Daily Management Review

As Launches Fall to Financial Crisis Levels, Number of Hedge Funds Continues to Shrink


12/17/2016




As Launches Fall to Financial Crisis Levels, Number of Hedge Funds Continues to Shrink
While launches during the third quarter slumped to lows not seen since the first quarter of 2009, according to data from Hedge Fund Research (HFR), hedge fund liquidations in 2016 are on track to hit the highest number since the financial crisis.
 
The total amount of funds under management has jumped to a record high of $2.979 trillion dollars as positive performance has more than compensated for net investor outflows in recent months despite the overall number of hedge funds tumbling to 9,925 by the end of September – the first time it has fallen below 10,000 since 2014.
 
With its All-Strategies benchmark gaining 1.00 percent for the month of November, pushing year-to-date returns up to 6.74 percent, November saw continued positive performance for funds according to data provider Preqin.
 
Returning 2.89 percent to bring returns for the first 11 months of the year to 9.09 percent, on a regional basis, North American funds performed the most strongly again in November.
 
While the average performance fee has relented 10 basis points to 17.5 percent and with HFR reporting a 1 basis point slip in average management fees to 1.49 percent, pressure on fees has continued throughout the year.
 
U.K-focused and EU-focused hedge fund managers were asked their views on the impact of Brexit for their industry found the agency in a set of three surveys carried out firstly prior to the U.K. referendum vote, then immediately after it and finally in November.

There was a lot of risk taken off the table in the run-up to the vote as managers anticipated asymmetric rewards from betting heavily on a Remain win civen only 11 percent of managers surveyed expected the Leave camp to triumph and markets had already largely priced in victory to the Remain camp.
 
a sharp profit from shorting domestic equities including real estate plays Intu Properties and Berkeley Group was drawn by Odey Asset Management, founder Crispin Odey who was a high profile backer of the Leave campaign, although a difficult year overall for it. In addition to shorts on budget airline EasyJet and support services group Carillion, Asset management company Marshall Wace also played the Berkeley short.
 
The market chaos that picked up throughout the night as they capitalized on bearish trading patterns, saw the Quant funds doing particularly well.
 
"When things go from normal to bad, they may not make money; but when things go from bad to worse, that is a continuation of a trend and that is when they profit," Lasse H. Pedersen, a principal at quant manager AQR Capital, told reporters of such strategies.
 
In light of Friday's result, others, including Third Point's Dan Loeb took the weekend to adjust portfolios.
 
"Over the weekend following the vote, we investigated the actual impact of Brexit and, after concluding the average predicted scenario was too severe, we quickly repositioned our equities portfolio by covering shorts, adding to several long positions, and initiating a new position in a European event-driven situation," his second quarter investor letter read, in a move the famed investor went on to say paid off for his fund.
 
(Source:www.cnbc.com) 






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