From the category archives:

Hedge Fund News

It is not possible to allow 2017 to pass into history without acknowledging the achievements the hedge fund industry has made during the year. First, hedge funds made positive gains for investors in each month of 2017. Gains, year-to-date, stand at around 7.5 percent. Of course, December’s results are not final, but almost no one believes this month will be an exception, and month-to-date numbers support a positive outcome. Few will be surprised to see an annual aggregate gain of 8 percent or better. Second, industry assets under management have achieved new record levels of around $3.25 trillion. In short, 2017 has been the industry’s best year since 2013.

Closures vs. New Starts

While there are those in the industry who bemoan the fact that hedge fund closures outpaced starts through 2017, most regard the net loss of hedge fund firms as a positive. Market forces are at work, culling the under performing firms and rewarding those that meet or exceed investor expectations. The fact that investors are rewarding performing firms is evident, because despite the fact that closures outpaced starts in 2017, assets under management continued to increase. One can only conclude that failing firms were not a vote of no confidence in the hedge fund industry, but rather a vote of no confidence in nonperforming hedge fund firms. Further confirmation comes in a recent HFR report, which reports that 2016 saw 1057 hedge funds close compared to729 new starts. Through the first three quarters of 2017, we see 618 liquidations as compared to 545 start-ups. As hedge fund performance improved throughout 2017, the gap between liquidations and starts narrowed. Again, market forces at work!

Carried Interest

Surviving the Tax Cuts and Jobs Act, signed into law by President Trump, well ahead of his, self-imposed Christmas deadline is carried interest. Carried interest, also known as upside sharing or simply “carry” has been a critical component of hedge fund compensation for many, many years. The subject is not an entirely straightforward one, but fortunately, it is beautifully explained in the 2018 Hedge Fund Compensation Report, which is available now.

The hedge fund and private equity industries have likely not heard the last of carried interest. Trump promised to do away with this “loophole” and his critics are already raging at the fact it persists in the current bill.

What About Hedge Fund Jobs?

Regardless of one’s political views, the Tax Cuts and Jobs Act is nothing, if not a catalyst for business investment. Hedge funds, having found their footing in this bull market, are likely to continue to improve their levels of performance. At the same time, investors will have more money to invest. Many will no doubt choose hedge funds, given the performance improvements the industry has demonstrated thus far in 2017.

Higher levels of investment, growth in assets under management and the general business optimism the passage of this bill has engendered, will nurture a very positive climate for hedge fund jobs. If the industry stays on point, 2018 will be an even better year than we see in 2017.

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Prequin reports the hedge fund industry has achieved gains in positive territory for 10 months in a row, with aggregate August gains of 0.97 percent. This is the longest streak of month-to-month gains since the financial crisis, and suggests the hedge fund industry has finally found its feet.

Investors Are Taking Notice

As has been noted in previous articles, hedge fund flows have been largely positive throughout these 10 months indicating renewed investor confidence.

According to HFR’s Market Microstructure Report, hedge fund closures fell to 222 in the second quarter, down significantly from 259 first quarter closures. Concurrently, 189 new funds launched in the first quarter of 2017 followed by 180 startups in the year’s second quarter.

The trend of closures outpacing new startups has continued throughout 2017, with 481 closures versus 369 startups through the first half of the year. Market forces continue to punish poorly performing funds and reward the best performing funds with continued inflows. Although the total number of hedge funds is in decline, assets under management have continued to rise to record levels.

No Crisis of Confidence

Based upon data provided by eVestment, hedge funds, taken together, are up 5.5 percent this year, just 20 basis points below full year returns for 2016. Another way to express this is that hedge fund returns have nearly doubled in 2017 as compared to 2016.

Large investors are beginning to recognize that the transition from hedge fund investment to cheap stock bets and private asset strategies have been costly. This is but one of several reasons that hedge funds continue to grow assets under management.

It is becoming clear to the investment community that disappointing hedge fund returns are proving to be more cyclical than structural. The post financial crisis spawned an FOMC policy of exceedingly low interest rates, which artificially inflated stock prices and other asset classes. As these policies normalize, hedge funds will rise. Expensive valuations and low returns are making investment in private equity, venture capital and other non-traded asset classes less attractive. Hedge funds are certain to be the beneficiary of investment shifts.

What about Hedge Fund Jobs?

As investors of all stripes return to the hedge fund fold, job opportunities in the hedge fund industry will continue to rise. Stock pickers, with a proven record of accomplishment may have the best window of opportunity. Hedge funds that pursue an equity strategy are at the top of the heap in terms of gains this year.

As a result, one is likely to witness a resurgence of funds that follow an equities strategy, manifested in startups as well as in existing funds shifting into equity. Startups may offer the best opportunities, as will funds currently pursuing equity strategies.

This, coupled with the overall growth in assets under management, will be the drivers of job opportunities in the hedge fund industry. Continued improvement in the overall performance of the industry will not only entice investors to return to the fold, but also provide increased job opportunities for those desiring a career in hedge funds.

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Bill ‘Att’Ackman Targets ADP After Acquiring 8 Percent Stake

August 7, 2017

Activist hedge funds are hardly a new phenomenon, and Bill Ackman of Pershing Square is certainly not a novice in the game. While activist funds have been on the scene for decades, the motives that lay behind the activism have changed dramatically. Earlier versions of activism were analogous to private equity plays, in which the […]

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Will the Bloom Return to the Hedge Fund Rose?

July 24, 2017

In the wake of countless glowing articles touting hedge fund gains through the first half of 2017 as well as new industry records for assets under management, hedge fund managers can’t help but be pleased—and who can blame them? Here Are the Facts Hedge fund gains have been in positive territory for the past eight […]

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What Will Be the Upshot of MiFID II on Hedge Fund Jobs?

June 26, 2017

Just as the regulatory mists were beginning to dissipate under President Trump’s Sharpie and the House’s legislative action, a new fog is rolling across the financial sector—MiFID II. Although driven by European regulators, it cannot be ignored by any financial organization that engages the European markets, and this includes the hedge fund industry. What Is […]

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Can Hedge Funds Help Pension Funds Meet the $400 Trillion Challenge?

May 29, 2017

A child born in 2007 can look forward to a lifespan in excess of 100 years. Although this is marvelous news for those born in this millennia, it only adds to the woes of pension fund managers struggling with monumental shortfalls, estimated to be in the range of $400 trillion worldwide. The U. S. share […]

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Trump Executive Order Puts Dodd-Frank in the Cross Hairs

May 1, 2017

President Trump’s executive order, signed January 30 of this year places Dodd-Frank squarely in the administration’s cross hairs. The impact of this executive order would not be so daunting if the legislative process had not been outsourced to the Federal agencies charged with implementing the legislators’ perceived wishes through regulation—a defect that future lawmakers might […]

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