In a dramatic turnaround from previous years, the volume of fixed-income trading among US hedge funds if anything fell from 2007 to 2008, even as the overall market grew, according to Gree
In a dramatic turnaround from previous years, the volume of fixed-income trading among US hedge funds if anything fell from 2007 to 2008, even as the overall market grew, according to Greenwich Associates’ 2008 US Fixed-Income Investors study.
Trading volume grew strongly among banks and real-money investors, pushing up US fixed-income trading volume by 12 per cent this year compared with 2007, following a period of comparable expansion in 2006-07 and even stronger growth the previous year.
Trading volumes in high-grade flow credit derivatives increased by more than 15 per cent in the 12 months covered by the latest survey, and by slightly less than 10 per cent for high-yield flow credit derivatives.
‘As a result of the continued growth in trading volumes among other types of investor, the share of total US fixed-income trading volume generated by hedge funds declined to just 20 per cent in 2007-08 from 29 per cent in 2006-07,’ says Greenwich Associates consultant Tim Sangston.
However, absolute hedge fund trading volumes increased in high-yield credit products, leveraged loans and structured products. ‘In all likelihood, these increases reflect the deleveraging of hedge fund fixed-income portfolios that has been unfolding over the past year,’ says consultant Peter D’Amario.
The study notes that hedge funds play a much bigger, and in some areas dominant, role in the trading of individual products, accounting for 95 per cent of US trading volume in distressed debt, 61 per cent in high-yield credit derivatives, 60 per cent in structured credit and 55 per cent in leveraged loans.
According to Greenwich Associates, Lehman Brothers has built the largest and most highly rated fixed-income franchise among US hedge funds, although both Lehman and second- ranked JPMorgan lost hedge fund trading share between 2007 and 2008. The top five dealers to hedge funds also include Goldman Sachs, Deutsche Bank and Morgan Stanley.
‘With hedge fund trading volumes flattening out last year, long-only investors are becoming more important to dealers as a revenue source, and we expect to see less of a single-minded hedge fund focus on the part of the sell side over the coming year,’ says consultant Dev Clifford.
Greenwich Associates is an international research-based consulting firm in institutional financial services, specialising in providing benchmark information on best practices and market intelligence on overall trends. Based in Stamford, Connecticut, with offices in London, Toronto, Tokyo and Singapore, the firm offers more than 100 research-based consulting programmes to more than 250 global financial services clients.
