Harvesting alpha: Brummer Multi-Strategy CEO Mikael Spångberg strikes optimistic tone after hedge fund soars

Hedge fund managers have experienced “significant” performance dispersion over the past 12 months, with the biggest funds seeing the largest gaps between gains and losses, new industry data shows, once again underlining the importance of investor due diligence in separating winners from losers.

As more hedge fund firms pile into the digital asset and cryptocurrency space, analysts at the London-listed hedge fund giant Man Group say bitcoin’s recent volatility could be seen as “price discovery” in a new asset class, which will ultimately give way to greater stability in the currency, and more credibility among investors.

Hedge funds weathered the political, social and economic shocks brought about by the global pandemic and frequent bursts of soaring volatility to score a near-12 per cent return last year – their best since 2009 – outperforming both the Dow Jones Industrial Average and FTSE 100, new data from Hedge Fund Research shows.

Founded in 2005, EJF Capital focuses on investment opportunities in financial services, targeting all levels of the capital structure on both a long-only and long/short basis. Specifically, the firm’s strategy seeks out ideas stemming from regulatory and structural changes impacting the banking sector, insurance companies and specialty finance.

All eyes will be on the European Commission’s legal proposal pertaining to the AIFM Directive, which is expected to be published sometime in the first half of 2021, and could usher in an updated version – AIFMD II – a decade after it was first adopted.

With bitcoin hitting the headlines in recent weeks, reaching an all-time high of USD19,915 on 1 December, investors have been keen to pile in. Even the likes of Bridgewater’s Ray Dalio and Paul Tudor Jones are coming around to the fact that there could be something happening with bitcoin, having made a Lazarus-like recovery since its price tanked close to USD3,000 in December 2018.

Hedge fund returns for 2021 are forecast to be lower due to lower public market performance, but despite this improved operating conditions should be supportive for most hedge fund strategies to generate alpha.

When bitcoin hit an all-time high of some USD20,000 earlier this month, it rounded off a remarkable year for the world’s leading cryptocurrency – and fully underlined the arrival of the once-niche asset class on a rapidly-growing number of hedge fund firms’ radars.

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This year’s Covid-19 stock market upheaval has revealed an “Achilles’ heel” in quantitative hedge fund models that use traditional factors such as momentum and value, as machine-based strategies have struggled against “unique new drivers of stock returns that don’t fit the academic models”, says Man FRM.