- Global macro funds pivot from bullish to bearish on US equities
- Long-short managers de-risk portfolio as CTAs up short bets
- Investors keep the hedge fund faith as industry assets top $4tn
By Mark Kitchen
Head of Intelligence, Hedgeweek
Having spent much of the previous month adjusting to the US Federal Reserve’s apparent change to a ‘higher for longer’, approach to interest rates, and the subsequent spike in market volatility, hedge fund managers were faced with another switch in October as US equities went on a slide, with both the S&P and Nasdaq entering correction territory, falling more than 10% from their July highs.
By month end, data from Barclays’ US equity strategies team confirmed that global macro funds had pivoted from the bullish equity bets that had been part of their strategies for most of the year to bearish positions, while commodity trend advisers (CTAs) upped their short positions.
Data from hedge fund research firm PivotalPath meanwhile, revealed a bout of portfolio de-risking by US equity long-short hedge fund portfolio managers, with a big decrease in directional bets, which saw the level at which swings in the S&P 500 affect their bottom line fall to the lowest seen in six years.
The results of a new survey by BNP Paribas mid-month meanwhile, revealed something a disconnect between hedge fund investor performance expectations in the new higher for longer climate, and the thinking of hedge fund managers. With the so called ‘risk-free rate’ considerably higher than it was earlier in the year, investors are expecting hedge funds to generate higher returns, with average annual gains expected to reach 9.75% with 19 months, according to the survey. Managers though, are more conservative in their outlook, expecting it to take up to 29 months to reach that level of return.
Investors seemingly continue to have faith in hedge funds to generate returns though, with data from HFR revealing that total hedge fund industry capital surpassed the $4tn milestone to begin the fourth quarter, with Q3 Inflows concentrated in both mid-sized and the industry’s largest firms. Firms managing between $1bn and $5bn capital received an estimated $2.9bn in net investor inflows, while those managing greater than $5bn experienced an estimated net asset inflow of $2.2bn.
Away from the US, and ongoing concerns about the challenges facing China’s economy, including recent turmoil in the country’s property sector, which rattled global markets, prompted many US-based hedge fund investors to cut their exposure to Chinese stocks, according to data from Goldman Sachs. And with the stocks of company’s in the world’s second largest economy proving a turn-off for managers, some turned to Latin American countries, including Argentina, Ecuador and Mexico, in the search for equity market value.
The inevitable demise of Odey Asset Management – in the wake of allegations of sexual assault levelled at the firm’s founder Crispin Odey – which he denies – continued throughout October, with reports early in the month confirming the closure of Odey Wealth Management, the firm’s UK and Guernsey-based wealth management subsidiary.
Later in the month, the closure of another Odey subsidiary, Brook Asset Management, was confirmed with creditors committing to dissolve the business within two months unless any objections were made. And then finally, at the end of the month, a statement on the Odey AM website confirmed the closure of the firm itself as well as the new ‘homes’ of several former OPdey AM managers including James Hanbury and Jamie Grimston (Lancaster Investment Management), Oliver Kelton (SW Mitchell Capital), Freddie Neave (Bainbridge Partners), and Geoffrey Marson (Canaccord Genuity).
