The sector’s return to form has surprised few and pleased many
After a volatile year, the hedge fund industry is starting to show a return to profitability, according to reports. Some recent figures show that in February the industry grew by 2.5 percent, and that figures for the first quarter of 2012 show gains of five percent.
These gains are partly due to the ECB’s cash injection of £8bn and show the strongest start to a year since 2000. The Tosca Fund made some of the largest gains at 13.7 percent and CQS Directional Opportunities showed a rise of 13.9 percent. Investors are still wary that the eurozone debt crisis could lead to future market volatility and the slowing of China’s growth is also seen as being very much a negative factor.
These negative features have not stopped new investment, however, and hedge fund administrators GlobeOp has released figures that show that inflows into hedge funds have increased ‘to 2.01 percent of total assets.’ In January BarCap revealed that investors could increase the net worth of new capital by $80bn in global hedge funds.
Another reason for the hedge fund market’s return to prosperity is the appointment of many new managers who have demonstrated good ‘performance to risk’ records. The industry’s investors have changed over the years from the bulk of investors being labelled as ‘high net worth individuals’ to 60 percent of investors consisting of university funds and corporate pension schemes. The BT pension scheme is a major hedge fund investor and so is the University’s Superannuation Scheme (USS) with a $1.2bn portfolio. This change in investor profile is another reason behind the current upturn in the hedge fund market.
Despite the renewed confidence in the hedge fund market, some funds, including COMAC Capital, the £3.3bn international fund, are sceptical about the new figures. Famously CORMAC stuck to its bear market policies and missed out on the 2012 market upturn, but fund manager Colm O Shea is well respected in the City. Despite COMAC posting a loss of five percent, many analysts agree with his hypothesis that the European Central Bank’s cash injection is only a short term measure and that the market volatility may still return later in 2012.
Some commentators believe that macro investment is a more prudent course of investment compared to micro investments. Credit Suisse has recently announced that: “macro was the most sought after strategy in 2012,” and the company also maintained that these funds would perform the best. Other well-known hedge funds that pursue a macro investment policy include the Quantum Fund, and Brevan Howard. Another factor that could provide further uncertainty is the gradual economic upturn in the US compared with the fragility of the major eurozone economies.