Hedge funds start 2014 in negative territory

Date: Monday, February 24, 2014
Author: Preqin

According to Preqin’s Hedge Fund Analyst, hedge funds made a loss of 0.17 per cent in January 2014, the benchmark’s first month in negative territory since August 2013.

The decline in equity markets led to negative returns posted by long/short funds; however these funds did outperform the S&P 500 Index, which was down more than 3.5 per cent for the month. The best performing hedge fund strategies for January were relative value and event driven strategies, with these benchmarks up 0.77 per cent and 0.66 per cent respectively.
 
Relative value was the top performing strategy benchmark in January 2014, as a result of strong gains posted by fixed income arbitrage (+1.60 per cent) and relative value arbitrage (+1.43 per cent) strategies. Long/short was the worst performing strategy category, as a result of losses posted by long/short equity (-0.28 per cent) and long bias (-1.45 per cent) funds. Macro strategies posted similar returns to the overall hedge fund benchmark (-0.15 per cent). CTAs were back in the red in January following three months of positive performance, with returns of -1.08 per cent, taking 12-month returns to -2.59 per cent.
 
Europe was the top performing regional benchmark with funds focused on the region returning 0.65 per cent, marginally ahead of North America-focused funds (+0.55 per cent).
Funds focused on emerging markets suffered notable losses, with average returns of -2.27 per cent, and there were also negative monthly returns for funds focused on Asia-Pacific (-0.51 per cent).
 
UCITS funds also posted losses in January with the average UCITS fund down 0.41 per cent, as a result of negative returns posted by long/short (-0.76 per cent) and macro funds (-0.12 per cent). Funds of hedge funds again underperformed compared to the overall hedge fund benchmark, with average returns of -0.57 per cent.
 
More than 50 new hedge funds have gotten their start in Asia this year, as managers vie for some of the billions in investor capital that is flowing into the space.
 
There have been some 20 per cent more launches so far this year than at this point last year, according to Bank of America Merrill Lynch. And the new funds are bigger as investors aggressively add exposure to Asian funds.
 
Asian hedge funds saw a record inflow in the fourth quarter of USD4.2 billion. All told, the industry ran USD112.3 billion at the end of last year, which is also a record.
 
The Managed Funds Association, the global trade association representing the hedge fund and managed futures industry, today announced the launch of a comprehensive online hedge fund glossary in collaboration with Latham & Watkins LLP through its Book of Jargon – Hedge Funds.
 
This resource, available on MFA’s website (www.managedfunds.org) provides users with a complete set of key terms, phrases, and definitions specific to all aspects of the global hedge fund industry.
 
The new hedge fund glossary on MFA’s website offers users access to an interactive library of more than 900 terms, including acronyms regularly used to describe key industry terms, as well as jargon adopted by professionals in the hedge fund industry. The Book of Jargon® – Hedge Funds is also available as a free app that allows users to access the information on Apple’s iPhone and iPad devices.
 
“The launch of the hedge fund glossary further exemplifies MFA’s commitment to educational offerings for hedge fund professionals and serves as another helpful resource for those looking to learn more about how our industry functions,” said Richard Baker, MFA President and CEO of the Managed Funds Association. “These global businesses can be complex, but we believe our glossary allows those who are curious and interested in hedge funds to gain clarity on the basic elements, strategies, and terms that govern the day-to-day operations of the industry,” Baker said.
 
“We are pleased to collaborate with the MFA on this project to make our Book of Jargon® – Hedge Funds available on the MFA website. We are delighted to support the MFA’s endeavor to provide the hedge fund community with educational resources,” said Steve Wink, corporate partner and co-chair of Latham & Watkins’ Hedge Fund Task Force.
 
“Covering deal terms from ‘A/B Exchange’ to ‘VWAP’ and more than 900 terms in between, we’re pleased to provide MFA’s members and the wider financial community with this interactive library of the A's – Z's of hedge fund jargon,” said Christopher Clark, litigation partner and co-chair of Latham & Watkins’ Hedge Fund Task Force.
 
Bloomberg reports that Gregard Heje, former Asia head of Ziff Brothers Investments LLC, plans to start his own Hong Kong-based hedge fund that bets on stocks as early as the second quarter, said two people with knowledge of the matter.
 
The family office that oversees the Ziff family’s publishing fortune will be an anchor investor in Heje’s Kontiki Capital Management (HK) Ltd., said one of the people who asked not to be identified as the information is private.
 
Heje joins a list of alumni of well-known international companies who have set up some of Asia’s largest hedge-fund startups since the global financial crisis in 2008. Among them is Carl Huttenlocher, the former regional head of Highbridge Capital Management LLC, whose Myriad Opportunities Master Fund has grown to almost USD2.4 billion since December 2011 inception.
 
“Managers from the international companies tend to manage larger books and are exposed to investment and operational processes that have been refined over many years,” said Will Tan, a Singapore-based recruiter with Principle Partners Pte. “This gives investors comfort.”
Most of Ziff Brothers’ former Hong Kong-based employees will join Kontiki, one of the people said. The firm will be staffed by a team of 12 people. The equity long-short manager will pick stocks based on company fundamentals, the person added.
 
The 2008 attack on Lehman Brothers by US hedge fund star David Einhorn and the equally bold but less successful salvo fired at Olam of Singapore in 2012 by shortseller Muddy Waters have something in common – they were both launched at a Sohn conference. Now the star-studded event is poised to bring its mix of big-name managers, radical investment ideas and cancer charity fundraising to Hong Kong, in a further sign that Asia’s hedge fund industry is becoming more established.
 
The Sohn Conference Foundation will link up with the Karen Leung Foundation, a Hong Kong-based cancer charity, for an annual conference where 10 top hedge fund managers will present to 350 attendees. The organisers hope that the event, at which a panel of the industry’s best and brightest offer investment advice to raise money for charity, will generate the same kind of interest as do Sohn’s US and London events.
 
“A few years ago, we started to see more managers flying in from Asia to attend our conference in New York and then we noticed even more flying into London, so we started to think about where to expand in Asia,” said Evan Sohn, brother of Ira Sohn, who died of cancer aged 28 just over 20 years ago and in whose honour the foundation was established.
Managers and prime brokers say it has become increasingly important to have people on the ground in Asia to see what is really happening with local companies and the Asian arms of global groups.
 
“Asia is now a really fundamental driver of corporate profitability globally,” said Morgan Sze, who runs Azentus, a USD1bn+ multi-strategy fund in Hong Kong, and among the best known managers in the region. “There is a real opportunity to generate alpha [market-beating returns] by being able to know what is going on in different countries and with the Asian businesses of local and global companies.”