investments launched three liquid alternative solutions targeting absolute returns, capital preservation; Global Blockchain Ventures (GBV) announces the launch of their $100m blockchain technology focused venture capital fund, Global Blockchain Ventures Fund and Moonrise Capital has set about fundraising once again by registering its intention to pull in up to $200m for its second main fund.
BroadRiver Asset Management, the New York based alternative fixed-income asset manager, has closed its third longevity fund, BroadRiver III, with committed capital of $876 million; Morgan Stanley Expansion Capital has raised $400m for the final close of its target-smashing North Haven Expansion Equity fund and related vehicles; Health care-focused Perceptive Advisors has closed its second private credit fund with more than double the amount of capital raised by its first fund and Chinese venture capital firm Shunwei Capital has closed a total of $1.21 billion for new funds
Since the Stonegate Diversified Digital Asset Master Fund opened to outside investors on 1st April 2018, it has returned an estimated 86.89% (gross), with an inception to date estimated return of 625%; Stock hedge funds focused on technology, media and telecommunications including Whale Rock Capital Management and Light Street Capital Management posted big losses in October and several firms, including Bridgewater and Brevan Howard, posted profits in October, a month when many others lost big.
In investments made by hedge funds, French club Girondins de Bordeaux have been sold by the media company M6 Metropole Television to Los Angeles-based hedge fund General American Capital Partners (GACP); Hedge fund giant Lansdowne Partners has revealed a jumbo GBP125m ($162.5m) bet against catering giant Compass in one of the largest short trades placed this year; Top-performing hedge fund Vita Nova said dump equities now; Hedge fund manager Adam Schwartz stakes own cash on a bet against credit ETFs and the star investor of ‘The Big Short’ Steve Eisman is shorting UK stocks with bets on a no-deal Brexit Call it the FANG Put. Last month, during the teeth of the stock market sell-off on Wall Street, investors fed $US1.2 billion into the ProShares Ultrapro QQQ exchange-traded fund, a three-times-leveraged ETF that goes up like a rocket ship when tech stocks rise but also sinks like a stone when they fall.
In miscellaneous hedge fund news, Northern Trust has launched an alternatives platform to provide its wealth management clients with a source of total-portfolio risk diversification; Flawed world financial metrics reported in paper presented at Yale University by Richmond Global Compass Fund; A group of D.E. Shaw traders who oversee about $2 billion in bets for and against individual stocks have struggled to make money in 2018, people familiar with the matter said and Hedge funds are using financial engineering common before the financial crisis to borrow money and buy high-yield bonds.
In institutional investor, Texas Employees Retirement System, Austin, committed a total of $110 million in October to three alternative investment strategies; In another development, Texas Teacher Retirement System, Austin, committed up to $943 million to five alternative investment funds and the $25.5 billion San Francisco Employees’ Retirement System has committed more than $1.1 billion to hedge funds, private equity, real estate, and natural resources funds.
Meanwhile, Denmark’s largest commercial pension fund has said that the large-scale real estate and alternatives investments it has added over the last two years are now starting to bear fruit; Institutional and wholesale investors are increasingly adopting factor-based allocations as part of their portfolios; The Arizona State Retirement System underwent a smart beta revolution this year, shifting about $5bn of assets into products that exploit these strategies and the governing board of the $119.9 billion New York State Teachers’ Retirement System, Albany, has renewed contracts with 14 investment managers.
In the Crypto space, Israel’s central bank opted against national cryptocurrency ‘digital shekel’ after yearlong study; The global crypto asset management market is expected to grow from $94m in 2018 to $207m by 2023, at a compound annual growth rate (CAGR) of 17.1% during the forecast period; Institutional investors have made up the majority of digital currency investment company Grayscale Investments in the last three months.
In the mean time, Bloomberg reported that large buyers such as hedge and endowments funds have been consistently purchasing over $100,000,000 worth of digital coins through private transactions; The Finance Committee of the lower house of French parliament has adopted amendments to a tax bill that ease taxes on cryptocurrency sales; MINDEX, GMEX Group and HYBSE join forces to launch the first blockchain securities exchange in Mauritius and the Abu Dhabi Securities Exchange (ADX) has issued a thought paper on cryptocurrency and blockchain infrastructure for issuing digital assets.
In outlook, A recent study by the Alternative Investment Management Association found that 40% of hedge fund managers surveyed were practising responsible investment, while half reported increased investor interest in ESG and as alternatives grow in popularity among individual investors, hedge fund and alternative managers are increasingly pursuing retail sales through interval closed end funds (iCEF) created as a result of partnerships.
On the M&A scene, Goldman Sachs Asset Management agreed to acquire Rocaton Investment Advisors in a bid to expand its advisory and discretionary services for institutional clients; Schroders has approached embattled Swiss investment group GAM over a potential acquisition of its Systematic division that houses the Cantab quantitative hedge fund and UBS Group is considering acquisitions and joint ventures to boost its $800 billion asset management business and compete with larger rivals.
In the Tech corner, iCapital Network announced that The Carlyle Group has invested in the company as a strategic partner; Abacus Group, IT solutions firm focused on helping hedge funds, announced that it has completed the acquisition of Hedgepoint Solutions, a boutique IT consulting firm based in New York City; Virtu Financial has agreed to acquire Investment Technology Group for $1 billion, cementing the electronic proprietary trader’s ambition to expand into brokerage, while a new report from Forrester Research says the buzz around blockchain, a technology that creates tamper-proof records across multiple computers, is so over-hyped that some companies are dropping the word altogether.
In People Moves, former Goldman Sachs executive Konstantinos Pantazopoulos joined the hedge fund Moore Capital Management; ProMeritum Investment Management has announced the appointment of James Marshall as director and Pantheon has hired Jeff Wright as Principal in the Client Service team, focused on Pantheon’s U.S. institutional client markets.
Meanwhile, Wilshire Phoenix, a New York-based investment management firm, has hired Alexander Chang and William Cai as Partners; BNP Paribas Capital Partners announced the appointment of Charlotte Laurent as head of sales and GAM CEO Alexander Friedman has stepped down amid growing uncertainty over the firm’s future. David Jacob will act as interim CEO while the firm conducts a search for a more permanent replacement.
In the U.S., Gov.-elect Ned Lamont announced Thursday he picked a one-time aide to former U.S. Sen. Chris Dodd and an executive at Bridgewater Associates, the world’s largest hedge fund, to head his transition; The U.S. will slip to the second-most attractive region for alternative assets in the next five years, according to Preqin; North American hedge funds snapped their winning streak in September, shifting into the red after a strong first eight months of the year and Corporate US pension plans saw a slip in their aggregate funded ratios in October, sliding to 89.6% from 91.5% at Sept. 30, according to Wilshire Consulting.
Meanwhile, Sears Holdings said it plans to close 40 more stores early next year as it continues to slim its business and seeks to stymie losses under bankruptcy protection; Sears Holdings Corp is nearing a deal with new lenders to increase a bankruptcy financing package to as much as $600 million from $300 million without Chairman Eddie Lampert’s hedge fund contributing and Investors Bancorp Inc. is exploring a possible sale as consolidation continues among the thousands of smaller lenders across the U.S.
In Europe, Italian high-end lighting and furniture company International Design Group (IDG) is poised to launch the first test of investor appetite for high-yield debt from the country since Italy’s budget was thrown out by the European Union; Wildex Investment strengthens global footprint with the opening of an office in Frankfurt and the hunt for secure long-term income is driving European real estate investment as the industry hedges against potential interest rate rises and an uncertain geopolitical backdrop.
Société Générale has told a number of its London-based staff that they may lose their jobs if they do not move to Paris as part of the bank’s contingency planning for a no-deal Brexit.
In Asia, Family offices and Asia-Pacific investors predicted to play bigger roles in alternatives over next five years; Despite the trade tension with the US and the market volatility, China is still one of the themes among foreign hedge funds and Australia’s sovereign wealth fund Future Fund has increased its stake in alternative assets and appointed two new fund managers in a bid to combat the tailwinds coming from the global equities market.
Meanwhile, scores of Chinese brokers and banks are struggling under the weight of hundreds of billions of dollars worth of loans to companies using their own plummeting shares as collateral; China’s foreign exchange reserves fell more than expected in October to a 18-month low, suggesting a gradual pickup in capital outflow pressure amid the trade war with the United States; China’s venture capitalists and the startups they have nourished are facing a shakeout, as funding dries up in the wake of government efforts to contain financial risk and Australia will offer Pacific countries up to A$3 billion ($2.18 billion) in grants and cheap loans to build infrastructure, Prime Minister Scott Morrison said.
On the regulatory front, UAE’s first automated investment platform or ‘robo-adviser’ Sarwa has become the first participant to graduate from its regulatory sandbox following nearly 12 months of testing, announced Dubai Financial Services Authority (DFSA) and Swiss markets regulator Swiss Financial Markets Supervisory Authority (FINMA) recommended 800% crypto risk coverage for banks.
On the legal scene, BlackRock’s Munich offices was raided in tax fraud investigation; A group of institutional investors, which includes BlackRock and Allianz, has sued 16 major banks in US district court for allegedly rigging Forex currency markets; US SEC charged, fined EtherDelta founder Zachary Coburn with operating unregistered securities exchange and the Securities and Exchange Commission today charged a former registered representative and investment adviser in Altoona, Pennsylvania, with operating a long-running offering fraud.
Among Activists, in May, an activist-investor group forced its way onto the board of a Greek shipping-fuel company Aegean Marine Petroleum Network, calling it mismanaged and undervalued; Leading investors are demanding FirstGroup Executive Chairman Wolfhart Hauser break up the transport conglomerate – for the third time in five years; U.S. activist fund Elliott Management Corporation is estimated to have lost up to 220 billion won ($195 million) from its equity investments in Hyundai Motor Group and activist hedge funds, which together own about a 25 percent chunk of underperforming Caesars, have been pushing for a MGM deal.
Laxman Pai, Opalesque Asia