Digital Assets Report

Newsletter

Like this article?

Sign up to our free newsletter

Hedge funds weather October volatility… Asian macro funds outperform US peers…

Related Topics

October wasn’t that bad a month for hedge funds after all, says a new prime brokerage report from Morgan Stanley.

Shrugging off mid-month drawdowns, hedge funds generally appeared to end the month in positive territory, with median returns up 0.08 per cent. Year to date most funds are trailing the stock market, up just 1.79 per cent year to date, based on Morgan Stanley data. Most funds were able to hold on to their long positions and benefited from a rebound.

Information technology was the best performing sector for the month basis the spread between long and short appreciation. The sharp October rebound was most apparent in long / short hedge funds. Long positions in stocks fell by 6.7 per cent mid month, but then recovered and then some, ending up 8 percentage points.
 
Heavily shorted stocks, on the other hand, fell by 4.8 per cent mid months, less than the long positions, and then finished the month up 1.3 per cent. Long/short equity funds ended the month positive by 0.29 per cent, up 1.71 per cent on the year.

Overall equity long/short relative value funds continued to lead the short selling among all hedge funds. North America was responsible for most of the selling last month, while Japan net sold on a relative large basis in the first half of October, the report noted.  Prior to the BoJ stimulus announcement on 31 October, net exposure to Japan was at 20-month lows.
 
Leverage used by hedge funds experienced significant volatility, with fund managers dialing up and down risk during the month at a feverish pace. Overall to end the month, US gross and net leverage declined while European leverage remained generally consistent while Asia was a mixed picture, with gross leverage dropping while net leverage was actually increased. Leverage used by Asian and European managers fell to some of the lowest levels mid month, but ended the month near where they began.
 
Last month, Asia-focused macro hedge fund managers outperformed their more experienced counterparts in the U.S., including veterans Paul Tudor Jones and Ray Dalio, whose saw their funds suffered their worst performance since last year.
 
According to a Bloomberg report, funds managed by Quantedge Capital Pte, Dymon Asia Capital (Singapore) Pte and City Financial Investment Company (Hong Kong) Ltd., gained over 2 per cent in October compared to Dalio’s Bridgewater Associates LP, Fortress Investment Group LLC and Jones’s Tudor Investment Corp. lost money as stock and credit markets swung.
 
A separate report by BusinessWeek added that the USD3.4bn Dymon Asia Macro Fund gained about 13 times the average return of hedge funds focused on trends in the currency, stock, bond and commodity markets last month, when some of its largest rivals lost money. The hedge fund returned 6 per cent in October, extending gains in the first 10 months to 17 per cent.
 
Anthony Lawler, a London-based money manager for GAM Holding AG, was quoted as saying, "The flash rally on October 15 and broadly the increased volatility over the month in US Treasuries hurt many macro managers focused on rate trading. Some managers, including a few in Asia, managed the month better as their allocations were more focused on currencies and on equity indexes."
 
Indian hedge funds lead gains as Japan funds show slow increase, HFR research shows.
 
Total capital invested in Asian hedge funds rose to a record high in the third quarter even as capital growth slowed due to macroeconomic uncertainty in the region, according to industry analysis firm Hedge Fund Research (HFR).

Capital invested in Asian hedge funds rose less than 1 per cent, or by about USD1 bn in the quarter, but still set a record high – the fourth straight quarterly record – of USD117.4 bn, HFR says in a press release. Asian hedge fund capital rose by USD5.1 bn in the first three quarters of the year.

Performance in the region was led by record gains among Indian hedge funds, with the HFRI Emerging Markets: India Index climbing 46 per cent in the year through to the end of October, HFR says. The increase beats the previous record gain of 45.6 per cent set in the first 10 months of 2009.

The HFRI Emerging Markets: China Index gained 2.9 per cent in the first 10 months of the year while the HFRI Emerging Markets: Asia ex-Japan Index climbed 7.5 per cent. The HFRI Japan Index gained only 1 per cent in the first 10 months of the year, capped by a decline of 1.2 per cent in October as the yen weakened to a seven-year low against the dollar and the Bank of Japan sharply stepped up its quantitative easing program.

‘Asian hedge fund industry growth slowed in the most recent quarter, as regional equity market performance improved despite the combination of increased economic uncertainty created by Japanese stimulus measures, the sharp fall in the value of the Japanese yen and mixed signs of moderating growth of the Chinese economy,’ says Kenneth Heinz, president of HFR, in a press release. ‘The risk profile in Asian economies is fundamentally higher at present.’

HFR also says the percentage of Asian hedge funds based in China, Australia and India increased in the first three quarters of this year compared with the same period last year. At the same time, the percentage of funds based in Japan, Singapore and other locations declined.

Like this article? Sign up to our free newsletter

Most Popular

Further Reading

Featured