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There are still a couple of weeks left to go, and markets can always turn on a dime, but the hedge fund industry appears to be closing out a turbulent 12 months on something of a high.

New performance data shows strategies of all stripes successfully seized on November’s stock market movements, with equity, event driven and cryptocurrency-focused funds posting particularly eye-catching gains, with many managers clawing back earlier losses to put them on a more comfortable footing as the year draws to a close.

As Bitcoin, the world’s foremost cryptocurrency, roars to record highs, and infrastructure and liquidity in digital currencies continues to improve, 2020 appears to be the year that this once-niche asset class fully arrived in the mainstream.

Crypto-focused hedge funds are hardly new, of course. Many allocators (and likely more than a few managers too) are probably content to eschew this at-times tricky and complex arena of investing and sit on the sidelines.

But the continued rise in the sheer number of vehicles dedicated to this booming sector, coupled with the striking advances made this year by the various hedge fund firms that trade this market, will surely further fuel allocator interest in 2021 – as will more high-profile forays from industry leaders into the burgeoning ESG sector.

More broadly, meanwhile, industry advocates are already forecasting a hedge fund “renaissance” among the investor contingent over the coming months, with talk of a “major rethink on portfolio allocation” among those who have baulked at the patchy performances of recent years. It’s not hard to see why.

Sure, this business has dealt with its fair share of closures and setbacks in what has generally been a miserable year for most. Certain macro and CTA names continue to frustrate. Asset flows are still going in the wrong direction.

But whether they were protecting investors’ portfolios with successful hedges during the pandemic panic (as other assets went into free fall); being proved correct on the scandal-hit German e-payments firm Wirecard; or correctly calling November’s stock market flip following the vaccine breakthrough, hedge funds ably demonstrated their bouncebackability in 2020 and underlined their worth in clients’ portfolios.

And so, as we head into next year, with a new US administration, hopes of a post-coronavirus recovery, and the Brexit conclusion comprising a shifting investment backdrop, the recent pick-up in momentum among hedge funds suggests this industry still has something to offer those who are willing to take a look.

Hugh Leask
Editor, Hedgeweek

 

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