Opportunity within the storm

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By A Paris — After the shock of the second quarter of 2020, hedge fund managers went on to perform well over the course of the year. The intense volatility which followed the initial fear sparked by the beginning of the Covid-19 pandemic was rife with opportunity. It allowed managers to prove their value-add and remind their investors why they chose them in the first place.

The winners of this year’s awards excelled in their respective fields, outshining the competition and proving their strategies can survive one of the most turbulent episodes in modern history.

“Hedge funds performed well in a 12-month period of soaring volatility. Returns across the asset class were of 16.63 percent for the year, with the best-performing strategy – equities – delivering 19.64 percent. Credit strategies provided the lowest returns, at 5.24 percent,” the 2021 Preqin Global Hedge Fund Report finds.

However, all was not plain sailing in Europe. Statistics from EurekaHedge show assets under management in the European hedge fund industry stood at USD441.2 billion as at October 2020. This was down USD29.0 billion from the end of 2019. According to the index and data provider this could be, “attributed to both investor redemptions and performance-based decline as a result of the risk-off sentiment caused by the global Covid-19 pandemic.”

The winner of this year’s Best Multi-Manager Hedge Fund – Equity Hedge, Notz Stucki was one of the strong performers. Cedric Dingens, Head of Investment Solutions & Alternative Investments at Notz Stucki Group notes: “In this unprecedented year, with markets on a roller coaster ride and massive sector rotation, it is easy to see why quantitative managers and index funds struggled to stay on track. In contrast, Notz Stucki’s alternative strategies fulfilled their protective function, while also generating above-average returns. Our decisions of allocation underlay this success.”

Niche strategies focused on sectors which performed well throughout the pandemic were also successful. These included the Rhenman Healthcare Equity L/S, winner of Best Global Equity Hedge Fund. Carl Grevelius, Founding Partner and Head of Investor Relations outlines the drivers of the fund’s success: “Our success is largely due to the many years of close collaboration between our fund managers and the medical experts in our Scientific Advisory Board. Equally important is our investment team’s sole focus on the healthcare sector which includes pharmaceuticals, biotechnology, medical technology, and services. This sector focus clearly give us a significant advantage compared to those investors who monitor and invest in a number of sectors.”

Another of this year’s winners, Enko Capital, is also a very focused manager. Winning the Best Credit Hedge Fund, the Enko Africa Debt Fund provides investors with exposure to high yielding fixed income available in the African debt Market. The investment rationale driving the strategy centres on the notion that economic growth in Africa will expand as macro policies include, leading to declining inflation and tighter credit spreads.

Throughout 2020, the investment team sought new ways to navigate the ever-changing market conditions and took advantage of the opportunities resulting from those changes. This led to the fund producing its best annual return since inception.

Looking ahead, this year’s winners believe investment opportunity for nimble players will be significant. Gilles Guerin, CEO of BNP Paribas Capital Partners, the winner of Best Multi-Manager Fund – Multi-Strategy (<USD500 million), comments: “We believe it should be a year where dispersion of performance will be high. Focusing on emerging and mid-size managers, looking toward Asia, remaining diversified across strategies albeit relatively concentrated in number of investments, we trust we will deliver strong performance in 2021 for our clients.”

Having a targeted approach will be critical to taking advantage of the opportunity available. Staffan Östlin, CIO at Adrigo Asset Management, says he would not be surprised to see equity markets moving more sideways, although with significant short-term shifts in sentiment and volatility.

“Stock-picking will become increasingly important to generate alpha which suits our strategy very well,” notes Östlin. Adrigo won the title of Best Emerging Manager Fund – Equity Strategies.

The global hedge fund industry has had a good start to the year. According to performance data from eVestment, 80 percent of funds reported positive returns in February. The average positive performance among this group of funds was +4.51 percent.

However, managers still have a few potential struggles ahead. eVestment Global Head of Research, Peter Laurelli, highlights: “While February was a generally positive month, and the industry is generally off to a good start to 2021, we are still seeing remnants of the difficulties among some larger funds we saw in 2020.”