China Hedge Funds Add $200 Billion, Trouncing Wall Street (Link)
The nearly 15,000 funds offered by Chinese managers returned 30% on average last year, That dwarfs the average 12% gain for hedge funds globally.
Macro funds, which trade across asset classes, were the best-performer, returning an average 41%, compared to the global average of 10%.
Shenzhen Qianhai Jianhong Times Asset Management added leveraged bets on glove makers and office supply companies, then on consumer stocks and vaccine makers. Its Jianhong Absolute Return No. 1 fund booked a 831% return.
The number of local hedge fund firms doubled to 63 with most impressive growth among quant funds.
Minghong’s assets doubled last year to about 60 billion yuan, making it China’s largest quant fund. Its offshore market-neutral product returned 32% last year, beating the global average of 3.4%.
Hedge Funds Risk Biden-Era End to Money-Laundering Loophole (Link)
Regulators sought to close that loophole in 2015 with a new set of reporting requirements, but the proposal wasn’t enacted before Obama left office and it lay dormant while Trump was president.
The U.S. requires banks, brokerages and mutual funds to monitor clients and report suspicious activity. But investment advisers in private equity and hedge funds are exempt from such rules.
In May 2020, FBI said without stricter oversight, the funds provide “ever-increasing opportunities for threat actors to co-opt investment funds without being overly scrutinized.
“Hedge funds present relatively limited money-laundering risks,” with the vast majority of investment advisers already using internal measures to track dirty money, the Managed Funds Association, which represents hedge funds.
Private-equity requires to tie up capital for long periods which makes the funds “poor vehicles for money laundering and terrorist financing,” and should be excluded from FinCEN’s proposed rule, states American Investment Council, which represents PE firms.
Bitcoin Tops $48,000 for the First Time After Tesla’s Purchase (Link)
Prices hit a new all-time high of $48,000, increase of more than 30% since the beginning of February.
There’s still a fierce debate over whether Tesla’s $1.5 billion investment in Bitcoin will lead to other companies following suit.
“Corporate cash managers are quite conservative and invest cash balances in safe liquid assets,” Angel said, an associate professor at Georgetown University. “Bitcoin is highly volatile, it can easily go up or down 10% in a day - a certainly not a good short-term store of value.”
Others disagree and insist there is growing interest from the corporate world. MicroStrategy’s CEO Michael Saylor said “With such vocal sponsors (Tesla and MicroStrategy) leading corporate adoption, further adoption will follow much faster than currently expected.”
Alpha-generating opportunities surge in Japan, as economic recovery and market reforms gather pace (Link)
"As the Japanese economy regains some momentum, we see a wider set of investment themes, supporting stockpicking,” senior Lyxor AM strategists. “These themes include stocks sensitive to domestic consumption, exposure to Asia, reflation policies or capex.”
Analysis reveals Japanese equities remain under-owned, with the trade war and pandemic having driven down allocations to Japanese stocks by 2% of world market capitalisation since 2018.
“Correlations are steadily declining, emphasizing more diversified opportunities. Moreover, fundamental pricing - how stock prices reflect underlying companies’ fundamentals - is improving, another pivotal factor for alpha generation.” says Lyxor.
Maximising the benefits of prime access can change the fortunes of smaller hedge funds (Link)
Smaller non-bank financial institutions (NBFIs) wanting better access to credit and security following the events of last year and opportunities this year. The same services are available at faster and cheaper rates than traditional tier-one banks – an avenue that small and medium-sized hedge funds should consider.
The key is to recognise the difference between those offering direct market access to multiple venues while acting as a clearing partner, and those offering access to their liquidity pools while claiming to be a neutral prime-of-prime broker.
A broader trading community with a diverse range of actors and institutions is not only necessary for the growth of our dynamic market, but it is a rapidly materialising reality thanks to the growth of prime brokers
More than 60% of respondents said they were unlikely to hire an equity manager who isn’t a signatory of the Principles for Responsible Investment, the world’s biggest industry body for sustainable investing.
About a third said they wouldn’t appoint a hedge fund manager that lacked gender or ethnic diversity on its staff, while a fifth cited ESG as the main reason for firing managers.
ESG assets are on course to exceed $53 trillion by 2025, according to Bloomberg Intelligence.
The survey of 256 respondents revealed a familiar challenge for ESG investors: lack of standardized data. However, when it comes to carbon emissions , investors are making a bigger effort to calculate the footprints of their portfolios, with 46% now, up from 28% a year ago.