Hedge Fund Focus: May 13, 2016

Ryan FitzGibbon  Follow

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

Today, Preqin declared a comeback is officially in the making, reporting that funds’ YTD performance was finally back in the black for the first time this year, and eVestment and SS&C GlobleOp seconded Preqin’s findings, both reporting April gains. However, MSCI characterized the gains as “muted” and Lyxor actually had the industry down 1.3 percent for April and down 0.4 percent for May, bringing yearly losses to just over 3 percent.

Institutional Investor’s Alpha released its annual Rich List ranking, revealing that despite a choppy 2015 the industry’s top 50 earners pulled in a combined $12.94B in income, the most they have ever made. Quant managers led the pack. Additionally, for the first time EVER a woman, Leda Braga, was included in the ranking.

After jetting off to LA last week, managers stopped off in Las Vegas this week for the “Davos of the Desert” (SALT), generating a lot of commentary about the state of the industry. Some speculated hedge funds’ golden era is over while others questioned current hedge fund models and David Rubinstein of Carlyle was confident the industry will have a comeback.

On the heels of all the SALT chatter, there was confusion over industry flows and whether pensions are sticking with alternative investments. Reuters is on the pro-industry side. In two separate stories, the outlet reported that pensions have actually increased their hedge fund allocations and flows are holding steady, adding $2B in capital last month alone.

However, not everyone was in agreement. New York State’s pension system is reexamining its hedge fund investments, the China Wealth Fund said it was severely disappointed in the industry, New Mexico’s public employee pension system is pulling its investments with Bill Ackman and FundFire reported several other funds are experiencing similar situations, including Tudor, Brevan Howard, Och-Ziff and Greenlight.

Not surprisingly, the highs and lows were not evenly distributed across the industry. Relative value credit strategies experienced their best month in seven years and uncorrelated strategies proved their worth in Q1. However, macro funds may have missed an opportunity of a lifetime to capitalize on one of the biggest trades since the financial crisis and it’s shaping up to be a tough year for merger focused funds as the number of deals and their dollar amount have dramatically shrunk.

Uncertain times call for unprecedented measures. In the wake of market upheaval, managers are looking for ways to rebuild their capital with several reopening their doors, including Dan Loeb’s Third Point, which is now accepting new money for the first time in five years. Other managers following Loeb’s lead include Acadian and AlphaGen Capital.  

Regulators continued to keep a tight eye on the industry this week with the Justice Department announcing an investigation into the marketing arms of Citadel and KKG for potentially giving small investors poor deals when executing stock transactions on their behalf and the SEC revealed it will be looking closer at how fairly managers treat their investors, particularly with regard to fulfilling redemption requests.

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