Hedge Fund Focus: August 26, 2016
In case you missed them, here are the hot topics in the hedge fund space this week…
Unfortunately, the bad times aren’t behind us yet. Outflows reached their highest level in July since February 2009, with losses totaling $25.2B according to eVestment. Additionally:
- The blow is even worse when put in context of industry inflows, only $8.8B for the first 6 months of this year – source EurekaHedge
- 80 percent of investors redeemed some portion of their hedge fund investments in 2016 H1 – source Credit Suisse
- Managers expect to see more outflows due to performance – source Preqin
- One of the industry’s forward redemption indicators ticked up another percentage point in August – source SS&C GlobeOp
- And where is the money going? Apparently investors are shifting into hedge funds’ biggest competitor, private equity – source Financial Times
Despite performance bouncing back – funds pulled in another 7 percent through mid-August, led by global macro strategies – the big uptick in outflows is most likely due to investors’ lagged response to poor performance in 2015 H2 and 2016 Q1.
However, even though many investors are running for the exit, a few strategies seem to be pulling in money, including distressed credit as well as quant and credit strategies, which are making up the majority of new fund launches this year. Though there may be mixed findings on credit strategies, as they were hit the hardest by the July outflows. Additionally, merger arbitrage strategies, which have had a sluggish year, may be on the mend.
Either way, the big names continue to suffer. Blackstone’s hedge fund Sefina is down roughly 20 percent for the year after falling another 5 percent in July; Och-Ziff is cutting management fees in its main fund to keep investors as it continues to bleed capital due to redemption requests; and Carlyle continued to retool its focus by selling its majority stake in the emerging markets business it bought in 2011.
There were a couple big developments in the regulation arena this week. First, Apollo agreed to pay $52.7M to settle an investigation into whether the well-known PE firm misled investors about fees. And secondly, homeowners in New York have brought a class action lawsuit against Lone Star and HUD for allegedly violating mortgage protection rights in the state.
An interesting subtopic appeared in the fee debate this week – hurdles, are they really being used or not? According to the FT, despite growing interest in them from investors, the use of hurdles, at least in the U.S., has not really changed. However, according to a recent poll by HFMWeek, one-third of its readers said they are now employing them, which the publication indicated was an uptick.