The hedge fund sector consistently undergoes shifts and adaptations, marked by inventive strategies, diversification of assets, and the entry of new players. Navigating this dynamic terrain demands a thorough comprehension of the trends steering these changes.
Through our examination of the most recent shifts and trends in the past two weeks, we unveil pivotal occurrences shaping the landscape of the hedge fund industry.
China Cracks Down on Quant Funds, Raising Concerns Over Market Intervention and Foreign Investment
In this month a manager of a Chinese hedge fund experienced rejection of their short-selling orders by brokers, while another manager found themselves completely excluded from the stock market. Regulatory authorities intervened by physically overseeing trading floors at various hedge funds to monitor transactions.
China’s previously thriving quant funds industry has been halted by Beijing’s political campaign to prevent a $4 trillion stock sell-off. This has raised doubts about the Chinese government prioritizing short-term objectives over maintaining the semblance of a free market, which has attracted billions of dollars from Wall Street firms in recent years.
While these measures may temporarily preserve stock prices, they are likely to adversely impact the perception of foreign investors, increasing skepticism and reducing investments in Chinese markets. This contributes to record outflows from the equity market and a 30-year low in foreign direct investment.
Shanghai-based Semimartingale Private Fund Management LP commented, “Quant managers were hit by the biggest Black Swan in quant history.” The restrictions on Quant Funds have been implemented as these funds used their big data models to outperform the market over the past three years. These restrictions include increased scrutiny, mandatory reporting of strategies to regulators, and expanded reporting to offshore investors.
“The risk premium on Chinese stocks has to go up going forward because some institutions are going to be unwilling to trade this market,” stated Arthur Budaghyan, emerging markets chief strategist at BCA Research. The recent focus on quant funds aligns with Beijing’s heightened efforts to address the prolonged decline in equities.
This information is based on the article analysed and reported by ThePlatform’s analysts team: https://www.bloomberg.com/news/features/2024-02-25/china-markets-investors-shaken-as-hedge-funds-lose-out-in-quant-crash
Man Group Profits Dive Despite Record Assets
Profits at Man Group, the world’s largest publicly listed hedge fund firm based in London, saw a significant decrease last year, more than halving, despite reaching a record assets under management (AUM) of $167.5 billion, marking a 17% increase from the $143.3 billion reported in 2022.
In a statement released on Thursday, it was disclosed that pre-tax profit dropped to $340 million in 2023, down from $779 million the previous year, primarily due to a sharp decline in performance fees, which fell by 77% year-on-year to $180 million. Net revenue also decreased by 29%, from $1.7 billion in 2022 to $1.2 billion in the last year.
The record level of assets was driven by performance gains amounting to $9.7 billion throughout the year. However, the company experienced its first quarter of net negative flows in the final three months of 2023 since Q3 2022, with net outflows totaling $300 million.
According to the statement, the fourth-quarter outflows were attributed to multi-manager and systematic long-only funds. Robyn Grew, who assumed the role of CEO from Luke Ellis in September 2022, remarked, “2023 was a year that defied market expectations as the world grappled with macroeconomic uncertainty and unforeseen geopolitical events.” Grew expressed satisfaction with the results, emphasizing net client capital inflows of $3 billion, which she stated were “4.9% ahead of industry.” However, a poll of analysts conducted by the company anticipated net inflows of $4.1 billion in 2023.
This information is based on the article analyzed and reported by ThePlatform’s analysts team: https://www.hedgeweek.com/man-group-profit-halves-as-assets-swell-to-record-167-5bn/
US Hedge Fund Wins Big on “Trade of the Year”: Betting on Lower Gas Volatility in Europe
A US hedge fund specializing in natural gas has garnered substantial profits from a large and unconventional bet on reducing volatility in Europe. Specifically, Statar Capital LLC, based in Miami, doubled its €350 million investment in put options in early November, closing the position in February as prices declined and volatility decreased. Given the significant gains from this trade, it has been dubbed “the trade of the year.”
According to estimates from Bloomberg analysts, when the position was opened, the contract was valued between €13 and €15, and it was sold in early February at a value of €25.
Founded by former Citadel and D.E. Shaw & Co. trader Ron Ozer, Statar achieved notable success in gas trading during the energy crisis. Hedge funds and banks, attracted to the market, are increasingly turning to derivative contracts to capitalize on or safeguard their positions against significant price fluctuations. Despite a reduction in volatility, traders caution that pronounced price swings will persist until new sources of supply, expected in 2026, fully replace Russian flows.
This information is based on the article analysed and reported by ThePlatform’s analysts team: https://www.bloomberg.com/news/articles/2024-02-29/us-hedge-fund-profits-from-outsize-options-trade-in-european-gas
Eisler Capital Eyes $1.5 Billion Raise and Portfolio Manager Expansion for 2024 Growth Push
Eisler Capital, a multi-strategy hedge fund based in London, is reportedly planning to secure capital in the range of $1 billion to $1.5 billion and expand its Portfolio Manager team to between 120 and 125 individuals in the current year, as per sources familiar with the matter, cited in a Financial Times report.
The fund had experienced a growth in assets exceeding $1 billion the previous year. Additionally, the 2024 agenda involves broadening its activities in equities and commodities alongside its existing quantitative trading strategy business.
Goldman Sachs estimates, as mentioned in the report, indicate a 150% increase in multi-manager assets from 2017 to 2022, a notable contrast to the broader industry, which witnessed a 13% growth over the same period.
Established in 2015 by Edward Eisler, formerly co-leading the global markets division at Goldman Sachs, the fund transitioned to a multi-manager strategy in 2021. Presently managing $4 billion in assets and maintaining a global workforce of about 300, Eisler Capital engages in trading across bonds, equities, and commodities markets. The fund achieved returns of 9.8% in 2023 and 15% in 2022.
Eisler has also made a strategic hire in the form of Jeff Russel, the former head of equities at Balyasny Asset Management, who will lead the equity long-short strategy for the firm.
This information is based on the article analyzed and reported by ThePlatform’s analysts team: https://www.hedgeweek.com/eisler-capital-to-raise-up-to-1-5bn-and-increase-pm-headcount/
Tech Sell-Off: Hedge Funds Exit After Nvidia Earnings
Many hedge funds entered the tech stock market in the weeks leading up to the anticipated earnings of Nvidia, but immediately after the earnings announcements, they completely reversed course, resulting in one of the fastest sell-offs in the last seven months. Data from Goldman Sachs Group Inc.’s prime brokerage unit shows that managers consistently emptied their positions over the past four weeks, reaching an intensity ranking in the 98th percentile over the past five years.
These data suggest that traders are capitalizing on profits from their recent purchases and redirecting their investments toward less volatile securities, such as those in the basic consumer goods sector. Goldman traders highlighted the market’s confidence in tech stocks, particularly noting a decrease in the put-call skew (a measure used to gauge investor fear), and retail trading activity in Nvidia reaching the 99.96th percentile for the week.
Despite these positive indicators, concerns have arisen due to heightened sentiment. Beyond Nvidia’s one-day surge, the Nasdaq 100 encountered challenges, with losses in three out of the last four sessions. Peter Callahan, a specialist in tech, media, and telecom at the bank, expressed apprehension about the sustainability of momentum from this point onward. Now that major tech companies have reported, the focus in the coming days will shift to economic data and the potential timing of interest rate adjustments.
This information is based on the article analysed and reported by ThePlatform’s analysts team: https://www.bloomberg.com/news/articles/2024-02-26/hedge-funds-unload-tech-stocks-after-going-all-in-before-nvidia
88% of Hedge Funds See Positive January Returns, Citco Report Shows; Equities Lead, Event-Driven Lags
As of 2024, a notable 88% of hedge funds have reported positive returns across various strategies, building on the double-digit returns seen in 2023, according to the latest monthly report on hedge funds from Citco, the global alternative investment asset servicer with $1.8 trillion in assets.
The report discloses that funds administered by Citco achieved an overall weighted average return of 1.4% in January 2024, with equity funds (1.8%) leading the way, closely followed by global macro at 1.6%. Multi-strategy funds recorded a weighted average return of 1.2%, fixed income arbitrage at 1.1%, and commodities at 0.8%. The only exception was event-driven funds, which reported a negative weighted average return of -2.3%. Overall, the rate of return spread remained consistent at 8.6%.
Equities strategies experienced the highest new outflows, totaling $0.7 billion last month. Regionally, European funds witnessed the highest net inflows at $2.1 billion, followed by funds in the Americas at $0.6 billion, with Asian funds trailing with net outflows of $0.2 billion.
Citco’s current projections for net outflows in Q1 2024 are estimated to be $13.8 billion.
This information is based on the article analyzed and reported by ThePlatform’s analysts team: https://www.hedgeweek.com/positive-performance-seen-across-most-hedge-fund-strategies-says-citco
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