News & analysis
Hedge funds beat outflows by cashing in on market volatiliy to boost AUM
The past two years have been tough for hedge funds, which have booked dra- matic outflows, but as volatility picked up, some hedge fund strategies have managed to capitalise on the turmoil. Throughout July, investors withdrew $8.42bn (£6.9bn) from global hedge funds but the effects of withdrawals were offset by an average investment per- formance of +7.37%, resulting in a net increase of assets under management to $3.3trn (£2.49trn), according to the latest eVestment hedge funds perfor- mance data. Performance levels vary significantly by sector. By far the most popular strategy for the first half of the year were event-driven funds, which received net inflows of more than $10bn (£8.2bn) in the first half of 2019 alone. The good news is limited to a small number of managers though, with only 43% of all event-driv- en funds reporting net inflows. But some of the historically most popular strategies such as equity/long short continuing to struggle as investors pulled $4.55bn (£3.75bn) in July alone.
Investors pile into bonds and money market funds amid recession fears
European investors are shifting their cash from equity into money market and bond funds as fears of another recession continue to mount.
Euro-denominated money market funds were the best- selling sector in July, reporting €21bn (£18.8bn) of net inflows, followed by US-denominated money market funds, which reported €16.3bn (£14.6bn) of inflows, according to Lipper Refinitiv.
Despite the challenging fixed income environment, bonds continue to be the second most popular strategy for long-term mutual fund investors, reporting €37.7bn of inflows.
The sectors most heavily punished were multi-asset funds, global mixed asset funds booked the highest lev- els of outflows at -€3.7bn, Lipper data shows. Regionally, Ireland and Luxembourg continue to bene- fit from Brexit fears. Ireland was by far the most suc- cessful in attracting money, the Irish fund industry reported net new inflows of €43.3bn (£38.7bn), fol- lowed by France (€19.2bn) (£17.1bn). This is in line with sectoral demand as Ireland and France have special- isms in money market and bond funds.
Brexit risks drive FTSE350 scheme deficit higher as UK nears exit date
In contrast, investors increasingly turned to relative value credit strategies, which reported $780m (£632.3m) in inflows, MBS strategies were also increasingly popular, recording $240m (£197m) in net inflows in July alone, according to eVestment. Moreover, whilst emerging market hedge funds have managed to cash in on rising trade tensions throughout the second quarter, EM Hedge Fund capital rose to a record level of $239.3bn (£196.5bn), according to the latest data pro- vided by Hedge Fund Research. Kenneth Heinz, president of HFR predicts, that: “Hedge fund managers and investors are now positioning for a W-shaped macroeconomic trading environ- ment, with elevated realised volatility and shifting risk-on/off sentiment driv- ing dislocations across asset classes, creating long, short and non-directional tactical trading opportunities.”
One of the more successful hedge funds, Element Captial gathered $3bn (£2.46bn) in July last year alone. But the fund also announced it is set to increase its performance fee to 40% in a bid to cut down investor inflows. There are still plenty of changes for investors to burn their fingers, such as the $6bn (£4.93bn) EM hedge fund Autonomy Capital, which rose by 17% last year turned out to have spectacularly misjudged the Argentinian election result, leading to 16.3% performance drop in the first two weeks of August alone.
6 | portfolio institutional | September 2019 | issue 86
The pension deficit for FTSE350 companies has increased by £3bn throughout July, driven by a spike in liability values.
The total pension deficit among UK’s main listed com- panies grew to £51bn from £48bn, mainly due to a decline in corporate bond yields, which has caused liabilities to rise by £24bn month on month. The bad news was largely offset by gains in investment performance as asset values rose by £21bn to a total of £812bn month on month, according to Mercers Pen- sions Risk Survey data. Over the past year, the deficit of all DB schemes included in the Pension Protection Fund (PPF) improved to £70.5bn, compared to £161.8bn in 2017, according to the PPF’s purple book. The improvement was again due to rising asset levels while liability levels benefited from relatively higher bond yields. Yet this trend could come to an end as the prospect of further rate cuts resulting from Brexit is set to drag down bond yields, a potential challenge for DB scheme liabilities.
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