Hedge Fund Trends

The ever-changing hedge fund landscape, driven by evolving strategies, expanding asset classes, and new funds, warrants our exploration and periodic reporting on the most prominent trends shaping this domain. With the advent of the new year, we tried to delve into the main changes to be expected and the latest trends as 2023 ended. Here’s an overview of the key events that transpired during the two central weeks of January 2024.

Light Street Capital Bounces back with strong performance 

Light Street Capital, an alternative investment firm founded in 2010 manages a portfolio of $680 million.

It posted a 46% thanks to its Mercury Hedge Fund in 2023, rebounding from a 54% loss in 2022.

Meanwhile the firm’s long-only fund, Tungsten, soared 58%, experiencing a successful comeback with both the funds delivering exceptional returns.

This information is based on the article analysed and reported by ThePlatform’s analysts team: Light Street hedge fund up 46% in 2023 – Hedgeweek

Hedge Funds turn bearish on US banks

According to a report by Reuters, global hedge funds have significantly increased their bets against US banks and other financial companies. This sentiment is likely due to the recent release of bank earnings, which showed a decline in profits for some major lenders, including JP Morgan Chase and Bank of America.

Fargo, on the other hand, reported an increase in profits, but warned that its net interest income could fall by 7% to 9% in 2024.

Meanwhile, the S&P 500 banks index has fallen over 1% in response to these developments, hitting its lowest point of the month.

This information is based on the article analysed and reported by ThePlatform’s analysts team: Hedge funds up shorts on banks and financials to four-month high – Hedgeweek

Hedge Funds and the incorporation of ESG metrics

Hedge Funds are increasing Environmental and Social metrics into their investment strategies, mostly connected with thematic as equities and green, social and asutainable bonds, states analysts at UBS group.

The expectation of lower interest rates in 2024 is likely to result in the rebound of green assets, which should bolster investments in sustainability-related initiatives.

This information is based on the article analysed and reported by ThePlatform’s analysts team: Hedge funds increasingly incorporating ESG metrics – Hedgeweek

Credit Hedge Funds Eye Lucrative Opportunities in Rising Rates Environment

Several funds, including GoldenTree Asset Management, Axebrook Capital, Sona Asset Management, and Arini, saw double-digit gains, capitalizing on market volatility and the financial distress of borrowers. GoldenTree Asset Management in particular made a $100 million profit from the chaos surrounding Credit Suisse’s emergency sale to UBS Group AG. The firm’s investment in cheap AT1 bonds following the state-engineered rescue proved fruitful, as the securities rallied later in the year as other banks dismissed the rescue and global bonds soared amid expectations of interest rate cuts.

As interest rates rise and put pressure on corporate repayments, credit funds are poised to exploit weaknesses in over-indebted companies’ capital structures. The maturing of $710 billion worth of junk bonds between 2024 and 2026 further enhances the prospects for credit funds, creating lucrative opportunities for those willing to take on higher risks.

Specifically, Axebrook Capital is targeting the lowest-rated junk bonds in 2024, as it believes these bonds will create value due to forced selling by traditional asset managers. The firm’s long book, led by special situations, was also a strong performer in 2023. Axebrook is targeting industrials and real estate for both long and short opportunities in 2024.

Meanwhile, former Deutsche Bank AG trader Aylward’s credit hedge fund Sona posted a 20.2% gain in 2023, its fourth year of double-digit returns. The firm, which now oversees $5.7 billion in assets, launched new strategies and is building out its business in the booming private credit market.

Both Axebrook Capital and Sona are optimistic about the outlook for credit in 2024. They believe that the rising interest rate environment will create opportunities for credit funds to exploit weaknesses in over-indebted companies’ capital structures.

This information is based on the article analysed and reported by ThePlatform’s analysts team: GoldenTree, Axebrook, Arini Wrap a Stellar Year for Credit Hedge Fund Traders – Bloomberg

Hedge Funds’ Bold Bets

Hedge Funds have been aggressively buying back short positions on U.S. equities, but they are still hesitant to fully embrace the broader market. The exception to this trend is the Nasdaq 100, where hedge funds have become increasingly net long. This is reflected in the Nasdaq 100 z-score, which is nearly 3 standard deviations above the mean.

In contrast, hedge funds are net short the S&P 500, indicating that they believe that the broader market is overvalued. They are also net short bonds, believing that interest rates will continue to rise and erode the value of fixed-income investments.

In commodities, HF are betting on gold, copper, and platinum, as they believe that these assets will benefit from inflation and economic uncertainty. They are short crude oil, natural gas, and silver, believing that these assets are overvalued and will underperform in the near term.

This information is based on the article analysed and reported by ThePlatform’s analysts team: Hedge funds still piling into the Nasdaq | Seeking Alpha

Taula Capital: A New Macro Hedge Fund with a $3bn War Chest

Taula Capital, a new hedge fund led by Diego Megia, is expected to launch with $3 billion in capital from Millennium Management. The fund will focus on macro investing and is expected to start trading in the first half of 2023.

The launch is notable because it is rare for a portfolio manager to take such a large team with them when they start their own fund. Megia is taking up to 30 investment staff with him from Millennium, which is a sign of his confidence in his ability to succeed.

The launch comes at a time when there has been a decline in hedge fund launches, as a talent war has enticed portfolio managers to join large existing funds. However, Taula Capital is expected to be one of the biggest new hedge funds in more than a year.

This information is based on the article analysed and reported by ThePlatform’s analysts team: Millennium backs biggest planned hedge fund launch in more than a year (ft.com).

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