Fertile ground

Following recent tumultuous events which placed hedge funds at the centre of a co-ordinated drive by online retail traders to push up the price of certain shorted stocks, the industry will have found some cheer in January’s performance numbers published this week.

After amateur investors dealt a well-publicised blow to a number of funds, managers ultimately managed to maintain 2020’s positive run into the new year, with the industry rising almost 1 per cent last month, according to new data published by Hedge Fund Research.

Event driven managers, especially merger arbitrage and special situations strategies, led the way, although equities-based strategies were able to ride out the stock volatility to finish the month narrowly in the black.

Still, the fallout from the GameStop saga continued this week, with industry observers suggesting the retail genie is now well and truly “out of the bottle”. Comparing the Reddit speculators to the Trump supporters who attacked the US capitol building in early January, Keith Haydon, CIO of Man Solutions, warned of far-reaching implications for short sellers as a result of the online trading rammy, amid a growing democratisation of markets driven by the rise of social media.

Meanwhile, new research by New York-based quantitative hedge fund Two Sigma Investments lays out in detail how the episode sent factor-based investment metrics into a tailspin, with one factor which measures crowding in short positions registering its biggest slide since its inclusion into Two Sigma’s Venn analytics tool.

In a guest column for Hedgeweek, Stephen Oxley, managing director of the Institutional Relationship Group at PGIM, places the convergence of liquid and illiquid alternatives under close scrutiny, and “baulks” at the idea of blurred lines between hedge funds and private equity, two sectors which have very different liquidity profiles.

Elsewhere, ESG and sustainable investing continues to provide fertile ground for hedge funds. This week’s feature story examines how BNP Paribas Asset Management’s Environmental Absolute Return Thematic (EARTH) hedge fund has seen its performance soar since launching last summer, and explores how the green-focused strategy is capitalising on the wide assortment of environmental challenges that confront companies across a range of sectors.

Hugh Leask
Editor, Hedgeweek

 

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