Why the Archegos debacle is raising renewed fears of market excesses (link)
This week’s Archegos upheaval – coupled with the still-unfolding Greensill debacle as well as potential issues relating to SPACs further down the line – are symptoms of “general excess” in markets
“Using derivatives makes it more difficult for banks to really understand what their exposure is,” Ghali, a co-founder at Sussex Partners, observed. “I don’t see how a bank can lose a quarter or a year’s worth of profitability with one client."
Ghali believes Archegos' “aggressive” trading strategy makes it something of an outlier. The firm is not typical “in any way, shape or form” of a family office, he said while adding most hedge funds have strong risk controls in place.
Andrew Beer from Dynamic Beta Investments, believes Archegos’ demise has flagged up the perils of crowded single stock risk. He indicated regulators will now “closely examine” whether banks deliberately enabled Archegos to circumvent rules around the disclosure of large stock positions.
Singapore Hedge Fund Targets Billions for Trade Finance (link)
TradeFlow Capital Management Pte has reached an agreement with the International Chamber of Commerce in France to start a new fund for small companies carrying out physical commodity trades.
TradeFlow, which has reached a preliminary agreement to be sold to Supply@ME Capital Plc, avoided the turmoil that has buffeted commodity markets during the pandemic. The fund returned 5.9% last year and 6% in 2019.
The $42 million fund’s typical transaction size is as low as $200,000, yet it sees a funding gap of $1.5 trillion for small firms in the sector. Last year it funded over 300 transactions.
“Cautiously optimistic”: New industry study finds hedge funds buoyant in 2021 after overcoming Covid challenges (link)
‘The Global Hedge Fund Benchmark Survey: Beyond the Horizon’ probed manager performance, investor sentiment, future challenges, and alignment of interests, among other things.
The report said hedge funds are now “cautiously optimistic” regarding growth prospects for 2021, with more than 70% of all managers citing a positive confidence measure on AIMA’s Hedge Fund Confidence Index (HCFI).
Major risks will be: performance delivery (87%) and capital raising (78%). In addition to, key person risk (30%), Covid-19 business continuity (26%), ESG (15%)
Observing the impact of Covid-19 on new managers, the report said: “Allocators are more comfortable working with fund managers that they have a previous business relationship with."
Beyond the pandemic, the expectation is that the industry will post net inflows through this year as investors of all types increase their investment, the study noted.
Hedge Funds See Something in the Reflation Trade They Don’t Like (link)
hedge funds have steadfastly shunned stocks in the reflation trade, favoring instead companies seen as resilient during an economic slowdown. Their exposure to cyclical shares sits at one of the lowest levels in a decade
What’s driving the aversion isn’t obvious. One theory is that hedge funds aren’t buying the return-to-normal narrative despite the rollout of vaccines.
Another explanation holds it may be related to apprehension that economic acceleration, propelled by monetary and fiscal support, will lose steam once the latest federal spending wears out.
Hedge funds’ cautious stance starts to reverberate in the broad market. To Tony Dwyer from Conaccord Genuity, investors should take advantage of any pullback in the reflation trade to add exposure.
Yellen Signals Scrutinizing Hedge Funds a Renewed FSOC Focus (link)
Yellen said the group has revived a task force on hedge funds so agencies can better “share data, identify risks and work to strengthen our financial system.”
The meeting included a presentation about hedge funds cutting their leverage during the pandemic-fueled turmoil in March 2020 and how that might have triggered “price declines in certain financial markets,”
Yellen said the council was also studying new rules for money-market mutual funds and would delve deeply into climate-related issues.
FSOC’s members include the heads of the Fed, SEC and CFTC, making it a forum for regulators to coordinate their supervision of banks, asset managers, hedge funds and other finance companies.
Elliott’s Former Hong Kong Head Preps London Hedge Fund Startup (link)
James Smithis setting up his multi-strategy investment firm Palliser Capital. Palliser will seek changes at companies, bet on mergers and acquisitions and also invest in distressed securities and market dislocation.
The fund will start with $750 million in initial capital and three other former Elliott colleagues. They are Paul Reid, who will head trading at the new fund, as well as Armenio Keusseyan and Jason Chang.
Palliser will run a portfolio of up to 35 names but its core holdings will be spread over five to 10 bets. The fund will invest globally but with a focus on Asia and Europe.