News Worth Reading: January 29, 2016

There’s always great information out there if you know where to look. The following comprises our list of news worth reading from the past week.

Hedge Funds

  • More and more hedge funds are embracing machine learning and artificial intelligence (wired)
  • Sumzero’s annual hedge fund compensation report is out (businessinsider)
  • Chris Rokos (formerly of Brevan Howard) has raised $3.5 billion for a new macro fund (finalternatives)
  • Two former senior managers at Harvard’s endowment are starting a new fund (bloomberg)
  • A handful of macro funds are taking big bets against China’s Yuan (reuters)
  • Hedge fund start-ups dropped to a 13-year low in 2015 (bloomberg)
  • The alternative assets industry grew to $7.4 trillion in 2015 (hedgeweek)
  • The pace of hedge fund redemptions fell sharply in January (finalternatives)
  • AIG to cut hedge fund bets after disappointing results (bloomberg)
  • Multi-strategy hedge funds were very popular in 2015 (pionline)

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Hedge Funds Weekly: January 25, 2016

The following is an excerpt from our Hedge Funds Weekly report, which is available in the clients section. If you are not yet a client, please request access.

Highlights

  • Our factor‐based estimates project that hedge funds gained 0.09% last week as equities trimmed their month-to-date losses
  • Hedge funds are now down 2.05% for the month and year
  • 14 of the 30 hedge fund strategies we track earned positive returns
  • Equities, commodities and other volatile assets rose as investors became more risk tolerant
  • Most bond indexes were down modestly, but high yield and emerging market bonds scraped out minor gains
  • Developed currencies depreciated against the U.S. dollar while emerging currencies appreciated
  • Momentum strategies struggled in several asset classes as numerous securities partially reversed their large month-to-date moves
  • Our current December hedge fund index return projection of ‐0.69% differs from our initial estimate of ‐0.95% by 0.26%

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News Worth Reading: January 22, 2016

There’s always great information out there if you know where to look. The following comprises our list of news worth reading from the past week.

Hedge Funds

  • A lot of hedge funds have closed shop lately. Is it the tip of the iceberg? (reuters)
  • Cash is now a favorite hedge fund holding (efinancialnews)
  • Manged futures funds are crushing it this month (ft)
  • China could be considering a ban on hedge funds (valuewalk)
  • Texas Teachers is setting aside $1.3 billion for emerging managers (pionline)

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Hedge Funds Weekly: January 18, 2016

The following is an excerpt from our Hedge Funds Weekly report, which is available in the clients section. If you are not yet a client, please request access.

Highlights

  • Our factor‐based estimates project that hedge funds lost 1.00% last week as equities had yet another rough week
  • Hedge funds are now down 2.26% for the month and year
  • Only three of the 30 hedge fund strategies we track earned positive returns
  • Almost all major asset classes save government bonds fell, as investors once again abandoned high risk assets
  • The majority of our universe of regional and sector equity benchmarks declined, most with heavy losses
  • Real estate outperformed equities, particularly overseas, but still could not escape losses
  • Oil’s big loss led to a horrible week for commodities
  • Both developed and emerging currencies depreciated against the US dollar
  • Our current December hedge fund index return projection of ‐0.76% differs from our initial estimate of ‐0.95% by 0.19%

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News Worth Reading: January 15, 2016

There’s always great information out there if you know where to look. The following comprises our list of news worth reading from the past week.

Hedge Funds

  • The top 10 factors driving hedge fund returns (eqira)
  • Goldman forecasts hedge funds will earn 3-4% this year (hedgeco)
  • According to Preqin, hedge funds should brace for declining AUM (ft)
  • Alternative managers display more dispersion than traditional managers (abglobal)
  • Several quant funds racked up gains in 2015 (forbes)
  • Several elite hedge fund managers booked annual losses for the first time (finalternatives)
  • 2016 has brought more losses for Bill Ackman’s Pershing Square (businessinsider)
  • Steve Cohen won’t be managing outside capital for at least 2 years (finalternatives)
  • Crispin Odey is rebounding in a big way so far this year (efinancialnews)
  • Glenview Capital’s woes continue (businessinsider)

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The Top 10 Factors Driving Hedge Fund Returns

Abstract: Hedge funds have the ability to exploit pricing inefficiencies across a very diverse set of asset classes and securities using a variety of techniques. It therefore shouldn’t come as a surprise that their returns draw from a greater number of risk factors than traditional investments. In this post, we look at the 10 most significant risk factors driving hedge fund returns.

Methodology

Considering the breadth of strategies in the hedge fund universe, it’s difficult to come up with a completely objective measure of significance. The list below is subjective, but we’ve done our best to keep it grounded in empirical evidence.

We’ve performed our factor-based analysis on 14 of our hedge fund strategy indexes, which together provide suitable benchmarks for the vast majority of hedge funds in existence. In doing so, we’ve used statistical and machine learning techniques to identify a factor structure for each index, then looked at the percentage of index risk explained by each factor.

Some factors contribute to many strategies. Others contribute to only a handful. Our list strives to strike a balance between factors that have modest, but widespread contributions and those that have large contributions, but only to a limited number of strategies.

We occasionally report factor returns. It’s important to note that when we do so, we provide excess returns scaled to a 10% expected annual volatility. The factor’s actual market return may have been higher or lower, depending upon its riskiness. Our risk-adjustment standardizes volatility across factors, allowing for easier comparisons.

Without further delay, here’s our list of the 10 most significant risk factors in hedge funds today.

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Hedge Funds Weekly: January 11, 2016

The following is an excerpt from our Hedge Funds Weekly report, which is available in the clients section. If you are not yet a client, please request access.

Highlights

  • Our factor‐based estimates project that hedge funds lost 1.21% last week as equities plummeted globally
  • Hedge funds are now down 1.19% for the month and year
  • Only four of the 30 hedge fund strategies we track earned positive returns
  • Bonds and gold rallied as investors sought shelter from declining risky assets
  • Our entire universe of regional and sector equity benchmarks declined, most with heavy losses
  • Real estate outperformed equities, particularly overseas, but still could not escape losses
  • Oil plummeted once again
  • Emerging currencies depreciated relative to the US dollar, and carry strategies suffered
  • Our current December hedge fund index return projection of ‐0.78% differs from our initial estimate of ‐0.95% by 0.17%, a slightly smaller difference than normal

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News Worth Reading: January 8, 2016

There’s always great information out there if you know where to look. The following comprises our list of news worth reading from the past week.

Hedge Funds

  • Where hedge funds won and lost in 2015 (eqira)
  • 10 hedge fund industry trends for 2016 (finalternatives)
  • Nevsky Capital closes shop, alleges that macro data is no longer credible (businessinsider)
  • Peter Muller of PDT Partners is crushing it (forbes)
  • Soros Fund Management has a new CIO (efinancialnews)

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Where Hedge Funds Won and Lost in 2015

2015 has come to a close and most in the financial community are probably happy to see it end. Despite a number of fear-inducing headlines that sent the VIX soaring to its highest level in years, US equity markets remained range bound. The year’s highest close on the S&P 500 represented only a modest 14.1% premium to its lowest.

Such was true of most asset classes. Volatility was elevated, but returns were largely modest. Aggregate U.S. stocks and bonds each earned less than 1%. Foreign assets fared better, but US investors with unhedged currency exposure saw those gains evaporate as a strong dollar overwhelmed foreign currencies.

Long only investors had few opportunities to earn large profits. Instead they could only hope to sidestep Mr. Market’s more extreme losses, of which energy commodities and equities, MLPs and emerging equities were paramount.

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Hedge Funds Monthly: December 2015

The following is an excerpt from our Hedge Funds Monthly report, which is available in the clients section. If you are not yet a client, please request access.

Highlights

  • We project that hedge funds lost 0.95% in December as negative alpha and poor equity performance wiped out year-to-date returns
  • Hedge funds finished the year up 0.01%
  • Only two of the 30 hedge fund strategies we index posted positive performance; 20 produced negative alpha
  • There were few bright spots in global markets as energy had another disastrous month
  • Equities declined globally, with the worst losses in energy, small caps, MLPs and emerging Europe
  • Developed currencies appreciated relative to the US dollar, while emerging currencies depreciated materially
  • Our broad hedge fund index returned 0.30% in November, 0.30% more than our initial estimate

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