New Investment Opportunities for Hedge Fund Industry

The pandemic continued to affect the economy throughout 2021, hedge funds proved to be a flexible and adaptive industry. New investment strategies and strong earnings also yielded an improved opinion of hedge funds in general, according to the 2021 EY Global Alternative Fund Survey.

210 managers and 54 investors participated in the survey and showed that the industry is taking on new prospects for investment including digital assets and special-purpose acquisition companies (SPAC).

The survey also showed that hedge funds are focusing more on environmental, social, and governance (ESG) standards in the investment decisions process. Similarly, attention is being given to considerations of diversity and inclusion at the managerial level. But even while fund managers indicated substantial diversity in the back offices, fewer than one in 10 hedge funds can claim 30% or more females in the front office. The representation of minorities is even lower.

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.

Hedge Fund Consolidation: Eisler Capital and Glen Point Capital

Mergers and acquisitions are not a common step for hedge funds. But the increased stresses of the industry, including skyrocketing costs and investors’ penchant for established entities, is forcing many funds to close their doors. Some are opting to merge with bigger institutions, like Eisler Capital which is acquiring Glen Point Capital in a rare hedge fund consolidation.

The transaction expands Eisler’s assets by $1.5 billion, bolsters the staff with new traders, and adds three new funds. Cumulatively, the deal transforms the firm into a multi-strategy investment platform.

Both firms are based in London and started in 2015. Over time, Eisler has expanded their portfolio as part of its efforts to compete with Millennium Management and Citadel for investors, resources, and staff. The deal is expected to close in March and the specifics of the financials were not made public.

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.

New Hedge Fund Index App

PivotalPath, the hedge fund consultant firm, recently released the new Hedge Fund Index App, as a way of simplifying and heightening the benefit of hedge fund indices. While institutional investors use these indices for thoughtful decisions on asset allocation and evaluation, there are inherent systemic issues that curtail their usefulness. The new app offers applicable information, necessary context, and diagnostic/investigative tools to fully comprehend performance, even across strategies and funds.

Since its founding in 2013, PivotalPath has worked with leading investors, like the Robin Hood Foundation, and has provided better techniques and methods, as well as a more illustrative set of funds, for hedge fund professionals. One of the app’s most impressive features is the never-before-seen transparency and protection.

“Our unique philosophy as a hedge fund consultant has always been based on a simple question; how can an allocator make a good hedge fund investment decision if they don’t know all of the relevant choices? This is why we build the most robust peer groups and indices, so our clients not only know their full set of options, but have the transparency and tools to accurately evaluate, benchmark and monitor their hedge funds in the right context.”

Jon Caplis, founder and CEO of PivotalPath

Finding Gender Equity at the Helm of Hedge Funds

Women have broken every professional barrier and risen to the top of every industry. Yet, for some reason, there are still few senior women in hedge funds and practically zero in investment roles. A 2015 study by Ernst & Young, KPMG, and Morningstar, found that only 2% of hedge funds are led by women, fewer than 20% have female portfolio managers. Dominique Mielle, once a partner and senior portfolio manager at Canyon Capital and now an author and consultant, shares her thoughts on how the hedge fund industry can—and should—be more inclusive.

Client Demand

When clients make requests it behooves any service provider to listen and respond. The same must be true for hedge fund consumers: clients must require hedge funds to include women on their teams and even reject funds that do not. This is the primary external impetus that will necessitate and facilitate change. In 2017, for example, major firms (BlackRock, State Street, and Fidelity) insisted on corporate diversity. Companies with exclusively male boards would not have their support. Today, there is only one S&P 500 company that has a fully-male board. The state of California passed a law requiring all public companies headquartered in the state to have at least three women on their board by the end of 2021. The same kind of requirements should be made for hedge fund leadership. Only these kinds of “forced” changes will actively shift the landscape.

Data-Driven

Leaders in the hedge fund industry need to take a deep and serious look at the extensive research pointing to the corporate and cultural benefits of diversifying their ranks. Profits, progress, and policymaking are all enhanced when teams include a broad range of professionals. It is on colleagues, clients, and consultants to point executives to this information and insist that it be internalized and applied.

Persistence and Perseverance

According to Mielle, it isn’t enough for women to insist on the right to be heard, included, or considered, they must also stay the course and continue to fight even if/when things get hard. Being willing to compete is in and of itself an important step; withstanding internal fracases and awkward office dynamics is part of the job. Research finds that female hedge fund managers perform equally or better than men, fewer assets are attracted to them. This means that women must surpass and outshine men to achieve success and that will only be possible if they remain in the game.

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.

Hedge Funds Name Quality Research Tool

Over the past ten years, the hedge fund industry has grown and driven the demand for quality equity research. As global hedge fund assets have risen continuously, there is also continued growth in platform hedge funds (sector-focused funds with dedicated portfolio managers concentrating on one sector). These funds maintain a meticulous and scrupulous approach that depends on industry-driven, insider information.

As such, hedge fund managers put Morgan Stanley in first place in the 2021 All-America Research Team: Hedge Fund Cut, moving them up from the third place in 2020.

Bank of America says its analysts’ work and client base also reflect this new shift. The investors and those informing their decision-making are focused on the longer term; they are all looking at the broader picture while maintaining focus on the immediate.

According to David Adelman, director of equity research for the Americas at Morgan Stanley, the success stems from a holistic approach. Adelman insists that “Morgan Stanley doesn’t have a hedge fund research product. We have a research product that is trying to provide differentiated insight to help all investors make decisions. [Our product] is both strategic and long term and has a real analytical framework, but we aren’t opposed to having a differentiated view making short-term calls as well.”