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 first days of January 2024.
2024 Expected Hedge Fund Trends
Every year, Agecroft Partners compiles a list of the main trends to be expected in the hedge fund industry. The following points are presented in the article.
- Maturity of Hedge Fund Industry: The hedge fund industry, having grown significantly, is expected to reach maturity with a likely slowdown in expansion. While most investors remain committed, major entities may have saturated their allocations. Future growth is predicted to rely more on performance, projecting a 6-8% annual rate.
- Fundraising Environment in 2024: 2024 anticipates robust fundraising, driven by asset rotation, performance, and strategy shifts. Estimated at $1 trillion annually, this rotation within the $5 trillion industry highlights key themes like long/short equity, private lending, reinsurance, and market-neutral strategies.
- Evolution in Fee Structures: The hedge fund industry sees evolving fee structures, with institutional clients paying lower fees. Models include tiered schedules, tailored fees, seeding, and first-loss scenarios, emphasizing the importance of mutual benefit and tailored fee arrangements.
- Outperformance of Smaller Managers: Smaller hedge fund managers consistently outperform larger counterparts due to the concentration of flows toward larger managers. Asset bloat challenges larger managers in maintaining added value, showcasing the performance differential.
- Pension Funds’ Allocations: Pension funds adapt by reducing the average size of allocations, and evolving investment processes. From hedge funds of funds to alpha-generating mid-sized managers and an embrace of emerging managers, the shift reflects a pursuit of enhanced returns.
- Virtual Work and Meetings: Virtual work and meetings become permanent, offering flexibility and efficiency. The trend includes non-office virtual meetings, selective in-person visits, and streamlined cap intro events through efficient virtual interactions.
- Demand for Managed Accounts: Large investors increasingly prefer individually managed separate accounts, prompting more managers to handle them. A decline in minimum required assets is anticipated to accommodate this shift in investor preferences.
- Lower Expected Returns from Private Equity: The convergence of hedge funds and private equity influences return expectations. Expectations for private equity returns decrease due to record flows, heightened competition, and stretched valuations for new deals.
- Quality Marketing Impact: The competitive hedge fund landscape expects a concentration of flows, emphasizing the need for superior sales and marketing strategies. Success demands projecting a positive image through internal teams, third-party firms, or a combination. Anticipating industry consolidation, effective marketing is crucial for attracting assets and ensuring longevity.
This information is based on the article analysed and reported by ThePlatform’s analysts team: https://seekingalpha.com/article/4660931-top-hedge-fund-industry-trends-2024
November 2023 saw the best performances since the beginning of the year
Hedge funds experienced a notable resurgence in November, marking their best returns since January, as indicated by Citco’s Monthly Hedge Fund Update. According to Forbes, funds administered by Citco achieved a weighted average return of 3.35% for the month.
Equities funds emerged with a 5.1% gain, surpassing multi-strategy funds, the next best performers, with a 2.5% weighted average return. Over 75% of the funds under Citco’s administration yielded positive returns, with fixed-income arbitrage funds gaining 2%.
However, commodities funds lagged behind as the sole underperformers, witnessing a 0.4% decline, marking the only strategy with negative weighted average returns for the month.
This information is based on the article analysed and reported by ThePlatform’s analysts team: https://www.hedgeweek.com/november-hedge-fund-returns-best-since-january-says-citco/
Oil Bulls Gain Ground as Hedge Funds Reverse Course
Hedge funds and other market participants reversed their bearish stance on oil prices in the final weeks of 2023, making substantial purchases of oil futures and options contracts. This buying spree pushed the net position across all three crude contracts to 175 million barrels, a significant rebound from a record low of 128 million barrels just two weeks prior.
The surge in buying activity was primarily driven by investments in crude oil futures, with fuel purchases adding a further 19 million barrels to the total. This shift in sentiment among market participants suggests a growing belief in a rebound in oil prices in the near future.
This information is based on the article analysed and reported by ThePlatform’s analysts team: https://www.hedgeweek.com/hedge-fund-short-covering-fails-to-halt-oil-price-slide/
Crypto Hedge Funds and the expectation for 2024
Cryptocurrency hedge funds are rebounding from the tumultuous year of 2022, as the value of Bitcoin appears to be on the rise. Moreover, the excitement surrounding the imminent approval of Bitcoin spot ETFs is keeping investor expectations high.
Some funds have experienced significant growth this year. Crypto hedge funds, on average, have rebounded from a 2022 slump, returning a remarkable 44% this year as of December 20. This impressive performance represents a significant turnaround from the 52% loss they suffered in the previous year, according to a Bloomberg index that tracks their performance. Investors are optimistic about a 2024 boom with a steady increase in Bitcoin’s value, driven by the stabilization of prices, the Federal Reserve’s interest rate reduction, and the upcoming Bitcoin halving, which will reduce its supply and boost its price.
Overall, this year appears to be an optimistic period for investors, with the cryptocurrency industry advancing.
This information is based on the articles analysed and reported by ThePlatform’s analysts team: https://www.bloomberg.com/news/articles/2023-12-27/crypto-hedge-funds-pantera-see-2024-boost-on-bitcoin-btc-rally-token-mania
Hong Kong’s regulations draft for the industry
Criticism is mounting against Hong Kong’s proposed regulations on “market soundings,” with the Alternative Investment Management Association, a major hedge-fund association, expressing concerns over the potential imposition of an unwarranted compliance burden on companies and licensed individuals in the city.
While the Securities and Futures Commission (SFC) seeks to enhance oversight on sharing non-public information between brokers and potential investors before deals, critics argue that these rules might put Hong Kong at a disadvantage compared to other major jurisdictions. Kher Sheng Lee, Asia-Pacific co-head of the association, underscores worries about potential obstacles in cross-border deals and the adverse impact on licensed participants. The proposed guidelines emerge in the aftermath of the Archegos Capital Management collapse, reflecting broader efforts to redefine the sharing of non-public information in financial markets.
Critics also contend that the rules may create an uneven playing field, affecting licensed participants while leaving unlicensed and overseas market players exempt from compliance. The SFC is currently in the process of evaluating responses submitted during the consultation period, which concluded on December 11.
This information is based on the article analysed and reported by ThePlatform’s analysts team: https://www.bloomberg.com/news/articles/2024-01-04/hedge-funds-push-back-on-hk-draft-rules-for-market-soundings
Highlight on 2023 Citadel and Millenium performance
In the realm of hedge fund performance, Ken Griffin’s Citadel demonstrated resilience, achieving a 15.3% return in its primary Wellington hedge fund for the previous year. This success outshone industry peers grappling with the challenges of 2023.
Millennium Management, helmed by Izzy Englander, showed notable improvement, recording a gain of around 10% after experiencing low single-digit returns earlier in the year. Similarly, Eisler Capital, a London-based multi-strategy hedge fund, secured a commendable 9.8% gain. These results stand out against the backdrop of an industry where multi-strategy funds, on average, experienced a modest 4.9% increase through November, a notable contrast from the robust double-digit gains observed in 2022.
The financial landscape of 2023 was marked by volatility, driven by major central banks adjusting interest rates, collapses of U.S. regional banks, and geopolitical tensions such as Israel’s conflict with Hamas and the ongoing Russia-Ukraine situation. Despite the challenging environment, Citadel, Millennium, and Eisler have chosen to remain tight-lipped regarding these reported returns.
This information is based on the article analysed and reported by ThePlatform’s analysts team: https://www.bloomberg.com/news/articles/2024-01-03/hedge-funds-millennium-eisler-close-out-2023-with-10-gains
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