Wednesday, March 29, 2023

Covid crisis opens gulf between winners and losers of hedge funds

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The Covid-19 crisis created the widest performance chasm between highest and lowest hedge funds in more than a decade, with large gains generated by several managers who helped rekindle interest in the area.

The declines that rippled through global markets in early 2020, followed by the huge rebound, opened up opportunities not seen since the 2008-09 financial crisis. But that same wave of volatility has also hurt a handful of the biggest names in the industry.

According to the HFR data group, the richest 10 percent of hedge funds posted average returns of 49 percent over the 12 months ending in late November, the best performance since 2009. At the same time, however, the The gap between the top and bottom deciles widened to 68.9 percentage points, marking the biggest difference in 11 years.

“Many hedge funds have reached 2020,” said Andrew Beer, managing member of US investment firm Dynamic Beta Investments. Many “have had their best year since the great financial crisis”.

Such a performance is more reminiscent of the “golden age” of the hedge fund industry before the crisis triggered waves of stimulus from central banks that dampened volatility, several industry participants said. The strong management of major funds has sparked renewed investor interest after years of poor performance, they said. “Hedge funds have become investable again,” said one hedge fund investor.

Another investor described a “wall of money trying to get into hedge funds” next year, but added that some might find it difficult to place funds with their desired managers if they choose to close. new investments.

The winners . . .

Bill Ackman of Pershing Square, Andrew Law of Caxton Associates and Boaz Weinstein of Saba Capital are some of the biggest winners in this year’s market swings. For well-positioned managers, steep drops followed by even larger rebounds in some assets provided the kind of money-making opportunities rarely seen in a largely calmed decade dominated by central bank bond purchases. .

Directional bets as investors tossed risky assets for the benefit of havens in February and March were among the most lucrative deals. Mr. Law’s Caxton made a record gain of 40%, boosted by bets on government bonds, according to an investor, while Brevan Howard gained 24 percent.

Lan Wang Simond’s Mandarin Offshore fund returned nearly 28 percent, supported by bets on tech stocks and hedging against the market turbulence in March. Former New York-based Third Point analyst Jamie Sterne Skye Global gained 63.8%, also helped by trading in and out of the surge in tech stocks, according to figures sent to investors, while Daniel Loeb’s bullish call on the US election helped him a quick profit of $ 400 million and a gain of 19.1 percent this year.

Andurand Commodities by Pierre Andurand achieved 64.6% and his Discretionary Enhanced fund, which can take more risks, gained 152%, after to predict oil prices become negative, while Vancouver-based Delbrook Capital jumped 109 percent on betting on mergers and acquisitions in the gold sector.

Element Capital with $ 17 billion in assets from billionaire Jeffrey Talpins, a premonitory prediction on the effectiveness of the Pfizer Covid-19 vaccine, gained 15 percent. Massi Khadjenouri’s Kite Lake Event-Driven Fund posted returns of 7.1%. Millennium Management of $ 48.5 billion in Izzy Englander assets gained 23.3%, while Connecticut-based Verition Fund Management made 26.5%.

Leda Braga of Systematica, Andrew Law of Caxton Associates and Pierre Andurand, whose riskiest fund gained 152 percent © Bloomberg; Rosie Hallam

Buying sell protection was also very profitable. Mr. Weinstein of Saba took advantage of a bet at the right time against unwanted bonds, as well as trading errors in the capital structure of companies, to gain 70.8%, according to figures sent to investors. Mr. Ackman’s Pershing Square Holdings made 65 percent, backed by a profit of $ 2.6 billion on credit insurance, while 36 South’s $ 2 billion Kohinoor fund, which buys option protection, is up about 73%, despite some losses since March.

Several quantitative funds, whose trading is based on computer algorithms, also managed to outperform in a rather bleak year for investment strategy. Systematica’s BlueTrend fund, managed by Leda Braga, gained 7.6% this year.

Qube Research & Technologies, a $ 3 billion hedge fund that emerged from Credit Suisse almost three years ago, is having its best year on record, said a person familiar with its performance. And, despite the loss of money from several funds in the over-the-counter markets, where liquidity sometimes ran dry, Gresham Investment Management’s ACAR fund gained 8.5%.

Losers . . .

This year’s volatility has also grabbed some of the biggest names in the business.

Billionaire Michael Hintze suffered a loss of $ 1.4 billion, driven by bad bets on structured credit, in its flagship fund Directional Opportunities. It gained nearly 9% in November, cutting losses this year to around 36%, according to an investor update published by the Financial Times.

It was “arguably the most turbulent year in financial markets for a generation,” Sir Michael wrote in a recent letter to investors, also seen by the FT. He repositioned CQS to take advantage of new opportunities and strengthened the firm’s senior leadership.

David Harding’s Winton Group, who made a controversial decision Several years ago, moving away from a computerized style of trading, Mr. Harding helped develop in the 1980s, suffered a 22% drop in his main fund.

And in the United States, Jim Simons’ Renaissance Technologies, widely regarded as one of the world’s leading hedge fund companies, lost 33.3% in its Institutional Diversified Alpha fund and 22% in its Institutional Equities fund. Ray Dalio’s Bridgewater took a hit with its flagship Pure Alpha fund down more than 10 percent, even as its All Weather fund posted gains. A specialist in machine learning, Voleon is down 8 percent in its Investors fund, while its institutional fund is stable.


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