5/5/16: Macro Hedge Funds: Neither a Hedge, Nor a Fund...

Having written recently about the trials of Hedge Funds sub-sector (see http://trueeconomics.blogspot.com/2016/05/4516-talent-is-problem-but-so-is.html), it's worth posting this neat chart from Investcorp showing 12-mo rolling median return to macro strategy HFs:

Yeah, it is ugly. And it has been ugly since around 2012, and structurally non-pretty since the end of the Global Financial Crisis.

But the really, really ugly thing is that the chart above shows that macro hedge funds are now (over post-GFC period) pro-cyclical (or at least not countercyclical), in other words, they hedge nothing macro on the macro downside risks and do not perform well on macro upside. It is as if someone on purpose decided to create a strategy that underperforms the market on positive trends and fails to hedge the market on downside trend.

Any wonder everyone is running out of the hedgies barn?..

7/5/15: Hedgies v Buffett Debate: It's Superficial on Both Ends

A heated, if perhaps somewhat esoteric debate has been launched by Dan Loeb of the Third Point hedge fund and Warren Buffett. The debate as to whether or not hedge funds are capable of outperforming the market and whether or not Warren Buffett is a hypocrite.

You can read on this here: http://www.zerohedge.com/news/2015-05-07/dan-loeb-slams-buffett-being-habitual-hypocrite

But what you won't read in the post above is that the debate is superficial at best. The problem is:

• Warren Buffett's investment style… setting aside his claims about it being Grahamian (aka fundamentals-driven)… is very much hedge fund-like. To see this read my post about what defines Buffett's exceptional returns here: http://trueeconomics.blogspot.ie/2014/10/28102014-buffetts-magic-cheap-leverage.html. Like a hedgie, he takes leverage. Like a hedgie (in very broad sense) he takes activist positions, often outside or beyond the secondary markets and in alternative asset classes, such as PE as well as across undefined time horizons; and like a hedgie, he has 'black box' management style; but unlike a hedgie, he has access to cheap, very cheap funding that is insensitive to time horizon of investments he takes. Finally, like a hedgie of the old, he manages risk well.
• And the concept of a hedge fund return is, shall we say… too complex to be useful for Buffett's bet/comparative. To see this, follow the thread of links from this, back, across four posts on the topic: http://trueeconomics.blogspot.ie/2015/03/hedge-funds-returns-part-4-to-higher.html

Hedge Funds Returns: Part 4: To higher moments and beyond

My latest post for LearnSignal Blog on the topic of measuring hedge funds' returns: http://blog.learnsignal.com/?p=165

4/3/15: Core biases in Hedge Funds returns

My second post on the topic of measuring hedge funds returns for LearnSignal blog, covering the issue of biases in measurement, induced by timing and risk considerations is now available here: http://blog.learnsignal.com/?p=161

23/6/2014: Euro Area Investment Funds Stats: April 2014

ECB has released April 2014 data on Investment Funds flows in the Euro Area. The release is available here: http://www.ecb.europa.eu/press/pdf/if/ofi_201404.pdf.

From the top-line:

1. In April, the amount outstanding of shares/units issued by euro area investment funds (ex-money market funds) was €68 billion higher than in March 2014.
2. In terms of the breakdown by investment policy, the annual growth rate of shares/units issued by bond funds was 4.0% in April 2014. Transactions in shares/units issued by bond funds amounted to €15 billion in April 2014. The annual growth rate and monthly transactions of equity funds were 7.3% and €21 billion respectively in April 2014. For mixed funds, the corresponding figures were 9.1% and €13 billion.
3. The kicker is in comparing growth rates in April 2013 against growth rates in April 2014. These are shown in the chart below:

The basic point is that growth is slower (transactions on buy side are smaller) and this is true for all funds, except Equity Funds. This change comes on foot of February-March 2014 when transactions were larger than in the same period of 2013.

So we have alleged economic recovery associated with slower growth in investment funds activity. Not a reason to worry, yet, but certainly a reason to ask if the recovery has been already priced in by the markets?..