How Covid-19 sank quant macro hedge fund pioneer IPM
Long-running systematic macro hedge fund IPM says the Covid-19 pandemic “aggravated” an already challenging situation for the firm, leading to its decision to shut down the business.
Stockholm-based systematic pioneer Informed Portfolio Management announced last week it was ending all investment activities. It said the recent investment environment has proved challenging for systematic macro as a strategy and IPM as a manager, which has suffered “lacklustre performance and significant outflows”.
“The investment environment has been difficult in recent years for strategies focusing on economic fundamentals, with the Covid-19 pandemic aggravating the situation,” IPM chairman Lars Ericsson said in a statement.
Founded in 1998 by Anders Lindell and Jonas Rinné, who had previously been at Swedish fixed income trading house JP Bank, the firm built considerable momentum in its early years, gaining more than 31 per cent in 2008 during the Global Financial Crisis using computer models to trade government bonds, currencies and equities futures.
But the systematic hedge fund’s assets steadily eroded in recent times, from a high of some USD9 billion just a few years back to roughly USD1 billion in 2020.
Investment strategies which employ computer-based algorithms have struggled to get to grips with the coronavirus pandemic’s disruptive impact on financial markets over the past year. Market data and trend patterns which help inform AI models’ portfolio positioning have been sent sideways by ongoing economic uncertainty and stop-start lockdowns.
Systematic macro strategies on average gained 2.64 per cent in 2020, well behind the overall macro hedge fund sector which was up 5.22 per cent, as well as the broader hedge fund industry, which surged almost 12 per cent last year, according to Hedge Fund Research data.
Ericsson said: “Through these headwinds, we have continued to develop the strategy and added a number of new asset classes, approaches and models. But the challenging combination of the strategy being out of favour, weak performance and substantial investment outflows has led us to recommend that the firm ceases all investment activities.”
IPM’s board of directors will now move to unwind its commingled funds and mandates and return investor capital, with shareholders set to vote on this recommendation in its upcoming EGM scheduled in the coming weeks, the statement added.