Chinese Hedge Fund Jumps 258% After Dumping Ray Dalio’s Strategy (Link)
Shanghai Banxia Investment Management Center only manages about 500 million yuan ($76 million).
When clients were pulling cash, Li put in some of her own, and added leverage of between 250% and 300%. The product, managing less than 200 million yuan, increases exposure through margin-financed trades in instruments.
In January 2020, Li was among the earliest to turn short on stocks and commodities, taking note of not only emerging reports on the new coronavirus but also signs of a weakening economy.
Banxia Stable fell 13% in the first three months of this year, in part because of an increase in steel prices. The fund broke even on bonds, and made a small profit on stocks.
Archegos Ripples Through Banks’ Lucrative Hedge Fund Business (Link)
European regulators are looking at risks banks are taking when lending to such clients, while in the U.S., authorities started a preliminary probe into the debacle.
Credit Suisse changes margin requirements in swap agreements so they match the more restrictive terms. Specifically, the bank is shifting from static to dynamic margining, which may force clients to post more collateral and could reduce profitability.
While Hwang’s financiers had clues about what Archegos was doing and the trades they had financed, they couldn’t see that he was taking parallel positions at multiple firms
SEC have signaled to banks that they intend to make trading disclosures from hedge funds a higher priority, while also finding ways to address risk and leverage.
How Hedge Funds Lost Their Way and Why They’ll Come Back (Link)
The return from stock picking = market + style + stock selection. As a result, stock picking comes down to being in the right style at the right time.
That’s a problem for most stock pickers because they’re often confined to one style. But this is where hedgies have a distinct advantage because they’re generally free to invest anywhere.
Dynamic Beta Investments is a fund manager that attempts to replicate the performance of equity hedge funds using performance attribution.
The key is that hedge funds’ exposure to those investments appears to have varied considerably over time, but they don't always get it right and that is where flexibility helps. Recent move will be swapping high-flying tech stocks for cheaper financials.
Only this time, anyone can invest alongside hedge funds. ETFs that either replicate equity hedge funds or offer their own long-short strategy, with substantially lower management fees, 0.4% versus 2%.
Quant funds still lack one human power…imagination (Link)
Aurum’s Hedge Fund Performance Review for 2020 shows that every hedge fund strategy delivered positive returns for the year, apart from quants, which was down -5.35%
Few suggested explanations are presented, one of them is the inherent nature of algorithms, which are designed to trade logically and free of human bias. It was hard for algorithms to understand what to make of things. They had no capacity to predict that oil prices would turn negative on 20 April, for example.
Unlike humans, algorithms lacked the ability to think creatively and imagine what ‘could’ happen amidst the chaos. This is not to say that quant funds are a busted flush but what 2020 did demonstrate was that exogenous events can knock even the most sophisticated algorithms.
Michael Weinberg, MD at APG, attributes the poor performance of quants to the fact that securities that had previously been low beta suddenly became high beta (i.e. consumer product companies), which had an adverse impact on quantitative models.
"Those strategies where the machines do everything themselves, may have succeeded initially but over time they generally don’t. We would expect the dynamic to continue to be person plus machine.”
Hedge fund confidence is soaring as strong Q1 gains boost AIMA sentiment index (Link)
Managers are asked to consider their capital-raising ability, revenue-generation and cost-managing prospects, and the overall performance of their funds over 2021. On a scale from +50 to -50.
A sample of 300 hedge funds with collective USD1trn in AUM, the average measure of confidence stands at +18. Long/short equity, event driven funds, CTAs and managed futures funds registered the highest confidence.
The HFCI metrics show: larger firms with more than USD1 billion stands at +19, while smaller firms running less than USD1 billion have a confidence rating of +17.
Geographically, North America-based funds are the most confident, with a confidence rating of +20, with EMEA and APAC based funds scoring +17, up 70% and 58% respectively from Q4 2020. UK's hedge funds also express higher confidence levels of +16, a rise of 60% on Q4 2020 levels.
“Increasingly investors are looking to the qualities of hedge funds to best manage any downside risk from market volatility and deliver on performance better than most asset classes. In a further boon to industry prospects, with yields for some fixed income strategies becoming more challenging, investors are turning to hedge funds as a replacement, given their ability to deliver higher returns.”