Hedge fund returns are in the red for the first time this year, with an average reported negative gain of 0.75% in June. The Federal Open Market Committee’s (FOMC) decision against an increase in the Fed Funds rate is perceived by many to be the principal driver behind the current bull market and, incredibly, the primary cause of poor performance across the hedge fund industry.

She Loves Me, She Loves Me Not

Janet Yellen, Chair of the FOMC, has alternately put a rate hike on the table and taken it away, in much the same way lovers play the old French game of ”she loves me” … “she loves me not”. However, Yellen seems to be plucking petals from an ox-eye daisy while alternating the phrases, “rate hike … no rate hike.”

Yellen’s version of the game may not be one of the heart as much as it is of heart attacks!  Many would argue that the unnatural direction of the markets is fueled by this prolonged period of near zero interest rates and has wreaked havoc on hedge fund returns. While this may or may not be the case, the FOMC’s rhetoric and perceived indecisiveness on the subject of a rate hike may certainly be a contributing factor.

We Have a Short Memory

This most recent bull market has been on-going for 2,331 days—6 years, 4 months and 18 days. And while it is true that investor’s jitters increase proportionately to the duration of the bull market, this one comes in at a distant third among the 6 bull runs we have had since 1949.

Bull Market Durations - HF Alpha Calling

In fact, the average bull market has lasted 2,571 days, which means this run is below average in terms of duration.

The trajectory of the current bull market seems assured to result in a second place finish, at the very least. It is improbable that a modest rate hike announcement would end the current bull market. That would require at least a 20% drop from its high (currently 18,351.40) and few would support the contention that such a hike would result in the Dow plummeting to 14,681.12.

Facing Facts

Hedge funds have not been meeting expectations. Returns, in the aggregate, are unimpressive. Short and long/short are not optimum strategies in a bull market. Add to this the uncertain direction of interest rates, currency valuations, oil gluts, ECB policies, China’s slowdown and geopolitical turmoil and anyone can grasp why hedge fund managers are having challenges.

Hedge Fund Jobs

When hedge fund performance is reported in the aggregate, or as an average of all funds and strategies, the outliers are short-changed. Hundreds of hedge funds that have performed extraordinarily well in this hostile climate and no one should lose sight of that fact.

Those who seek a career in hedge funds should not be discouraged by the barrage of statistical data which seeks to diminish the industry. Don’t be misled. Hedge funds have a key role to play in the financial system. Although the perception of hedge fund ineptness is being fostered in some circles, the truth is the industry is simply being painted with the proverbial “broad-brush.”

Always remember it is never the goal of any hedge fund to beat a market index. Rather the goal is to make the most of investment opportunities while preserving capital.

 

 

Bookmark and Share

{ 0 comments }

Social Media - HF colorsHedge funds have been measured in their adoption of social media. This may be attributed to an ingrained culture of “secrecy” brought about by government regulation that imposed a ban on general solicitation for almost eighty years. This ban was lifted by passage the JOBS Act more than three years ago and hedge funds are bringing themselves up to speed in terms of their social media presence.

Social Media Is a Two-Way Street

Hedge fund use of social media has unquestionably been on the rise and this benefits not only hedge funds but also investors. Hedge funds are using social media, such as LinkedIn, Facebook and Twitter to augment marketing strategy, identify potential investors and raise their public profile.

Investors have also benefited from this novel transparency by using social media to conduct their own due diligence on the hedge funds.

In short, social media has been a positive force for hedge funds and their potential investors.

Enter the SEC

Suffering from its own lengthy history of keeping a boot on the neck of hedge funds, the Security and Exchange Commission (SEC) has proposed new rules which will require hedge funds to provide greater disclosure regarding their use of social media platforms.

To be fair, the SEC has required similar disclosures from hedge funds with regard to websites for most of the Internet Age. Also in the interests of fairness, it must be noted that as a result of these required disclosures, the web pages of the majority of hedge funds, offer little more in the way of information than one might expect to find on a business card. Hedge funds, faced with potential fines and sanctions, chose the safest path, which rendered these websites all but useless to investors.

Marginalizing the ability of investors to perform their due diligence might well be the unintended consequence of the SEC’s foray into increased regulation of hedge funds with regard to social media platforms.

The SEC has said that these regulations would be “useful” to the general public and that the information gathered under the proposed regulations could help the SEC “prepare for examinations.”

These statements strain credulity. Frankly speaking, only a small percentage of the general public can meet accredited investor guidelines. The accredited investor guidelines represent a sufficient safeguard for all the concerns the SEC has expressed with regard to investors and social media.

Further regulation will only reduce transparency, as the regulation imposed on hedge fund websites has already demonstrated.

The SEC’s proposals were published for public comment on May 20 and comments will be accepted thru mid-July. If you have a position to articulate, time is short.

Hedge Fund Jobs

Any new regulation of the industry can impact jobs, either positively or negatively. Social media managers may find a field fertile with opportunity in the hedge fund industry. Additionally, new regulatory initiatives renew awareness regarding the importance of maintaining excellent compliance protocols. It follows that those with social media expertise and those with compliance experience may see an upturn in hedge fund employment opportunities.

Bookmark and Share

{ 0 comments }

Analyzing the Impact of Gay Marriage on Hedge Funds

June 29, 2015

Regardless of opinion, gay marriage is now the law of the land and the nation must begin the difficult task of sorting out the various legal, financial and other implications inherent in the Supreme Court’s decision. The focus here will be on the potential economic impact of legalized gay marriage, particularly as it relates to […]

Read the full article →

It’s Showtime for Hedge Funds

June 15, 2015

In case you hadn’t heard, Showtime has inked a deal with Andrew Ross Sorkin, of Too Big to Fail fame, for twelve shows in its new series … Billions. The fictional drama features a New York U.S. attorney as the protagonist and, that’s right, a hedge fund billionaire as the antagonist. Paul Giamatti, who played […]

Read the full article →

Hedge Fund Managers as Political Targets

June 1, 2015

The Forbes 400 list of the wealthiest Americans reveals that only 7 of the top 100 are hedge fund managers and the first hedge fund manager on the list is George Soros, ironically the most left-leaning multi-billionaire on the planet. So why are hedge fund managers under attack? Public Perception Hedge funds are largely misunderstood […]

Read the full article →

A Hedge Fund Job Could be a Paradigm Shift Away

May 18, 2015

While opportunities for hedge fund careers are not abundant, they do exist. Past posts have touched on specific personality characteristics hedge fund recruiters seek when considering prospective candidates. These desirable traits include a competitive spirit, the ability to thrive on stress, self-discipline, an analytic mind, decisive, articulate, focused, and, goal oriented personalities. Hedge fund jobs […]

Read the full article →

Reinsurers Skeptical of Hedge Fund Investment

May 4, 2015

Hedge funds have always enjoyed a presence in the insurance sector but Warren Buffet has declared recent hedge fund forays to be a precursor to the decline of major reinsurance companies. What Has Changed Hedge funds have invested in catastrophe bonds and other insurance-linked securities for decades. However, Buffett’s concern is the recent phenomenon in […]

Read the full article →
Real Time Web Analytics