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News September 2014
Macro surges as equities bonds fall Macro hedge funds posted gains for the fifth time in six months in September, topping the August gain to post their best monthly performance since July 2012 as the US dollar surged. The HFRI Macro Index gained 1.8% for the month, led by contributions from multi-strategy macro, CTA and currency sub-strategies, reports HFR.
The HFRI Fund Weighted Composite Index declined -0.4% in September, ending the third quarter with a gain of 0.3% despite posting declines in two of the three months. For the first three-quarters of 2014, the HFRI Fund Weighted Composite gained 3.4%, topping the DJIA, Russell 2000 and most regional European equity markets, though trailing the S&P 500 and Nasdaq. The HFRI Fund of Funds Index posted a narrow gain of 0.07% for the month.
Macro gains partially offset declines in other strategies and vaulted macro to the second best performing hedge fund strategy for 2014, with a gain of 4.1% for the year. Macro trails only fixed income-based relative value arbitrage year-to-date; the HFRI Relative Value Arbitrage Index declined -0.2% in September but leads all strategies with a YTD gain of 5.1%. Macro multi-strategy, CTA and currency-focused exposures led September performance, with the HFRI Macro: Multi Strategy Index gaining 1.8% for the month, the fifth consecutive gain and the best performance since December 2010; the HFRI Macro Currency Index advanced 1.3% for the month, the fourth gain in five months. The HFRI Macro: Systematic Diversified/ CTA Index gained 2.6% for the month, bringing YTD performance to 5.2%; both the HFRI Macro (Total) Index and CTA Index have posted declines in each of the three previous calendar years.
The HFRI Relative Value Index fell -0.2% for the month as yields increased, high-yield credit widened and equities declined, with a drop in sovereign and yield alternative exposures only partially offset by gains in asset-backed. The HFRI FI: Sovereign and Yield Alternative indices were down -1.0% and -1.6%, respectively, while the HFRI FI: Asset Backed Index gained 1.0%.
Equity and credit-sensitive equity hedge (EH) and event driven (ED) strategies fell for the month, with the HFRI Equity Hedge Index falling -1.8% while the HFRI Event Driven Index declined -0.95%. Equity hedge declines were led by fundamental growth and energy/basic materials, with these HFRI indices falling -2.8% and -4.4%, respectively, for the month. EH declines were partially offset by short bias exposure, with the HFRI Short Bias Index gaining 1.0% for the month. Event driven declines were led by distressed exposures, with the HFRI Distressed/Restructuring Index falling -1.3%.
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“The macro resurgence accelerated in September, leading industry performance as equities, bonds and other hedge fund strategies declined. Macro hedge funds, including both trend following, quantitative as well as fundamental discretionary strategies, have re-emerged recently as powerful, uncorrelated exposures as US stimulus measures are wound down and the US economy continues to proceed toward interest rate normalization,” stated Kenneth J. Heinz, president of HFR. “Macro is expected to exhibit performance leadership through year-end 2014 as realized volatility remains elevated and fundamental macroeconomic relationships are re-established without the distortions of stimulus measures, contributing to a reversal of recent capital outflows in macro, as investors position for a continuation of these dynamic trends.”
Emerging managers lead industry gains Emerging hedge fund managers have led industry performance over the past year, as equity markets have extended gains, investor risk tolerance has escalated, and total hedge fund capital has increased to a record level. Emerging hedge fund managers with a track record of less than two years have posted an average gain of 11.3% in the trailing 12 months ending 2Q14, topping the gain of 9.1% for the HFRI Fund Weighted Composite, as reported in the latest HFR Market Microstructure Industry Report. The HFRI Diversity Index, comprised of hedge funds owned by women and ethnic minorities, has gained 11.1% over the same period.
New hedge fund launches totalled 285 in the second quarter of 2014, in line with both 289 from the first quarter and 288 from the second quarter of 2013. Launches for the trailing 12 months totalled approximately 1,050 funds, slightly below calendar- year totals from the past three years. Hedge fund liquidations declined to 189 in the second quarter of 2014 from 272 in the prior quarter; liquidations in the trailing 12 months totalled 979 funds, exceeding the liquidations in each of the prior four calendar years and the highest since 2009, following the financial crisis.
HFRI performance dispersion narrowed over the last four quarters ending 2Q14, with both top and bottom deciles of HFRI constituents converging toward average industry performance. The top decile of HFRI constituents posted an average gain of 34.4% in the trailing 12 months through 2Q, the second highest gain since 2010, trailing only the 41.6% gain from 2013. The bottom decile of HFRI performance posted an average decline of -12.7%, improving 600 basis points from the -18.9% decline for 2013.
The average management fee industry-wide charged by hedge funds in 2Q was 1.52%,
unchanged from the prior quarter, although management fees have declined two basis points from 1.54% since 2Q13. The average incentive fee charged by hedge funds in 2Q declined three basis points to 17.96% from the prior quarter. Fee data was mixed for the vintage of funds launched in the second quarter, with average management fees of 1.51%, falling from the first quarter of 2014 , but in line with the FY 2013 launch average of 1.52%. Incentive fees for new 2Q launches averaged 17.6%, the highest level since 3Q12.
“Emerging hedge fund managers continue to drive not only industry performance gains, but also strategic innovation across the hedge fund industry, with new funds launching to identify and monetize opportunities created by the shifting financial industry landscape, investor preferences and risk thresholds,” stated Kenneth J. Heinz, president of HFR. “The capital-raising environment for new hedge funds has improved, but it continues to be challenging for new and emerging managers to meet the demands of risk-conscious institutional investors. However, in the present paradigm of low interest rates and low inflation, investors are likely to benefit from the unconstrained return generation capabilities and idiosyncratic innovations which new, emerging hedge fund strategies add to their portfolio exposures and allocations.”
$99.0 billion inflow highest since 2007 BarclayHedge and TrimTabs Investment Research report that the hedge fund industry took in $18.4 billion (0.8% of assets) in August, the highest inflow in three months and a strong rebound from redemptions of $750 million (0.03% of assets) in July.
“Hedge fund inflows this year are the strongest we’ve seen since the financial crisis,” said Sol Waksman, president and founder of BarclayHedge. “The industry took in $99.0 billion in the first eight months of 2014, more than double the inflow of $47.5 billion in the same period last year.”
Industry assets rose to a six-year high of $2.38 trillion in August, according to estimates based on data from 3,485 funds. Assets climbed 19.5% in the past 12 months and are down just 2.6% from the all-time high of $2.44 trillion in June 2008.
The monthly TrimTabs/BarclayHedge Hedge Fund Flow Report noted that the Barclay Hedge Fund Index gained 1.2% in August, underperforming the S&P 500, which gained 3.8% for the month. In the past 12 months, the Barclay Hedge Fund Index returned 10.3%, while the S&P 500 gained 25.2%.
“Sector-specific funds delivered the best returns in August, gaining 2.6%, while multi-strategy
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