From the category archives:

Hedge Fund News

Hedge funds were dealt a harsh hand in the first quarter of 2018, down 0.13 percent. However, to put things in perspective, the Dow was down 2.49 percent in its first quarter, ending at 24,719 the closing number for 2017, and falling more than 600 points to 24,103 on March 29, 2018, the last trading day of 2018’s first quarter.

The S&P 500, the unofficial (and unwarranted) benchmark for hedge fund performance, did not fare much better, down 1.22 percent in the same period.

Although in the red, the hedge fund industry performed more than 19 times better than the Dow and more than 9 times better than the S&P 500. Evaluated from this perspective, hedge fund performance through the first quarter is not too shabby.

Nonetheless

While the foregoing is a bright lens through which one can view industry results, it must also be acknowledged that this quarter’s result represents the worst showing since the first quarter of 2016. On the plus side of the equation, hedge fund industry assets grew by just over $31 billion, signaling that investors remain confident in the industry’s long-term ability to produce returns.

Flows & Assets under Management

Net Flows for the first quarter were solidly in positive territory for the fourth consecutive quarter, which resulted in total global assets under management reaching $3.215 trillion, according to HFR. While this is excellent news for the industry, it doesn’t put a nickel in the pockets of investors.

Investor Expectations 

The strong performance of the hedge fund industry in 2017 raised investor expectations for 2018 to around 8.5 percent. January 2018’s strong performance only strengthened their optimism. However, first quarter results mirror the clichéd “one step forward, two steps back” mantra. The industry, as a whole, is 13 basis points into red territory. Achieving an 8.5 percent gain in the remaining three quarters will be no small feat.

The headwinds are significant. Geopolitical concerns, particularly Syria, North Korea and Iran, spell uncertainty in capital letters, the potential of a “blue wave” stalling (or reversing) the Trump administration’s economic agenda, and the question of how Jay Powell may approach inflationary pressures round out the top three concerns.

Hedge funds must average gains of around 0.96 percent in each of the remaining months to meet these expectations. Of course, this can be accomplished, as January 2018’s results confirm.

What about Hedge Fund Jobs?

As everyone understands, hedge funds are not about to throw in the towel because of one lackluster quarter. Rather, one should anticipate a full-on effort from the industry, designed to reverse their first quarter misfortunes. The industry will almost certainly step-up their pursuit of talented professionals, double down on innovative strategies and find ways to reduce operational costs.

Those interested in a career in the hedge fund industry may find no better moment than this one to realize a career as a hedge fund professional, particularly those with unique skill sets, fresh ideas, and strong work ethics. These are the attributes needed to succeed. These and a bit of good luck!

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Practically speaking, 2018’s first quarter hedge fund results are in the rear view mirror, and two trends are becoming clear.

First of all, HFRX Global Hedge Fund Index reported modest gains of 19 basis points through mid-March, which does not comprehend the latter half of March’s sharp drops in the Dow Jones Industrial Average. Moreover, the S&P 500 fell 1.2 percent by month-end, signaling the first quarterly loss in the index since 2015. Volatility has returned to the markets—with a vengeance!

The quarter was marked by market chaos as U.S. stocks plummeted, led by a previously generous tech sector, that saw Tesla tumble 5.1 percent due to production shortfalls and investor concerns regarding its autopilot technology. Amazon also took a hit after raising the ire of President Trump, who accused the company of taking unfair advantage of the U. S. Postal Service and paying nothing in the way of taxes. Then, to ice the cake, President Trump fully embraced the concept of a global trade war. In short, the trend for volatility through 2018 has been clearly established.

Secondly

Investors of all stripes are clearly nervous, as evidenced by the significant drop in ETF investment, coupled with a spike in first quarter trading volumes. Exchanges experienced a 10 percent year-over-year volume increase in March alone. Inflation fears are also a contributing factor, exacerbated by the recent rate hike promulgated by the FOMC.

What about Hedge Fund Jobs?

As dire as all the foregoing may sound, current events actually make hedge funds the most logical investment alternative for skittish investors. Hedge funds, especially those practicing long/short equity strategies, operate at a distinct disadvantage in stable markets. The so-called market chaos of 2018’s first quarter should be an environment in which such strategies thrive. Of course, they have not thrived, but that is because they have yet to make the necessary course corrections that volatility requires.

As 2018 matures, if necessary adjustments are made, hedge fund performance will reflect these changes by returning positive gains for investors. We have already seen hedge fund starts outpace hedge fund closures throughout the first quarter, suggesting investor demand.

Naturally, any net increase in the number of hedge fund firms will create job opportunities for aspiring hedge fund professionals.

Final Thoughts

Final performance figures are just a few days hence, but the HFRX strongly suggests that March will not be a banner month for hedge fund performance. That said, investors must come to the logical conclusion that the days of investing in an index fund with every confidence that gains will follow, are behind them. The return of market volatility has the potential to usher in a new era of hedge fund out performance. Hedge funds capable of making the appropriate adjustment to volatility, in concert with an intelligent marketing outreach, will reap the rewards.

The innovative culture that personifies the hedge fund industry is certain to rise to the occasion and hedge fund job opportunities will rise proportionately.

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Disappointing February Returns Do Not Stall Job Opportunities

March 5, 2018

February appears to mark the end of 14 consecutive months of positive gains for the hedge fund industry, with HFRX weighted average returns posting a decline (- 0.35 percent) as the surge in market volatility worked its worst in hedge funds. While the HFRX is much narrower in its scope than the HFRI, which comprises […]

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What Do You Think About the S&P 500 as a Benchmark Now?

February 19, 2018

The January 2018 results for aggregate hedge fund performance have been published. According to HFR, the industry showed a 2.8 percent gain. In contrast, the S&P 500 gained 5.7 percent in January before plummeting in the wake of February’s correction. Year-to-date gains for the S&P 500 as of February 16 stood at 2.19 percent, 61 […]

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Hedge Fund 2017 Results Hold Promise for a Better 2018

December 25, 2017

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 […]

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Investor Confidence in Hedge Funds Continues to Soar

September 18, 2017

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 […]

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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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