Category: In the News

High Cost Multi-Manager Hedge Funds Offer Large Returns

A Barclays note to clients recently explained that the fees for multi-manager hedge funds can be approximately three times the size of their peers, due to the fact that these funds dependably yield high returns.

The note indicated that while in the last five years the larger market has averaged a return of 5.5%, multi-manager hedge funds have averaged a return of 8.3%. Investors are, therefore, asked to pay a higher fee because they are very likely to receive a higher return. There are no fixed fees, rather the fees can rise and fall depending on the work of the traders. 

Generally, hedge funds have a fixed cost fee of 2%, with the fund owners taking 20% of the after cost profits. In multi-manager funds, the traders working at the fund receive bonuses, which are included in the hedge fund’s cost. This contributes to the higher cost, bringing multi-manager funds closer to a 7-and-20 charge instead of the usual 2-and-20.

According to Reuters, Barclays identified 42 multi-manager hedge funds managing a total of $290 billion in assets, including some of the world’s largest hedge funds.

Investors must pay performance related expenses even if the fund is not successful. They continue to pursue these funds, however, because of the consistently high returns which defray the increased costs.

 

Hedge Funds to Watch in 2022

As the year draws to a close, it is an opportunity to look at the investments being made by strategic money managers and what they are expecting to see from their capital moves. Tracking the recent quarterly activity of hedge funds that have taken large positions in particular companies or those that have expanded long-standing positions, allows us to highlight the bullish signals indicating a company’s prospects for yielding significant returns.

U.S. News and World Report published their list of 2022’s top hedge funds. The list included the “usual suspects”: Scion Capital Management LLC (Michael Burry of The Big Short fame), Citadel LLC (Ken Griffin), Bridgewater Associates LLC (Ray Dalio), Renaissance Technologies LLC (Jim Simons), and Elliott Investment Management LP (Paul Singer).

Modeling billionaire investors makes a lot of sense; they have proven results and loads of experience. But there is also a backlog. The data is often retrospective in nature. A hedge fund only files the 13F typically six weeks after the quarter has concluded, which leaves a big window for managers to offload.

Hedge Funds Now Playing in the Major Leagues

Sports teams and sporting franchises were once owned by families. Nowadays, even with the economic instability around the world, hedge funds and investment consortiums are buying up the big players.

In May 2022, Todd Boehly put together a conglomerate deal of $5.3billion to buy the Chelsea football club. Roman Abramovich, the club’s previous owner, put the team up for sale earlier this year. Clearlake Capital, a California-based investment firm, is the majority shareholder and Boehly is acting as the controlling owner.

Of particular interest is the fact that Boehly, who already co-owns the Los Angeles Dodgers, outbid 11 other investment groups—a clear sign that hedge funds and money managers see the Premier Leagues, and sporting names in general, as promising opportunities.

“[We] are seeing more money coming into sport from institutional investors,” said David Gandler, the co-founder and director-general of fuboTV, the American TV streaming provider.

Crypto as a Driving Force in Hedge Fund Growth

The FX market has been unpredictable for quite some time, but now it seems that hedge funds with a quantitative concentration—those known for making lightning-speed trades on grand scales—are looking at crypto for their next big investment move. Crypto’s value differs significantly across markets yielding a plethora of opportunities for hedge fund managers with strong computer skills and strategies to reap large returns swiftly; the extreme price variability offers quick profit.

Overall, crypto assets have expanded by close to 200% in the last year, going from less than $800 billion to $2.3 trillion. This growth can be attributed to the overall dearth of oversight in this area, leaving it wide open for market-making opportunities. The latest report from PwC indicated that quantitative trading strategies are used the most often in crypto exchanges. These approaches use a simultaneous buy and sell strategy to profit from price differences between coins; they are perfect for markets that are low compliance and highly fluid.

But only the swiftest and most agile hedge funds—those that manage to refine their trading practices in real-time—will manage to survive and thrive in this constantly changing market. They will need a comprehensive solution for their extant trading requisites that they can then use alongside mainstream market data. Managers will need to not only be connected to the regulated crypto exchanges but also bypass major counterparty-to-counterparty platforms.

Gold is Again on Trend for Hedge Funds

Commodity analysts from Societe Generale report that money managers bought $7.1 billion in gold in February. This is the fourth-biggest week of bullish buying since 2006, when CFTC started its updated reporting. Most explanations for this rise point to recent geopolitical instability. While gold is an imperfect hedge for funds, it is an appealing asset against inflation and other stock market risks.

2 New Leaders at Bridgewater

Bridgewater, the largest hedge fund in the world, has appointed two new CEOs.  Nir Bar Dea, who is being promoted from his current role as deputy chief executive of Bridgewater, and Mark Bertolini, a member of the board of Bridgewater.

Bar Dea, 40, has been with Bridgewater since 2015; he has been deputy CEO since February 2021. Bar Dea once served as a major in Israeli Defense Forces and has been the primary strategist for Bridgewater’s pandemic policies and planning. Bertolini, 65, has been on the board of Bridgewater since 2019. From 2010 through 2018, he was CEO of Aetna, the American insurance company.

The pair will lead Bridgewater instead of David McCormick who recently announced his intention to run for U.S. Senate.

Bridgewater has some 1,500 people on staff and manages pensions, sovereign wealth funds, and other big investors in the amount of nearly $150 billion.

Female Founded Hedge Funds is (finally) on Trend

According to the Kresge Foundation, female leadership in hedge funds represents less than 10% of the overall industry. But nine new funds are indicative of a long-awaited change in the hedge fund industry: they are being led by women.

These women have spent their initial years in the industry earning money and fostering connections that they are now using to start their own offices. This also coincides with the investor climate that promotes diversity as a means of boosting performance.

Many of these firms have exceeded $1 billion in assets including Angela Aldrich’s Bayberry Capital Partners and Lauren Taylor Wolfe’s Impactive Capital LP. This puts them on the coveted and exclusive list of nearly 500 funds at that level.

“More investors are recognizing that day-to-day investing is about decision-making, and the science is very clear that more diverse teams make better decisions. Why would we think that every good investment idea needs to come from a White male?”

–Rob Manilla, vice president and chief investment officer at the Kresge Foundation.

Neil Barsky Steps Away from Marshall Project

Former hedge fund manager Neil Barsky is leaving his role as the Chairman and founder of the Marshall Project.

Barsky has spent seven years growing the organization which won two Pulitzer Prizes, including one in 2021 for  national reporting, and its 54 employees with a nearly $12 million budget.

His plans for the future include a new investment opportunity to support and fund female and minority asset managers.  According to Mr. Barsky, the money management industry is long overdue for a self-imposed review of its diversity and inclusion; he wants his new fund to back the enormously underfunded but extremely promising talent and skill that exist within the industry.

Python is Hedge Fund Prefered Coding Language

Python is emerging as the preferred language for hedge fund technology. Those looking to work in the industry would be wise to consider acquiring this skill and showcasing it in their resume. Nat Kilsby, the COO of Quadrature Capital predicted this trend in March 2021, as recruitment of coders with extensive Python capabilities were being sought out by recruiters and firms.

The programming language bridges research and technology at a time that machine learning and analysis are an integral part of the investment process. Python is a flexible and functional platform that gives quantitative technologists accurate and usable information in good time. It is also a relatively easy language to learn and integrate with other operating platforms. As hedge funds move to the cloud, they are using Python-coded programs in their research, data collection, information processing, and idea generation.

But the growing demand for Python in hedge funds is not to the exclusion of other coding languages. While Python remains the primary back-end platform, front office trading work is done in C# and C++ because of their speed. Fortran is also used for high-frequency schemes.

Sculptor Capital Management is an Emerging Hedge Fund Favorite

Sculptor Capital Management, Inc. (NYSE:SCU) had a place in 19 hedge funds’ portfolios by the end of Q2 2021. This is remarkable particularly because the previous all-time high was 17.

Specifically, Renaissance Technologies, maintained the largest position in Sculptor, with a $1.3 million investment at the end of the quarter. ExodusPoint Capital also took up a $0.3 million share at the same time.

SCU stock returned 3.4% since the end of the second quarter and has consistently outperformed the market by wide margins.

Sculptor’s current success and favor might stem from its recent change in leadership.  Jimmy Levin, as the new CEO, is committed to an investment model that is based on full collaboration across their teams and products. In turn, this has yielded a boost in 2020 returns. Their new dividend policy favoring shareholders has equated a 12% yield at the current share price ($3.19 in dividends), which is likely also a contributing factor.