Hans Schlaikier, Hedgeweek

Hedge funds down in January… Global ETFs overtake hedge funds…

Hedge funds fell 0.24 per cent to open 2014 – but not as much as the broader markets. The average hedge fund shed 0.24 per cent in January, according to Hedge Fund Research's HFRX Global Hedge Fund Index. But the benchmark managed something it rarely accomplished last year: besting the Standard & Poor's 500 Index, which fell more than 3 per cent last month.

Despite the overall decline, most strategies tracked by the HFRX suite were in the black in January, led by master-limited partnerships—last year's best-performing strategy at 26.35 per cent which returned 1.58 per cent. Distressed restructuring funds gained 1.08 per cent, equity-market neutral funds 0.72 per cent, convertible arbitrage funds 0.64 per cent, credit funds 0.6 per cent, event-driven funds 0.39 per cent, fundamental growth funds 0.36 per cent, systematic diversified commodity trading advisers 0.2 per cent, special situations funds 0.17 per cent and merger arbitrage funds 0.09 per cent.
 
Fundamental value funds were hardest hit last month, falling 1.73 per cent. Equity hedge funds shed 1.01 per cent, emerging markets funds 0.87 per cent, multi-strategy funds 0.38 per cent, relative-value arbitrage funds 0.2 per cent and macro funds and CTAs 0.07 per cent.

The Australian Securities Exchange is set to open an office in Singapore this year in an effort to attract hedge funds to opportunities Down Under.
 
The ASX is expanding its derivatives business, and hopes that Asia's growing hedge fund industry will be a major source of new customers.
 
"It will be a meaningful presence," ASX CEO Peter Hiom told Bloomberg News of his new city-state base. "There's an untapped opportunity for us in Southeast Asia."
ASX also plans to add client clearing services in April, allowing managers to put their collateral for derivatives trades with the exchange itself rather than with brokers, like the collapsed MF Global.
 
Global investors ditched Japanese stocks at the fastest pace in four years last week, amid jitters over emerging markets and doubts over the timing of another shot of stimulus from the Bank of Japan.
 
The central bank’s aggressive pursuit of its 2 per cent inflation target was the main driver behind record inflows from abroad into Japanese stocks last year, as investors bet that assets would be boosted by the pledge to double base money by the end of 2014.
 
But on January 22, Haruhiko Kuroda, BoJ governor, said that the consumer price index was expected to level off until the summer, at about 1.25 per cent. That marked a shift from the guidance given in the previous month, when the BoJ said that CPI would likely rise “for the time being”, and was seen by some as a signal that the BoJ would not take a moderation in price rises as a cue to ramp up its easing.
 
That, combined with rumblings in emerging markets caused by the gradual exit from ultra-easy monetary policy by the US Federal Reserve, prompted some shorter-term fund managers to cut Japan exposures in anticipation of better opportunities elsewhere.

According to data released by the Tokyo Stock Exchange on Thursday, foreign investors dumped a net Y752bn (USD7.4bn) of stocks in the last week of January, the highest weekly figure since a Y916bn outflow in June 2010, amid the first phase of the eurozone crisis.

Total outflows in 2014 come to USD9.6bn, almost four times the volume of the next most-sold Asian nation, South Korea, at USD2.5bn.
 
Even before Kuroda’s January comments, the BoJ’s steady progress towards its price target since the autumn had caused some investors to pare back their expectations for a further round of monetary easing.
 
Two major stock-focused hedge funds announced they are shutting down after reporting strong performance during the global equity rally of 2013.

The USD6.7 billion Scout Capital Management LLC and the roughly USD5 billion Joho Capital LLC separately notified investors this week they would return outside money, according to letters viewed by The Wall Street Journal. The back-to-back farewells from the New York-based firms mark two of the hedge-fund industry's largest closures in recent years.

Robert Karr founded Asia-focused Joho in 1996 after departing Julian Robertson's Tiger Management as a managing director.  Karr told investors in the letter that he made the decision with "mixed emotions," but added the frequent travel required to manage a firm with offices in three countries was "draining."
 
Joho's flagship fund gained about 30 per cent last year, the letter said, more than twice the average equity hedge fund tracked by research company HFR. It was down 2.49 per cent in 2014 through January 17, according to a person familiar with the firm. The fund's annualized returns since inception are about 20 per cent, according to the letter.
 
 Karr will continue investing through his family office, and will retain some, but not all, of Joho's 26-person staff. He will also spend time with his wife and sons, and engage in philanthropy. News of Joho's closure was reported earlier by Institutional Investor's Alpha.

Scout's closure was due to diverging interests of co-founders Adam Weiss and James Crichton in managing money, the firm told investors in a letter dated Jan. 29.  Weiss, 46 years old, will start a family office and write a book on investing, while  Crichton, 43, plans to launch a firm managing outside money, likely with some people from Scout.
 
Scout laid off 23 of its 37 employees Wednesday, according to a person with knowledge of the matter. The firm gave those employees severance packages and is working with them to find their next jobs, the person said. The rest of Scout's employees are expected to leave in phases over the next six months as Scout winds down. The firm has offices in both New York and Palo Alto.  Weiss moved to the Bay Area in 2010 to be closer to family and for a different lifestyle, the person said.
 
Scout plans to return 95 per cent of its clients' money around April 1, returning the rest of their money after audits of its funds, according to the letter. The firm's biggest fund returned 21 per cent last year, outpacing the 14 per cent returned by stock hedge funds on average, according to HFR, and its average annualised return is more than 14 per cent since inception, according to the letter.
 
Scout notched strong returns in 2013, hitting its peak assets under management at the end of last year, amid general strong performance for stock hedge funds.

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