Brief: Fund managers have suffered heavy outflows since the onset of the Covid crisis, haemorrhaging tens of billions of dollars as the pandemic wreaks havoc on markets. But there are bright spots. Equity funds that make so-called "thematic" bets pulled in a net $22bn across Europe during the first six months of the year, according to data from Broadridge. Non-thematic funds posted outflows of $57bn in the first six months of the year across the region. Thematic funds invest around a specific theme or niche area of the market — think emerging technology, sustainability, healthy living or changing consumption. The Broadridge figures demonstrate how investors have been on the hunt for trends that will emerge stronger from the pandemic. “European investors are making this long-term bet,” said Kieran Kothari, a consultant in the global insights team at Broadridge. He said he's seen an acceleration in demand. “In an uncertain world, they have homed in on thematics for their potential to outperform global equities.”
Brief: After global stock markets suffered their steepest sell-off since June, Hedgeweek rounds up a range of perspectives from across the hedge fund spectrum, gauging the broader impact of this week’s unexpected reversal and the potential for renewed market volatility up ahead. The sustained momentum in global equities that yielded positive returns for an assortment of hedge fund strategies in recent months came to an abrupt halt this week, with major US technology companies first in the firing line during the rapid reversal. The tech-dominated Nasdaq 100 took its biggest tumble since the historic Covid-19-driven crash back in March, slumping almost 5 per cent on Thursday. The S&P 500 slipped 3.5 per cent – its worst day in three months – and the Dow Jones fell 2.8 per cent, with the FTSE 100 meanwhile dropping 1.4 per cent. Stephen Crewe, a director at multi-strategy manager Fulcrum Asset Management in London, believes the sell-off appears to be predominantly US-centric, and likely to be short-lived. Observing the correlation between US growth and value indices, Crewe said the short-term correlation between returns had turned negative, a rare development which last happened back in 2000.
Brief: Billionaire hedge fund titan Daniel Loeb is prepping clients for a potential coronavirus vaccine as soon as the end of 2020. "We have spent significant time with scientific experts to better understand evolving treatments and vaccines, and have confidence that several will be effective and available later this year," the hedge fund manager said in a 6 August investor letter seen by Financial News. Loeb said in the letter that a vaccine or medicine for Covid-19 "should lead to the next phase of market recovery in coronavirus‐affected companies." "Our equity portfolio is balanced between companies that are doing well now, and later-stage recovery names in aerospace, entertainment, and retail, which are still trading near their March lows and should benefit when there is a move back into these sectors." Loeb's comments came on 6 August, before the US government told states to prepare for a coronavirus vaccine to be ready to distribute by 1 November. The timing of the potential treatment raised concerns about the White House playing politics with the pandemic — the US presidential election is scheduled to be held two days later. After a rocky start to the year, Third Point has made smart bets in the last few months. The hedge fund swung to gains after the billionaire overhauled the portfolio, with the Third Point Offshore Fund posting gains of 4.4% for the year, after a jump of 8.4% last month, according to a performance update sent to clients on 31 August and seen by FN.
Brief: Despite the devastating impact of the pandemic on economies around the globe, the real estate markets of Japan, Germany and South Korea showed resilience in the first half of this year as they leant on deep domestic pools of capital. As widespread lockdowns and travel restrictions stalled investors’ short-term capital deployment plans, commercial real estate investment fell 29 percent globally to US$321 billion in the first six months of 2020 compared to the year-earlier period, according to data from JLL. Yet, despite the widespread drop in investment, Japan, Germany and South Korea all outperformed the broader market in the first half of the year. In Japan, deal volume climbed seven percent to reach US$24 billion. Germany dropped a mere 1 percent, and, despite sliding 15 percent, South Korea outperformed its long-term, first-half average. “Countries that acted quickly and effectively to contain the spread thus far have generally been more resilient both in terms of domestic commerce and commercial real estate investment,” says Sean Coghlan, Head of Global Capital Markets Research, JLL. “Aside from rigorous efforts to contain the spread of the virus, these countries also benefitted from relatively high levels of market transparency, deep pools of domestic capital and strong government stimulus.”
Brief: After a dip in transactions in 2019, the coronavirus pandemic could see private equity companies target European telecom operators, experts told S&P Global Market Intelligence. As demand for telecom services increased during the pandemic, the industry offers cash flow visibility, as well as some potential bargains, the experts said. "Fixed networks gained importance as a utility during COVID-19," Hendrik Wiersma, a senior credit analyst who covers tech, media and telecoms at ING, said. "Private equity tends to target sectors with predictable cash flow generation with high margins." The rollout of fiber broadband in the region is also expected to encourage deals between carriers and private equity, they said. "These [fiber] deployment programs act as a lever for investment as they deploy a certain amount of capital with a relatively stable return — and if you get government funds that subsidize that, that is even better," Markus Muhs, a Clifford Chance partner specializing in cross-border M&A, said. In April, the German government announced two low-interest loans from its state-owned bank to support private and municipal companies building out fiber internet.
Brief: Investors in a hedge fund that lost nearly $1 billion during the coronavirus-induced market crash earlier this year say "extreme risk taking" by fund manager Allianz Global Investors caused the fund to collapse in a proposed class action in New York federal court. A Teamsters Union retirement plan filed the suit Wednesday against AllianzGI, the investment management division of German financial services giant Allianz SE, alleging it abandoned its risk controls and meaningful downside hedging strategies for a fund purportedly designed to weather extreme market volatility. When U.S. equity markets experienced a crushing downturn in late February and March amid the COVID-19 pandemic, AllianzGI failed to take any meaningful steps to reduce the fund's risk and protect its investors, the complaint alleges. "AllianzGI's reckless throw of the dice in the late winter of 2020 — and its abject failure to meaningfully 're-balance' its 'market neutral' positions or acquire more than token hedge positions (despite having had plenty of time to do so) — proved to be a fool's bet and resulted in catastrophic losses of over 75% for the fund's investors," the suit claims. The complaint echoes claims made in other lawsuits filed over the summer related to losses from AllianzGI's "Structured Alpha" funds during market downturns related to COVID-19. Wednesday's suit deals with losses in Structured Alpha US Equity 500 LLC, an AllianzGI-managed hedge fund with the stated goal of outperforming the S&P 500 Index by 5% each year, net of fees and expenses.