Hedge Fund Global Outlook, Special Report 2021 by Hedgeweek (Link)
Global Macro Insight, Equity Markets,Credit Insights, ESG, Investor Insights and New Trends in 2021
Harvesting alpha: Brummer Multi-Strategy CEO Mikael Spångberg strikes optimistic tone after hedge fund soars (Link)
The multi-strategy hedge fund BMS rose 12.6 per cent in 2020 due to amid ongoing market volatility and portfolio construction. The BMS volatility was 6.6 per cent compared to benchmark's 29 per cent.
Spångberg said "The key for us was to have a portfolio which was market neutral-ish in most dimensions, where the underlying positions were much more exposed to what we call idiosyncratic risk, rather than market risk."
Alpha very much dominated the strategy’s total return throughout 2020, while market risk contributed around zero per cent to the total net return.
Manticore and Black-and-White, two long/short equity strategies in the BMS fund, were both up more than 35 per cent for the year, while discretionary macro fund Arete added 11.6 per cent over the 12-month period.
Hedge fund asset volumes are setting new records, as uncorrelated gains draw more investor money (Link)
Total global hedge fund AUM have mushroomed to a record USD3.6 trillion, though the biggest firms continue to take the lion’s share of investor capital as smaller names are squeezed.
Assets in equity-focused strategies topped USD1.1 trillion last year – the first of the four major hedge fund strategies to surpass the USD1 trillion milestone. Equity hedge fund capital grew USD121 billion.
For event driven strategies, investors pledged around USD106.5 billion of new capital to end the year at USD961 billion. The surge has meant event driven funds have now leapfrogged relative value arbitrage as the industry’s second largest area of strategy capital, HFR noted.
Relative value funds' assets grew by more than USD38 billion and hit USD941 billion in total. While macro hedge funds reached USD604 billion at the end of the year 2020.
Bitcoin’s inefficiencies are creating arbitrage trades for crypto hedge funds (Link)
As more hedge fund managers join the digital asset arena, the potential for alpha generation “will likely moderate” in the coming months and years, says Lyxor Asset Management.
HFR’s Blockchain Composite Index soaring to a 190.1 per cent return in 2020. With 800 active blockchain and cryptoasset-focused funds, 150 of which manage more than USD50 million in assets.
The market remains “highly inefficient” and “significant digital asset price dispersion” offers scope for arbitrage opportunities.
Several key risks warrant high volatility, potential structural risk of tougher regulation, as well as speculation risk and the absence of a central authority to step in during crises.
We expect the latest cold shower to moderate institutionals’ enthusiasm in the short-term, providing time to prepare for a third run later, and supported by tools better suited for institutionals.
AuM in private markets to grow between $4.2tn and $5.5tn globally by 2025 (Link)
Analysis by PwC forecasts private markets' AUM to reach between $13.7 trillion and $15.0 trillion by 2025.
The new value creation playbook, pointed out that private markets expected to make up more than 10% of global AuM by 2025 in base-case scenario.
Growth for the value of private markets of $5.5tn (best case), $4.9tn (base case), and $4.2tn (worst case) depending on how global economic conditions respond to the disruption caused by Covid-19
"The report highlights the continued emergence of private markets as a fast-growing and highly impactful portion of global capital markets. Investors continue to look to the sector to deliver the yields that lower risk and more liquid asset classes struggle to match" says PwC's Jackson-Moore.
French quant house uses data to understand what the market practitioners think, not to understand the market itself (Link)
Quantology Capital Management believes equity market opportunities are mainly linked to behavioural biases, and that the psychology of investors does not change over time. So exploiting it creates a robust source of alpha.
On the quantitative finance side, the firm has been developing a proprietary quantitative and textual database for the last seven years. The real wealth of a quantitative asset management company relies on algorithms, but it relies even more on the databases it has been able to collect and on their 'cleanness'
The systematic side is applied on the basis that discretionary decisions cost a lot of alpha, as in fast markets rationality disappears behind fear or exuberance. So rule-based strategies are in order.
The managers think that, when facing randomness, a group of a large number of non-experts tends to outperform a group of self-proclaimed experts. The errors of the ones compensate for the errors of the others, making the collective average the best estimation or choice.