AI hedge fund Quantumrock’s flagship volatility strategy off to a winning start in Q1 (link)
The Volatility Special Opportunities Program (VSOP) – a systematic equity tail hedge strategy which trades a range of positions focused on equities and treasuries index volatility – generated a 1.79% gain during the late February rise in volatility.
Quantumrock CIO Michael Zeller noted the rising bond yields and value-based equities rally during Q1, driven predominantly by the US fiscal stimulus, sparked by the Democrats’ victory in Georgia, as well as rapid vaccine rollout Stateside.
“The positive performance of VSOP this quarter reflects that our strategies’ tail hedging capabilities through situative long VIX exposure are performing well.”
Last year, the Munich-based machine learning strategy soared to a 31% bumper return as long-volatility and tail-risk hedge fund strategies made outsized profits during the seismic market slump at the start of the Covid-19 pandemic.
The evolution of hedge fund capital introduction events (link)
Originated by prominent investment banks in the late-90’s, capital introduction became a primary factor for hedge funds in selecting a prime broker. No such thing as a free lunch: While hedge funds do not pay a fee for cap intro events, they are expected to execute more business with the prime broker.
Over the past decade, new competitors have risen. Independent event facilitators charge fund managers a flat fee to participate in the event while offering complimentary participation for investors/allocators. These events have grown in size and popularity for several reasons, including:
High quality hedge fund participation, since they have to pay a fee only those that believe there is a good chance of raising capital tend to participate.
A broader selection of strategies tend to participate in these private events compared to prime brokerage cap intro events.
Some include a philanthropic component, in which they donate a large percentage of generated profits to charitable organizations.
Due to Covid 19, these events have shifted the landscape to global virtual events, which lose in-person meetings and networking opportunities, but are highly efficient in use of time and money.
The upcoming Gaining the Edge - Global Virtual Cap Intro event to benefit at-risk youth taking place from 26 April to 7 May. To view strategy breakdown of participating managers please click here.
Hedge fund titans fight back as larger managers pull ahead in March (link)
Larger hedge funds have entered the second quarter on a high after staging an impressive fightback which saw them generate above-average returns in March after lagging in the first two months of the year.
Overall, eVestment’s Hedge Fund Aggregate ended Q1 up 4.92 per cent, outperforming both the Bloomberg Barclays Global Aggregate (-4.46%) and the MSCI World ex-US GD (4.17%), though lagging the S&P 500 (6.17%).
“The 10 largest reporting managers, with 1.12% gain in March, produced higher average returns than the rest of the industry" Laurelli observes. “However, several of these large products remain in negative territory year to date.”
Although monthly returns proved somewhat muted during March, more than 60 per cent of hedge funds reporting into eVestment’s database were up into positive territory.
Events show risk management is “inextricable” from alpha generation, says Man Group CIO Sandy Rattray (link)
In the book, Harvey, Rattray and Van Hemert argue that risk management is “inextricable” from alpha generation.
The new book explores how risk management should be incorporated into the core design of investment portfolios, and examines how portfolio balancing and balanced return streams can be achieved through volatility targeting of higher-risk asset classes, and which defensive strategies offer capital protection.
“We should be focused on designing our portfolios to be as resilient as possible through volatile markets,” Rattray said. “One of my core beliefs is that risk management is an equal partner to alpha generation, and asset managers should invest heavily in technology that empowers their risk management capabilities.”
He said he hoped the text, which will be published in July, would provide a helpful framework to understand and implement strategic risk management techniques.
Brevan Howard’s Hedge Fund to Start Buying Cryptocurrencies (link)
The firm led by Aron Landy will begin by investing up to 1.5% of its $5.6 billion main hedge fund in digital assets. The move is the latest signal that cryptocurrencies are going mainstream as Brevan Howard joins Paul Tudor Jones and Marc Lasry.
The firm recently acquired a 25% stake in One River Asset Management, a $2.5 billion firm whose cryptocurrency funds are backed by Howard.
All trading will take place through Elwood Asset Management, an affiliate platform started by Howard four years ago.
On its part, Brevan Howard had been developing its digital trading technologies and it decided in the fourth quarter of last year that the industry had matured enough for it to deploy a small part of clients' cash.
Investors who abandoned the firm amid years of mediocre returns are coming back: Assets that collapsed by over 80% from their peak to about $6 billion two years ago have since rebounded to above $13 billion. It gained 27.4% last year in its best annual return since 2003.
Hedge Funds Nailed Treasuries Rout With $100 Billion in Sales (link)
Hedge funds have been a major player in this year’s Treasury selloff. Investors dumped $62 billion of US. sovereign bonds in February, after selling $49 billion the previous month.
The selling flow appears to offer some clues about recent price action. Treasuries rallied on Thursday despite stronger-than-expected U.S. economic data, with many participants pointing to short-covering demand as the reason.
“The market broadly built up some decent short positions in a relatively short time.” said Richard Kelly at Toronto-Dominion Bank.
The catalysts for the bearish tilt were Democratic victories in the Georgia Senate run-off race that paved the way for another round of stimulus spending, and the rollout of coronavirus vaccines. Rising yields then prompted a return of convexity-type hedging flows.