Hedge Fund Trends

The hedge fund landscape is constantly changing, both in terms of underlying strategies, the assets considered and also because new ones are always being created. Indeed, it is due to their variability that we consider hedge funds to be a worth investigating area. Hence we set out to explore and periodically report on the most noticeable trends in this sector.

Below is an overview of the main events that occurred in the end of October 2023.

Bearish signals: Macro hedge funds diverge from equities

The upturn in 10-year Treasury yields of approximately 5% has led Global macro hedge funds to a downward repricing of equities. At the same time, the S&P index has seen a roughly 9% decline since the end of July.

Within this framework, Global macro hedge funds have shifted their investment strategies from bullish equity positions, which had been a key component of their approach throughout the year, to more bearish stances.

According to a report by Reuters, in addition to their bearish stance on equities, Commodity Trend Advisers (CTAs) have further increased their short positions on other assets, including US Treasuries, JGBs and Bunds. However, CTAs have maintained a bullish stance on oil.

This information is based on the article of www.hedgeweek.com analysed and reported by ThePlatform’s analysts team: https://www.hedgeweek.com/macro-hedge-funds-now-bearish-on-equities-says-barclays/.

India’s rising market: an attraction for Global hedge funds

A recent report from Reuters reveals that Indian market’s increasing depth and its emergence as an alternative to China are making it an appealing destination for hedge funds. Outstanding names in the hedge fund industry, such as Dymon Asia Capital and Citadel Securities, have recently entered the Indian market, contributing to this growing trend.

Notably, the increasing attractiveness of India as an investment destination is due to the doubling that India’s stock market valuation has experienced in just three years, reaching as high as $3.8 trillion in September.

This information is based on the article of www.hedgeweek.com analysed and reported by ThePlatform’s analysts team: https://www.hedgeweek.com/global-hedge-funds-setting-up-in-india/

Enhanced transparency: SEC’s focus on short positions

The SEC has voted to require new rules aimed at enhancing public disclosure of short positions, with significant implications for hedge funds. While US rules are not as specific as the individual hedge fund short disclosures imposed in Europe, they bring more transparency on short positions to investment managers, concerning the following issues:

  • reporting deadline of short positions and related short sale activity;
  • the threshold for reporting: when an individual short position in a stock reaches at least $10 million or the equivalent of 2.5% or more of the total shares outstanding;
  • the reporting threshold for short positions in non-reporting issuers will be $500,000 on any given settlement day of the month.

The new rules also require more disclosure of stock-lending activities, providing the public with insights into which companies are drawing the attention of short-sellers. As SEC Chair Gary Gensler claims, it’s important to increase transparency around short sale activity, especially during times of market stress or volatility.

Although some argued that this move could deter short-sellers and hinder market efficiency, fundamental research, and overall market health, other industry leaders appreciated the decision not to mandate the disclosure of individual shorts. They believe that offering a higher quality of aggregate data on short interest is a better way to address the need for transparency while avoiding unnecessary operational burdens and data leakage risks.

This information is based on the article of Alternativefundinsight.com analysed and reported by ThePlatform’s analysts team: https://alternativefundinsight.com/sec-to-require-greater-disclosure-of-short-positions/

Rising Demand for Corporate Access in Response to Market Dynamics

The interest in corporate access has continuously increased since 2019, but the drivers behind that in 2023 have changed. The demand for access has grown mainly because of the increased interest of investors in how managers face to changing market conditions: meeting with management teams has become increasingly more important in their investment decisions, as reported by Jennifer Fink, the head of Americas corporate access at BofA Securities. More investment professionals, new funds created by existing clients, and the launch of new hedge funds, has led to the expansion of the buy-side segment, that presents opportunities for growth, but it also poses challenges due to the limited resources available to meet the needs of the expanding investor base.

Also JPMorgan is focused on creating quality in-person interactions for corporate and investor clients. They have adapted their flagship conferences and introduced new events to address this demand, as David Wardell said.

In the Institutional Investor’s annual ranking of America’s Top Corporate Access Providers, JPMorgan retained the top position. In the buy-side category, BofA Securities moved up to the second position, followed by Morgan Stanley, Jefferies and Goldman. While Wells Fargo Securities was recognized as the runner-up after JPMorgan in the corporate access rankings. Morgan Stanley ranked third, BofA Securities fourth, and Citi completed the top five.

Balancing the needs of investors and corporates can be challenging, but understanding corporate client objectives while securing meetings or seats for investor clients is key, so corporate access providers need teams capable of managing these conversations effectively. Collaboration with research teams and insights from research divisions are essential to successful corporate access efforts. Firms like BofA Securities and JPMorgan have underlined the significance of in-person meetings and are committed to delivering value through such interactions.

While corporate access shifted to virtual in 2020, in-person events and interactions are returning. New virtual formats and virtual tools, that enable rapid responses, are expected to complement in-person meetings in the coming years.

This information is based on the article of www.institutionalinvestor.com analysed and reported by ThePlatform’s analysts team: https://www.institutionalinvestor.com/article/2ceau9vclks71gthk9fr4/research/investors-continue-to-push-for-direct-access-to-management

Q3 registered a slight uptick in Hedge Fund Assets

The hedge fund industry witnessed a slight increase in assets in the third quarter of 2023, reaching $4.00 trillion, very close to the industry’s all-time high of $4.01 trillion in 2021. The growth in assets was driven by macroeconomic uncertainties, including rising interest rates, persistent inflation, and economic fragility, as well as geopolitical concerns, including conflicts in regions like Russia/Ukraine and the Middle East.

The performance of hedge funds, as measured by the HFRI Fund Weighted Composite index, showed variations throughout the year, from a 1.19% in the first quarter to a 3.87% year-to-date return at the end of September, when the total performance-based asset totalled $50.6 billion. Event-driven strategies recorded the most significant performance-based asset increase ($22.7 billion), followed by relative value ($16.9 billion) and macro strategies ($14.9 billion). In contrast, equity hedge fund managers experienced a collective decline in performance-based assets.

Net asset flow by hedge fund asset class in the third quarter showed a total of $3.5 billion flowing into three strategy classes: event-driven, relative value and macro hedge fund strategy. Instead the equity hedge fund group saw outflows of $4 billion.

Despite hedge funds navigated a significant shift in risk tolerance and sentiment during the third quarter, presenting both risks and opportunities for hedge funds, overall, this industry remains dynamic and responsive to market fluctuations, with assets on the rise in a complex and ever-changing financial landscape.

This information is based on the article of www.pionline.com analysed and reported by ThePlatform’s analysts team: https://www.pionline.com/hedge-funds/hedge-fund-assets-tick-slightly-q3

BlackRock plans to unwind its oldest hedge fund

BlackRock, the world’s largest asset manager $9.42tn in AUM, is planning to liquidate its first hedge fund, the Obsidian fund after twenty seven years of operation. According to a report by CityWire, the Chief Investment Officer and lead PM of Obsidian fund agreed the best choice was to wind down Obsidian, return capital to investors and provide them with an opportunity to re-invest in other BlackRock strategies.

This information is based on the article of www.hedgeweek.com analysed and reported by ThePlatform’s analysts team: https://www.hedgeweek.com/blackrock-to-liquidate-its-first-hedge-fund/

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