Hedge Fund Optimism Increases

Hedge Funds are demonstrating some newfound optimism as double-digit returns and increasing assets under management point to excellent business prospects. 

Last week, hedge funds rated their economic confidence at +19.5, up from an average +18.4 from last quarter. The scale ranges from -50 to +50. A survey in the second quarter Hedge Fund Confidence Index from AIMA, Simmons & Simmons, and Seward & Kissel asked 300 hedge funds to consider the following points when assessing their outlook: 

  1. The firm’s ability to raise capital
  2. The firm’s ability to generate revenue and mitigate costs 
  3. Overall fund performance 

Remote work is also a factor. Many offices are back to operating, but most meetings are still held virtually. According to the HFR index, “There is a greater level of confidence in the virtual outreach with examples of new businesses being successfully onboarded.”

Hedge funds in equity are still the best-performing strategy, but global macro strategies are also doing especially well. The report states: “The accompanying volatility in equity and commodity prices is typically a good environment for macro funds to outperform. Increasingly investors are looking to the qualities that hedge funds demonstrate in being able to manage any downside risk from market volatility as well as the heterogeneity of their investment strategies which can provide the best potential for significant diversification as well as the highest potential for generating out-performance.”

America’s Newspaper Business

Newsrooms across the United States took a severe hit to operations during the pandemic, even while readership increased significantly. Like many businesses, it was an unstable and damaging time; more than 70 local newsrooms have shut down over the last year.

This problem has been in the works for more than a decade, as print has been overtaken by digital copy. Half of the newspapers in the U.S. today are owned or run by hedge funds and other financial firms, according to a study by the Financial Times.

Major Hedge Funds Invest in Obscure Oil Company

With energy prices on the rise, numerous large hedge funds are rallying to bolster Norwegian Energy Company (Noreco), a struggling North Sea oil and gas company based in Denmark. The hedge funds, which include Taconic Capital, CQS, Caius Capital, Astaris Capital, York Capital and Kite Lake Capital, have built positions in the company whose shares recently collapsed following a pre-crisis high.

According to the Financial Times, “Noreco was once Norway’s second-biggest oil and gas company by production, but was hit by the slump in the oil price during the financial crisis. The firm has also suffered after cracks were found in one of its oil platforms in 2009.

In 2018, it lost the court case for some $470m it had brought against 20 insurance companies it hoped would pay out over the cracks.  But later that year Taconic, Kite Lake, CQS and York helped fund Noreco’s purchase of Shell’s Danish upstream assets, making it the second-biggest oil and gas producer in Denmark.”

Taconic’s Peter Coleman and Kite Lake’s Jan Lernout were both voted on to the board last week, and hedge funds are hoping that production will be doubled by the second half of 2023.

New Cryptocurrency Fund Launching by Former JP Morgan Manager

Paul Frost-Smith announced he is starting a new multi-strategy arbitrage fund based in Grand Cayman Island. Frost-Smith was formerly a manager at JP Morgan and Credit Suisse. The fund is called Argentium Chimera and will combine three investment strategies inspired by forex investing but adapted to account for the higher volatility and lower liquidity of cryptocurrencies. The fund’s goal will be to have consistent returns despite market conditions.


FCA-regulated platform AK Jensen will be the infrastructure on which the fund will rest, beginning with about $20 million in external capital as of June 1, 2021.


Frost-Smith said this about the launch:


“The decentralized nature of digital assets and cryptocurrencies, and the differences in infrastructure and liquidity between exchanges, presents a unique opportunity for arbitrage and liquidity provision. Transforming established FX strategies into the higher vol crypto environment is where we excel.”

Hedge Funds are Broke Records in Q1 2021

This roller coaster seems to be heading in only one direction, and that is up. Hedge Fund Research reported in April that global hedge fund assets rose to a record high of $3.8 trillion in March 2021. Investors showed their confidence in hedge funds by adding about $201 billion to that pool of money during the first quarter, gaining on average about 6%.

Cryptocurrency hedge funds were the best performers, rocketing to new heights with a 120% increase in value. Even the more usual vehicles, such as event-driven hedge funds, grew by about 8.2%. Equity-focused funds scored wins of about 7.1%.

During the first quarter, the Preqin All-Strategies Hedge Fund Benchmark was up 7.81%. Compare that to the S&P’s gain of 5.77% during the same time frame. This is the best first quarter in 15 years. Barclays is expecting hedge funds to attract new money to the tune of about $30 billion, the sector’s first increase in money in since 2017.

The Year 2021 Looks Bright for Hedge Funds

With the first quarter of 2021 behind us it is fair to say that so far hedge funds have seen profits looking up. According to eVestments, February was an especially good month with 80 percent of funds reporting earnings in the black.

The average fund was up 4.51%, and the industry as a whole (including the 20% of funds that faltered in February) funds climbed 3.22% on average. The year-to-date earnings came to 4.26%.

“Since post-pandemic onset in March 2020, the hedge fund industry has produced aggregate returns of nearly 20 per cent, which is the best 12-month return period for the industry since at least 2011,” said eVestment Global Head of Research Peter Laurelli.  

Manufacturing Surge Bolsters US Economic Recovery

The US economy thrived through the first two months of 2021, backed by strong growth in the manufacturing sector and aided by the prospect of President Biden’s proposed $1.9 trillion stimulus package.

According to the Bureau of Labor Statistics, unemployment fell in January to 6.3 percent, the lowest point since the corona pandemic began, while the Consumer Price Index rose 0.3 percent, with 1.9 percent overall inflation.

The robust economy has been led by a resurgent manufacturing sector. According to the Institute for Supply Management (ISM), the country’s Purchasing Manufacturers Index (PMI) hit 60.8 in February, the highest point in three years.

IHS Markit put the number at 58.6, a slight drop from January’s 59.2 mark, but together the first two months of the year have produced the strongest Markit index since 2010.

If there is a cloud on the horizon, it is a large backlog of orders, largely due to complications in the shipping and transportation industry fueled by coronavirus, coupled with a rise in input prices.

Taken together, the numbers suggest continued economic strength – if global supply lines can keep up with demand.

“The manufacturing economy continued its recovery in February,” Tim Fiore, chair of the ISM’s manufacturing business survey committee, told Yahoo!Finance.

“Issues with absenteeism, short-term shutdowns to sanitize facilities, and difficulties in hiring workers remain challenges and continue to cause strains that limit manufacturing-growth potential. Optimistic panel sentiment increased, with five positive comments for every cautious comment, compared to a 3-to-1 ratio in January,” Fiore said.

“A renewed surge in optimism suggests the recovery has much further to run,” added Chris Williamson, chief business economist at IHS Markit. “Business expectations about the year ahead jumped to a level only exceeded once over the past six years, buoyed by a cocktail of stimulus and post-COVID recovery hopes as life continues to return to normal amid vaccine roll outs.”

Could US Consumers Move to Spending Digital Dollars?

Could the United States be on the road to phasing out the wallet-sized, iconic, rectangular dollar bill?

Probably not – at least, not entirely. But the Federal Reserve is studying the possibility of launching a digital currency that would serve as legal tender in the United States.

Of course, the US is not the only country exploring the creation of a digital currency backed by a central bank (CBDC). According to Ledger Insights, an online journal that covers the fintech sector, 70 percent of national banks around the world of banks are either exploring or actively pursuing CBDCs.

But the trend has been slow to take root: Fed Chairman Jerome Powell has advocated a slow approach to digitizing the dollar, warning last year that “it is more important to get [the digital currency] right than to be first,” and cautioning market analysts earlier this year in January that a US-backed CBDC was “years, not months” away.

Still, some lawmakers are determined to keep the issue on the Fed’s agenda. In a letter to Fed Chairman Powell and Governor Lael Brainard on March 1, Senator Sherrod Brown (D-Ohio) urged the federal government to make the issue a top priority.

“The Federal Reserve must lead the way on CBDCs and other digital payments, just as the Federal Reserve has done in moving forward with its faster payments system, FedNow. The Federal Reserve’s involvement in the United States payment system is critical to our standing in the global economy, monetary policy and financial stability, and a fair and equitable financial system,” he wrote.

Harvard Law Prof.: Tenev is ‘sympathetic’, ‘trying to do the right thing’

When former Turing Pharmaceuticals CEO Martin Shkreli appeared before the House Committee on Oversight and Government Reform in 2016, the most notable thing about his testimony was the smirk on his face as he refused to answer representatives’ questions about Turing’s $13.50 to $750 price hike for Daraprim, an anti-AIDS drug.

Last week, it was Robinhood CEO Vlad Tenev’s turn in the hotseat, appearing before the House Financial Services Committee to answer questions about his company’s role in last month’s GameStop trading frenzy and about stopgap provisions to protect Robinhood investors. His testimony, however, could not have been a sharper contrast to Shkreli’s: Tenev answered Committee members’ questions clearly and politely, and in several instances engaged the Representatives in discussion regarding Robinhood’s business practices.

Analyzing the appearance with Yahoo Finance’s Alexis Christoforous, Harvard Law Professor Jesse Fried said Tenev portrayed himself as a “sympathetic” character who was “trying to do the right thing,” and accepted Tenev’s assertion that the market upheaval was “not really ‘anticipatable’.”

Fried also noted Tenev’s admission that “not everything Robinhood did was 100 percent perfect,” but added that regulation to protect low-income and inexperienced investors from the dangers of options trading would be unpopular and therefore unlikely to become law.

New investors younger, more diverse

The Wall Street economy is undergoing a demographic shift, with new investors trending younger and more culturally diverse than previous generations, according to a study published by the FINRA Investor Education Foundation and NORC at the University of Chicago.

The “Investing 2020: New Accounts and the People Who Opened Them” report, which surveyed 1,291 households from Oct. 26 to Nov. 13, 2020, shows that 66% of last year’s new investment portfolios were opened by individuals making their first forays into the market.

Major findings include a rise in the percentage of non-white first-time investors: Seventeen percent of new investment accounts in 2020 were opened by black clients; an additional 15 percent were opened by Hispanic/Latino clients and 10% by Asian clients.

The report also outlines the socioeconomic status of new investors. Nearly one-quarter of newcomers to the stock market earn less than $35,000 a year.

“Some of these new brokerages have offered opportunities to enter the stock market that haven’t been there before,” Angela Fontes, vice president of Behavioral and Economic Analysis and Decision-making at at NORC at the University of Chicago, told the Detroit Free Press.