Hedge Fund Focus: January 6, 2017
As we kicked off the New Year this week, we saw lots of figures start to trickle in about how the industry faired last year. Unfortunately, on the whole it looks like it will end up being a mixed year. According to Bank of America Merrill Lynch, the industry significantly lagged the S&P 500 for the year; the benchmark was up 9.54 percent for the year whereas the industry on average brought in 3.34 percent. Besides BofA’s findings, here are the other figures you should be aware of:
- Funds gained 0.86 percent on average in December, according to HFR
- Global macro funds and event-driven strategies continued to outperform and led gains in December
- CTAs, which were a favorite amongst investors last year, finished the year in the red up 2.9 percent
As for how individual managers fared, Kyle Bass’s Hayman Capital, Omega Advisors’ credit fund and David Einhorn’s Greenlight Capital all had pretty remarkable years, up 24.8 percent, 16 percent and 9.4 percent, respectively. And it was a big win for Einhorn, who was down 20 percent in 2015. It was also a decent year for Dan Loeb’s Third Point and JANA Partners. However, the same can’t be said for Lansdowne Partners’ flagship fund, which lost 15 percent, and Crispin Odey, who experienced his worst year ever, losing 49.5 percent.
Though performance was mixed, other industry indicators are showing that 2016 was probably not the best year for hedge funds. New fund launches were significantly down, 40 percent, from the previous year. However, fund launches for distressed strategies actually tripled. Additionally, 2016 Q3 marked the lowest level of fund launches since 2009 Q1 and the fourth consecutive quarter where liquidations outpaced launches. Furthermore, only 19 percent of active managers outperformed their benchmarks last year.
Leon Cooperman and Och-Ziff both found themselves back in the headlines this week for similar problems – AUM losses despite decent performance. As a result of SEC insider trading allegations, Leon Cooperman’s Omega Advisors lost 27 percent of its AUM in December. In total, the firm’s assets were halved last year as a result of the issues. As for Och-Ziff, the firm had sound returns in its multi-strategy fund but lost about 27 percent of its AUM last year, with $3.6B in outflows solely in December. All was due to a Federal bribery scandal.
However, there was one good note this week as macro and event-driven strategies are expected to outperform this year.
Weekly Reads: The Wall Street Journal’s London correspondent Lawrence Fletcher wrote an interesting piece about how current market volatility should be good for the industry, but many clients want firms to avoid volatile bets. The Financial Times also wrote an interesting piece about how 2016 was a great year for investors who avoided hedge funds.