Are Hedge Funds Achieving their Primary Directive?

Just over one month ago, Alpha Calling posed the question of whether or not hedge funds could and would meet investor expectations in the turbulent market conditions experienced since August 25, 2015.

A Few Early Results

In early September, the Lyxor Hedge Fund Index had risen 0.4% after plunging 3.3% in August. Year-to-date, Lyxor reports aggregate hedge fund returns at -0.3%, a stunning performance compared to the JPM Global Aggregate Bond Index, which fell 2.3%. In the same period, the MSCI World Index plummeted 7%! The S&P 500 reported a 52 week change of -0.84 as of October 2, 2015, also placing aggregate hedge fund results in a favorable light.

Does This Mean Hedge Funds Are Meeting Expectations?

To suggest that investors are enthusiastic about a 0.3% loss is something of a stretch. However, on sober reflection, hedge fund investors must appreciate that, but for hedge funds, they might be in a worse place.

Of course, it is premature to draw any firm conclusions regarding how successfully hedge funds will perform in these volatile markets but, these early indicators bode well.

Uncertainties Abound

The foremost uncertainty revolves around the FOMC’s stance on the timing of a rate hike. The committee was not unanimous in its decision to abstain from a hike in its recent meeting. While the dismal jobs report certainly vindicated those in favor of maintaining the status quo, it is doubtful this will dissuade dissenters favoring a rate hike from changing their position in future votes.  The real question is whether these dissenters will make any headway in convincing their peers on the committee who opposed the hike.

Geopolitical events may eclipse interest rates as the foremost concern for investors. Regrettably, these events are the furthest from the control of financial regulators, central banks and financial institutions in general. No amount of quantitative easing or manipulation of rates can alter the course of the conflicts playing out in the world today. Business and, by extension, the markets, perform at optimum levels when stability reigns. This is not the environment we experience today.

Uncertainty is further exacerbated by the current U. S. presidential campaign season, during which, both parties suggest policies and reforms that have the potential to impact businesses positively and, in other cases, negatively.

Hedge Fund Jobs

Early indicators suggest that hedge funds are meeting their prime directive of preserving capital, at least as compared to competitors. However, a longer view of inflows, redemption and performance results is required before any meaningful predictions can be made on the employment front.

This is not to suggest that job opportunities are nonexistent. Hedge funds, like any other industry, have their share of turnover and attrition. The competition is intense, but opportunities do exist.

Hedge fund inflows continue to rise, but this rise is largely within established funds and not as a result of hedge fund startups. Newly formed hedge funds provide the greatest employment opportunities for those seeking a position in the  industry. Established funds, on the other hand, can absorb significant inflows before finding it necessary to increase staffing levels.

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