Hedge Fund Focus: May 6, 2016
In case you missed them, here are the hot topics in the hedge fund/alternatives space this week…
Mixed reviews rolled in this week on whether March’s rebound continued into April. Lyxor’s index showed the industry was down 0.9 percent on average, but HFR’s index showed it was up 0.41 percent. And either way, CNBC labeled “being flat” the new up this year.
But before the jury could decide if a rebound was officially in the making, more bad news came in as AIG and MetLife announced they will greatly reduce their hedge fund investments due to performance. The two giant insurers have $4.1B and $1.8B in industry exposure, respectively. No word on how much AIG plans to cut, but MetLife plans to reduce its exposure by two-thirds over the next two years. AIG plans to shift the money it cuts into highly rated debt and commercial property.
However, despite all the uncertainty, the industry decided to take five this week and decamp to sunny Los Angeles temporarily for the annual Milken Global Conference, which resulted in the percolation of lots of interesting manager commentary. Warren Buffet criticized the industry for exuberantly high fees, which other luminary investors at the event agreed with; Steve Cohen claimed overcrowding was the source of February losses; and Blackstone’s Steve Schwarzman predicted the industry is going to shrink.
Weekly Reads: Though many aren’t worried about NYC pension system’s decision to terminate all its hedge fund investments, P&I came out this week saying there is reason to take pause, which was a good prediction in light of AIG’s and MetLife’s decisions later in the week. Additionally, The Wall Street Journal wrote an interesting piece about how lack of transparency is hurting investors and funds, and The Economist wrote an in-depth piece railing against hedge fund fees.
As for individual manager performance:
- Bill Ackman has 99 problems but Valeant may not be the main one. Though we have been led to believe the pharmaceutical conglomerate is the root of Ackman’s issues, apparently a large number of his investments are actually losing money. But despite such reports, he may be on the mend after posting gains of over 10 percent for April
- Speaking of managers recovering, David Einhorn’s Greenlight Capital appears to be solidly back in the black after a rough 2015, posting yearly gains over 3 percent
- However, Och-Ziff just can’t catch a break. On the heels of a public battle over how to settle alleged bribery charges, Och-Ziff reported Q1 losses and redemptions in its flagship fund of $1.1B. The publicly traded firm’s shares also fell 6 percent
- And in the wake of Brevan Howard making an interesting decision to launch two low-cost, liquid funds, a move that left some scratching their heads, it was revealed that the flailing hedge fund’s losses further eroded last month
Regulators really seem to be have it out for the industry as of late. This week it was revealed that the Fed will most likely include hedge funds in regulations aimed at preventing another Lehman situation and the SEC criticized the industry for its lack of preparedness for regulatory exams.