Hedge Fund Focus: December 9, 2016
In case you missed them, here are the hot topics in the hedge fund space this week…
Though performance has rebounded – accordingly to HFR the industry was up on average 0.87 percent in November – it has not done enough to stem the tide and it looks like 2016 may be the worst year for hedge fund closures since the crisis and the second worst year on record, leading many to speculate that only the big can and will be able to survive. Adding more fuel to the fire, Moody’s downgraded the entire global asset management industry this week from stable to negative for 2017.
But despite the overall bad news, there are a couple managers having a good year. Funds at Cheyne Capital and CQS are up over 40 percent and 30 percent YTD, respectively, which is good news for CQS, who had a rough 2015 and has reportedly cut nearly 50 employees, or 18.5 percent of its workforce, over the last 18 months.
As for strategies, CTAs, which started out 2016 with a bang and have been a favorite amongst investors this year, are starting to get hurt and it's looking like they may have their worst year since 2011. However, despite the turn, these firms are still hiring. On the flip side, energy and activist funds led the industry’s November gains and managed future strategies continue to rake in the dough.
It appears like years of investor pressure on managers to reduce fees is finally yielding results as another luminary player, Moore Capital, announced it will reduce the management fee on its largest fund by 0.5 percent from 3 to 2.5 percent. The firm said the decision is “a reflection of…[its] sensitivity to changes in the industry as a whole.” The macro fund is down nearly 4 percent YTD.
Weekly Reads: Institutional Investor’s Alpha explored why Leon Cooperman has a strong defense in his insider trading case and the New York Post wrote an interesting piece claiming that 90 percent of the industry isn’t worth investing in, according to new findings by Cliffwater.
Also, in the regulation arena, the SEC was handed a significant win from the Supreme Court this week, which ruled the regulatory body does not always have to show that something valuable changed hands to prove a crime was committed. Additionally, the SEC announced that its enforcement director will also be leaving the agency at the end of this year as the regulatory body prepares for the new administration.
In pension news, the Kentucky Retirement System gave final approval to halve its hedge fund investments as part of its move to simplify, improve liquidity and transparency, and cut fees across its portfolio; Texas County & District Retirement System announced it will consolidate its hedge fund allocations by redeeming investments totaling $760M from five managers and reinvesting the money with its remaining 23 managers; and Massachusetts’ state pension fund is apparently eyeing smaller managers to improve its risk and return profile.