From the category archives:

Hedge Fund News

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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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 fund’s stake was typically little more than holding a promising stock for a long-term gain. For the reader who is unfamiliar with the motives of today’s activist hedge fund, in general, or Bill Ackman in particular, please take a moment to review this Hedge Fund Marketing Association article for further insights.

Today’s Activism

Activism in the 21st century has taken a different tack and Ackman’s game plan for ADT is likely not to be one for the long-term. Automated Data Processing (ADP) is, by all accounts, a quality enterprise. Founded in 1949 by Henry Taub and launched as Automatic Payrolls, Inc., the company grew to achieve almost $12 billion in annual revenue in 2016.

On word of Ackman’s involvement, ADP’s stock rose 2.9 percent. One can readily calculate the monetary gain on Pershing Square’s eight percent stake. It is in the millions of dollars, practically an overnight windfall.

Ackman’s Goal

Although current ADP CEO, Carlos Rodriguez, has increased share value over his tenure, beat earnings estimates in the last three quarters, and grown gross revenue over the past three years or more, Bill Ackman feels the company can do better.

His stated intentions are to seat at least three board members, accelerate the firm’s growth, improve the quality of its software, enhance customer service, slash operating costs and increase the company’s efficiency overall, thereby increasing the company’s value to shareholders and customers.

These are lofty goals, and there are impediments. First, and foremost, Carlos Rodriguez doesn’t plan to go quietly into that good night. The board has already rebuffed Ackman’s request to extend its August 10 deadline for board nominations, which could force Ackman to sit on his plans for almost a year or, alternatively, gain the support of one-third of ADP’s shareholders in order to call for a special shareholder meeting.

Given the excellent record of accomplishment that Rodriguez has achieved in his 6-year tenure, the prospect of securing the votes of one-third of ADP’s shareholders seems a daunting task.

What About Hedge Fund Jobs?

While the relationship between hedge fund activism and hedge fund jobs is not necessarily a straight line, one can certainly understand how the in-house talent required by an activist firm may be more diverse than may those required in other fund strategies.

As the 2017 Hedge Fund Compensation Report demonstrates, people gain entry into the hedge fund industry from diverse backgrounds and activist funds are one reason that this is the case.

As for Bill Ackman, this isn’t his first rodeo and, more to the point, if he succeeds in ousting Carlos Rodriguez, it won’t be the first notch in his gun. Ackman has engineered the demise of CEOs at Air Products and Canadian Pacific Railway.

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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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Hedge Fund Jobs and the Rise of the Machines

April 3, 2017

Robots, once the bane of blue-collar workers, may now threaten the livelihoods of hedge fund professionals. Taxi and Uber drivers are menaced by driver-less technology, fast food workers are marginalized by robots capable of making a burger in less than ten seconds, and BlackRock, Inc. is implementing data-driven, artificial intelligence (AI) programs that will ultimately […]

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