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Unpredictable Gas Prices

Investors in London are more pessimistic about U.S. natural gas prices than they’ve been since the early days of the COVID-19 pandemic. Although prices are at the lowest they’ve been since natural gas futures began trading in 1990, the experts have been betting that prices will drop even further. Recently, hedge funds and other financial players sold off a huge amount of natural gas in anticipation of falling prices.

Despite these low prices, stakeholders have failed to predict when prices would start to rebound. Prices continue to fall, partly due to mild weather from El Niño reducing the need for heating gas. With gas supplies remaining high in North America and Europe, investors face the risk of losing money unless there’s a clear sign supplies are dwindling.

Despite this bad news, shareholders are feeling more optimistic about oil. In one week, they bought a significant amount of oil futures, reversing their previous sales. This buying spree happened across various oil markets, suggesting a growing confidence in the oil sector.

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The Growth of Cat Bonds

In 2023, hedge funds experienced never-before-seen profits in the volatile debt market, particularly through catastrophe bonds (cat bonds). Cat bonds outperformed other high-risk fixed-income securities by delivering a 20% return, which is significantly greater than the 13% of high-yield US corporate bonds and the 4% of US Treasuries. This success has not attracted hedge funds as well as mainstream investors. Some institutions are now considering small allocations to diversify their portfolios.

Cat bonds were designed to protect the insurance industry from large-scale losses by transferring the risk to investors. Their recent resurgence can be attributed to an increase in weather-related events and the impact of inflation which makes it expensive to rebuild after a natural disaster.

Significant returns and the diversification benefits of cat bonds have drawn attention from mainstream institutional investors and wealth-management platforms, leading to an expansion in the cat bond market. The market reached about $100 billion by the end of the third quarter of 2023.

Investment in cat bonds, however, remains a niche market, with high risks and potential for losses when disasters trigger payment clauses. Yet, the current market trajectory and the possibility of continued returns suggest a growing interest in this strategy.

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Gambino to Depart Eisler Capital

Sean Gambino is set to depart from Eisler Capital less than two years after joining the $4 billion multi-strategy firm. Gambino, who joined Eisler in mid-2022, is transitioning to establish his own management venture. His move contrasts with the trend of investors shuttering smaller firms to unite with larger multi-strategy funds, enticed by significant payouts and diminished compliance and technology challenges.

Previously overseeing Heron Bay Capital in Stamford, Connecticut, for seven years, Gambino brings experience from roles at Schonfeld, BGC, and Schottenfeld. While details about his new fund remain limited, it is confirmed that Eisler will provide support to the nascent venture.

Despite losing a portfolio manager in the early months of 2024, Eisler’s team has substantially expanded, boasting 60 portfolio teams—an increase of 50% since the beginning of 2023. Operating from 10 offices across Europe and the U.S., Eisler achieved a 9.8% return in 2023.

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GCW Global Customised Wealth LLP and Collwick Capital Form Strategic Alliance

GCW Global Customised Wealth LLP (“GCW”) and Collwick Capital, LLC (“Collwick”) have officially solidified a strategic relationship, marking a significant move in fostering closer collaboration between the two financial entities.

The agreement entails GCW’s involvement in Collwick’s hedge fund investment program, allowing access to GCW’s proprietary analytical tools that specialize in risk assessment and ongoing investment performance evaluation.

Beyond this collaboration, both firms aim to synchronize efforts on various investment initiatives and projects beneficial to their interests. Notably, the partnership will see John Wickham, co-founder of Collwick, joining GCW’s Investment Committee.

Operating across London, California, and New York, GCW provides comprehensive wealth management services globally. Collwick, headquartered in Charlotte, North Carolina, specializes in hedge fund investment programs catering to qualified individuals and institutions.

David Bizer, Managing Partner and co-founder at GCW, expressed optimism about the collaboration’s potential, emphasizing the benefits it could bring to clients by leveraging Collwick’s expertise in hedge fund research. Meanwhile, John Wickham highlighted the opportunity for Collwick to gain insights from GCW’s proprietary performance software.

Siggi Thorkelsson, Managing Partner and co-founder at GCW, emphasized the collaborative potential for evaluating global investment opportunities resulting from the alliance with Collwick.

The alliance between GCW and Collwick signifies a strategic partnership aimed at maximizing investment potential and exploring avenues for mutual growth within the global financial landscape.

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Hedge Fund Executive Explores the Deep Sea

Anthony Clake, a 43-year-old executive at Marshall Wace in London, has been identified as a significant player in the world of deep-sea exploration for sunken treasures. According to a Bloomberg Businessweek investigation, Clake does not dive into the ocean depths, but he has invested in and overseen sophisticated operations that use cutting-edge technology to locate lost riches resting on the ocean floor.

As an executive at Marshall Wace, a major hedge fund managing around $62 billion in assets, Clake has been instrumental in funding treasure-hunting endeavors. He funds the use of advanced equipment, such as marine robots capable of descending to depths up to 6,000 meters, and a high-tech sonar system used for generating detailed 3D maps of the seabed. Clake’s successful ventures include the discovery of the SS Coloradan, an American steamer carrying gold precipitate sunk by a German U-boat near South Africa, and a sunken ship off the coast of West Africa containing 50 tons of silver coins. Such findings often lead to secrecy, and the melting down and selling of the recovered coins, accompanied by non-disclosure agreements for all involved.

Clake’s earnings from these ventures remain undisclosed. He said, “I don’t do it for a living, I find it interesting to use technology to solve problems under the sea.”

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Steve Cohen Shares Optimism at Investors Conference

At the Robin Hood Investors Conference, Steve Cohen, founder of Point72 Asset Management and owner of the New York Mets, expressed optimism that the U.S. economy will experience robust growth in 2024.  Although the market suffered a brief and relatively mild “fake scare” recession this year, Cohen believes the economy will rebound swiftly, leading the Federal Reserve to raise interest rates more than expected, thereby fueling a 3% to 5% stock market rally.

Cohen also discussed the potential of artificial intelligence in his firm, expressing confidence in harnessing it for value creation.

Notably, some of his hedge-fund peers have voiced concerns about the U.S. economy. Some fear an economic slowdown beyond what data indicates, and others predict a double-digit stock selloff preceding a recession.

Data from the Commerce Department indicated a 4.9% third-quarter GDP growth, surpassing economist expectations. However, other indicators, corporate earnings reports, and the Fed’s Beige Book of anecdotal business owner attestations have raised concerns about the economic outlook. Cohen’s optimism at the conference provides a contrasting perspective in the world of finance.

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Dubai is a Hub for Hedge Funds

A rising number of prominent hedge funds are establishing their presence in Dubai. Drawn by the allure of low taxes and the wealthy investors in the region, several firms have opened offices in the city within the past year.

In the aftermath of the Covid pandemic, Dubai has positioned itself as a regional hub for the hedge fund industry. As of July 2023, 40 funds were registered in the emirate, and over a third of those have arrived in the past year. While London and New York remain the primary hubs of the global hedge fund industry, Dubai is increasingly seen as an attractive alternative, especially for those seeking higher earnings and a more appealing lifestyle.

The absence of personal income tax in the United Arab Emirates makes Dubai an attractive location for hedge fund talent. Portfolio managers have been offered substantial signing bonuses to come to this region.

The growth of the hedge fund industry in Dubai has reached a critical mass, making it feasible to hire talent from within the region rather than seeking it from abroad. Additionally, Dubai’s geographical location, in proximity to European and Asian markets, is advantageous for efficiently managing investments.

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The Impact of AI on the Finance World

Generative AI is gaining attention in finance for its potential to automate routine tasks such as market research analysis and code writing. Early findings report that the use of artificial intelligence enhances productivity, particularly in coding and data analysis.

Many hedge funds are experimenting with ChatGPT, using it to assist with research and and investor relations. And while ChatGPT shows promise in classifying statements and simplifying complex disclosures, it has been known to make mistakes.

The impact on the finance workforce is uncertain, with potential for creative employees to leverage generative AI as “digital researchers.” Ultimately, the hope is to automate innovation processes, saving time and increasing earnings. Kevin Cole, CEO at Campbell & Co., has noted that AI tools “are very strong for code completion, editing, finding errors and fixing bugs… Our model would keep humans in the loop — an assistant to the human helping to make their job more efficient.” 

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Hedge Funds Impact Crude Oil Prices

Over the summer of 2023, hedge fund buying helped to lift crude oil prices. Now that summer is ending, money managers have sold the equivalent of roughly 30 million barrels in petroleum futures.

The oil market has been impacted by production cuts in Russia and Saudi Arabia. Meanwhile, the intense heatwave across the United States caused above average gas consumption as people used their air conditioners to try to keep cool.   

Current predictions anticipate that oil prices will fall as sanctions on oil exports from Iran and Venezuela relax. El Nino could bring a mild winter to the United States, which would limit the gas used for heating homes. According to Reuters, “If temperatures are above the long-term seasonal average, prices will have to remain lower for longer to enforce a corresponding reduction in drilling and production to keep inventories within storage limits.”

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How AI Can Be Used to Pick Stocks

Across the world, AI is quickly changing the way people and businesses operate. Now the hedge fund world is finding out if AI can be used to select stocks that will perform well.

Alpesh Patel, CEO of Praefinium, has been using Chat GPT to refine his method for stock selection. Patel conducted several experiments to test whether artificial intelligence could be beneficial in the hedge fund industry. And while he discovered that AI can’t predict which stocks will do well in the future, as reported by Business Insider, Patel did find that AI could “confirm your homework, and tell you something you might otherwise have missed based on the data you imputed…  (and) that getting the prompt right was one of the most critical steps.” 

While basic questions to Chat GBT elicited simple answers, further refining the questions helped the AI to generate more insightful answers. Unfortunately, AI is not the crystal ball we have all been waiting for, but Patel maintains that, “If you are willing to get the data, ask the questions and put it into something like this: you’ve got the stock picks, you’ve got the answers. You can basically replace a fund manager if you want”.

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Hedge Fund Thinking Applied to Coral Reefs

Professionals who work in the world of finance understand that investing in a variety of assets can protect against loss due to market fluctuation, increasing the likelihood of favorable outcomes. Scientists who study coral reefs are now applying this kind of hedge fund thinking to determine how best to help coral reefs survive climate change.  

The Great Barrier Reef of Australia has been heavily damaged by rising ocean temperatures. If climate change continues, much of the coral will die out. Scientists are now in a race to save as much of the reef as possible. However, with more than 600 species of coral in the Great Barrier Reef, researchers with limited funding are unable to save them all. They must now figure out which types of coral are best suited to survive in the warming ocean and put all their efforts into protecting them. Coral geneticist Madeline van Oppen explained, “If a program only has funds to focus on 20 or 30 coral species, it will want to focus on the sets of species to get the most ecosystem bang for its buck”.

The researchers developed a two-pronged approach that determined which corals were most likely to survive, while also collecting and cataloging a variety of corals that are necessary to the overall functioning of the reef ecosystem. By comparing these lists, they narrowed the 600 species of coral down to 11 corals that are most likely to both endure and to provide ecological benefit in the future. By diversifying their approach and hedging their bets, these scientists have refined their approach to saving the reef.

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Hedge Fund Founder Looks to Buy MLB Team

Gullane Capital Partners founder, Trip Miller, would like to be the next owner of the Tampa Bay Rays. Miller is gathering a group of investors in an attempt to purchase the team for $1.85 billion. He is hoping to invest $200 million, with additional investments coming from Tampa businessman Dan Doyle. Current principal owner of the Rays is Stuart Sternberg, who purchased the team for $200 million back in 2004.

According to Forbes, the Tampa baseball team is valued at $1.25 billion, which places it as 25th out of the 30 MLB teams. Their poor standing is largely due to their homefield, Tropicana Field, which is widely considered to have poor stadium economics. In 2022 the Rays earned less than $9 million from premium seating, and they averaged only 14,000 in home attendance, beating out only 2 other teams in the MLB.

Despite their poor attendance record, the Rays are known for their effective scouting and player development, which accounts for their 50-22 record despite having the fourth lowest payroll in major league baseball. If Miller successfully purchases the team, he will be tasked with building a new stadium in the near future, while continuing the team’s tradition of outperforming its payroll.

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Quant Funds Prove Valuable to the Economy

Over the past year, quant funds, which use mathematical and statistical data to make investment decisions, have been buying stocks faster than ever before. Experts have determined that hedge funds that are driven by algorithms are more accurate than human analysts at detecting trends.

This increase in algorithm driven purchasing has helped the US stock market to rally despite pessimistic prognostications. Charlie McElligott, equity derivatives strategist at Nomura, explains, “These funds move fast and unemotionally. They’re not parsing through earnings or taking a view on the stickiness of inflation . . . this is about price trends and momentum.”

Representatives of Deutsche Bank have noticed that stock market exposure among active managers is at a low, but overall equities across systematic funds is on the rise, partially due to the rise in quant funds.  In spite of their positive influence on the market, quant funds still make up less than 10% of the hedge fund industry. Even so, they seem to have an oversized impact on the overall market. Deutsche Bank strategist Parag Thatte said, “We do see their trading has a big impact on equities, they don’t tend to lead the market . . . [but] they tend to amplify moves that are already happening.”

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Increased Regulation of Nonbank Financial Institutions on the Horizon

The federal government is attempting to increase its oversight of nonbank financial institutions. Nonbanks are companies that do not have a full banking license or are not supervised by a banking regulatory agency.

President Donald Trump made it more difficult for the government to regulate nonbanks, however Treasury Secretary Janet Yellen believes that the Trump administration’s rules increased the potential for hazardous risk within the financial system.

Under President Biden, a group of federal regulators are now suggesting that nonbanks be designated as systematically important. This designation would make it possible for the Federal Reserve to supervise them more intensely.  The Financial Stability Oversight Council approved the proposal, which will now be open to public comment for the next 60 days.

According to Treasury Secretary Yellen, nonbanks such as cryptocurrency companies, hedge funds, and money market funds have the potential to endanger the economic stability of the country if they are not properly monitored.  This was demonstrated by the March 2023 collapse of Silicon Valley and Signature Bank. Yellen explained to the Wall Street Journal, “The authority for emergency interventions is critical. But equally as important is a supervisory and regulatory regime that can help prevent financial disruptions from starting and spreading in the first place”.

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Investors are Optimistic About Crypto

London based Nickel Digital Asset Management recently commissioned a study of 200 institutional investors and wealth managers from multiple countries. 66% of respondents stated that in the next six months, they are planning to either begin investing or increase their investments in crypto and digital assets. This include 12% who say that they plan to ‘dramatically increase’ their digital investments.

The fact that investors are feeling confident about crypto investments cannot be taken for granted. Over half of those surveyed said their firms had reduced or sold their crypto holdings in the last half a year due to a long decline in valuations and market uncertainty.

According to hedgeweek.com, investors are even more optimistic when taking a longer term view of the sector. Only 17% of those surveyed said that crypto and digital assets was not an attractive sector for investors over the next five years, while 39% said it was very attractive, and 46% said it was quite attractive. Improved regulation and valuation recovery are the leading reasons behind this newfound confidence in digital investments, as 64% of respondents said that they expect significant improvements in the regulation of this sector, and 63% predict a bounce in pricing. 

AI will not cause Hedge Funds to Cut Employees

As AI takes the world by storm, many in the financial industry are concerned for their jobs.

A survey of employees in the banking and insurance world revealed that nearly 75% believe that AI is a threat to their jobs. 33% anticipate AI related layoffs of 30% in the next three years. 

Gary Collier, Chief Technology Officer of Man Group, issued a reassuring message to the Financial Times, “At least in the next five-10 years I don’t expect big technology job cuts due to the AI boom… People should not be scared of AI. If anything, we are planning to expand our team and are looking for software developers and engineers in particular to build our next generation of technology products,”.

Rather than cutting jobs due to the increased capabilities of AI, Collier maintains that the finance industry will continue to hire innovative individuals who can use AI to discover the next big things.

Collier explained, “The number of ideas that the firms have and their desire to build products based on AI technology are greater than the available pool of talent…the new AI talent is adding value to the firms and helping them build innovative products.”