Hedge Fund Focus: June 10, 2016

Ryan FitzGibbon  Follow

In case you missed them, here are the hot topics in the hedge fund/alternatives space this week…

A lot of news this week centered around a new study by BNY Mellon, which revealed that while investor appetite is still strong for alternatives, their expectations are totally out of line. Many expect 15 percent returns from an industry which has had dismal performance since the crisis. The report also pointed out that, not surprisingly, funds are lowering fees to entice investors.

Hedge fund launches hit their lowest level in 12 years, falling 51 percent in Q1 year over year in major hedge fund regions. In the U.S., launches slumped 56 percent. Post-crisis regulations and increased filing delays were cited as some of the contributing factors behind the decline.

Returns for May continued to be mixed with MSCI having funds up just under 1 percent, Barclay’s having them virtually flat and HFI having them up 0.57 percent. Furthermore, and this doesn’t bode well for a rebound, funds have turned bearish on equities even though stocks are climbing and they are trailing equity benchmarks by more than at any other point this year. And adding further insult to injury, CEM pointed out that most hedge fund benchmarks are too easy to beat.

Event-driven and distressed credit strategies are leading industry gains, but opinions differ on whether distressed funds are experiencing inflows. HFMWeek said yes, but HFI said no. And interestingly, despite all the buzz around quants, CTAs actually experienced their third straight month of losses in May. However, they are still up over 4 percent for the year and investors are still very interested.

Regulation: In shocking news, S. prosecutors are refunding shuttered Diamondback Capital $6B for a settlement they paid in 2012 to make a “non-prosecution deal in light of ‘legal developments.’” The refund is due to a 2014 federal appeals court ruling, a case against one of Diamondback’s traders, which has made it more difficult for prosecutors to pursue insider trading cases.

Weekly Read: Mary Childs at the FT wrote an in-depth piece over the weekend about how the industry needs a makeover. The story points out that a lot of negative views towards hedge funds are due to the perception that the rich industry is delivering poor returns to pensions which represent the common man. Childs noted that while the criticism isn’t entirely fair, the situation looks bad and the industry needs to deal with it.

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