Brief: Hedge funds saw their second-strongest monthly gain on record in November, following a surge driven by US election results and developments made in the search for a Covid-19 vaccine. According to data from Hedge Fund Research, the HFRI Fund Weighted Composite Index soared 6.2% in November - the strongest monthly gain since December 1999 and the second-strongest month since index inception in 1990. The HFRI 500 Index also increased by 4.6% for the month, increasing the year-to-date return to 5.6%. These gains were largely led by equity hedge strategies, which soared on the back of “positive” developments. The HFRI Equity Hedge Index increased by nearly 9% for the month. Kenneth J. Heinz, president of HFR, said: “Through the powerful and volatile macroeconomic and geopolitical trends which have defined 2020, institutions have continued to increase allocations to hedge funds and other alternatives, building in strong performance momentum and positioning for acceleration of these gains into 2020.” Blockchain and cryptocurrency exposures were also said to drive industry gains, as hedge funds continue to increasingly incorporate related exposures into new and existing fund strategies.
Brief : To support tourism, trade and e-commerce between Singapore and China, the Monetary Authority of Singapore (MAS) is working with the People's Bank of China in the area of digital finance, the central bank said on Tuesday (Dec 8). This is one in a slew of initiatives that will deepen financial cooperation between Singapore and China following an apex meeting between the two countries, the MAS said. It added that the measures will build on existing areas of collaboration, with the aim of supporting financing and investment activities to help Singapore and China recover from the Covid-19 pandemic. The initiatives were discussed at the 16th Joint Council for Bilateral Cooperation between Singapore and China, the highest-level bilateral platform between the two countries, on Tuesday (Dec 8), the MAS said. Another initiative is a 25 billion yuan ($5.11 billion) facility launched last month to help banks in Singapore meet their customers' growing business needs in Singapore and the region. Yuan funding of up to three months will be channelled to primary dealers - banks in Singapore approved by the MAS - through the authority's money market operations.
Brief: GMO, the investment firm co-founded by Jeremy Grantham, has started running a long-short strategy that is designed to profit from the bursting of the growth bubble the firm sees in the stock market. The GMO Equity Dislocation Strategy was first put to work in late October across the firm’s liquid alternatives and multi-asset portfolios, Ben Inker, GMO’s head of asset allocation, told Institutional Investor in a phone interview. The firm raced to create the strategy after observing excessive speculation in stocks as the market came roaring back from its Covid-19-induced crash in March. “By the spring, we had started to see ‘the stupid,’” said Inker. “If you’re not prepared to short the stuff that’s gotten drastically overvalued, you can avoid a lot of the pain — but that’s not going to make you money.” GMO’s new strategy — which is long cheap stocks and short those that are expensive globally — has the potential to produce cumulative net returns of around 80 percent, according to Inker. That’s similar to the gains reaped from the GMO U.S. Aggressive Long/Short Strategy that the asset manager built to profit from the bursting of the 2000 bubble in technology, media, and telecom stocks. “We see a very similar spread to what we saw then,” Inker said of the valuation gap between growth and value stocks. “In 2000, buying value stocks was a perfectly decent idea,” he added, “but buying value stocks and shorting growth stocks did a lot better.”
Brief: A Baillie Gifford & Co. health care fund run by an all-female team has surged past peers to a 65% gain this year, largely thanks to a far-sighted bet on medical stock Moderna Inc. The fund’s standout performer by far is Moderna, up about 700% this year, propelled by the recent success of its coronavirus vaccine trials. Other top holdings of the $80 million Worldwide Health Innovation fund also saw triple-digit rises, making it the best performing among European health care peers, according to Morningstar Inc. data. “The best way to think about Moderna is that they’re at the root of controlling biology -- anything that can be coded, Moderna can replicate,” said the fund’s manager Julia Angeles, who first invested in the company when it listed in December 2018. “I believed they could be one of those really unique companies that bridges the gap between biotech and technology.” The coronavirus sparked a rush by investors to bet on the winners in a race for a vaccine, with Pfizer Inc. and partner BioNTech SE soaring in the past month. Still, the nearest European peers to the Baillie Gifford fund trail it with gains of 13%-45% this year to November. The pandemic has had a mixed impact on the health care industry overall. Many patients with other conditions have shunned emergency rooms and doctors’ offices for fear of contagion.
Brief: Over half of private equity investors (LPs) will access the secondary market within the next two years, either as a buyer or a seller – or both, according to Coller Capital’s latest Global Private Equity Barometer. Investors’ main motivations will be to re-focus their resources on their best private equity managers (GPs) and to re-balance their portfolios for a post-Covid world. One third of Limited Partners will face liquidity shortfalls, which they plan to remedy through asset disposals and new credit facilities. GP-led secondaries are likely to play an important role, too. Well-structured GP-led processes are overwhelmingly popular with LPs – 85 per cent of whom regard them as a useful tool. “The secondary market played a vital role in private equity during and after the GFC,” says Jeremy Coller, Chief Investment Officer of Coller Capital, “and secondary capabilities have certainly evolved since then. If General Partners structure liquidity processes that offer genuine alignment to all parties – whether they’re buyers or sellers – Limited Partners will welcome them, to the benefit of all participants in the asset class.” Despite the suddenness of the pandemic’s onset, nearly all LPs declare themselves fairly or highly satisfied with how their GPs have communicated – a stark contrast to the Global Financial Crisis, after which 60 per cent of investors told the Barometer that they were dissatisfied.
Brief: Like a lot of hedge fund managers, Dan Loeb might be suspected of having a love-hate relationship with short selling. And who could blame him? But even though short bets have been painful for Third Point in recent months, Loeb is backing a new long-short equity firm, called Snowhook Capital Management, launched by the man who was formerly Third Point’s top short seller. When the Covid pandemic hit the markets in the early part of the year, Loeb’s Third Point portfolio was considerably shorter than it is now. But even so, Loeb has admitted he wasn’t prepared for what was to come. “We did not ascribe adequate probability to a full-blown global pandemic in our scenario analysis around Covid-19 nor to its blunt but necessary cure: a total economic shutdown in much of the world,” he told investors in his first-quarter letter. Third Point’s short book provided much-needed ballast during the storm, even as the fund sank in to the red, losing 16 percent during the first quarter. But as markets recovered, Third Point’s short positions have become among the top five monthly losers in five of the past nine months, according to the firm’s reports to investors. And in 2019, two of the year’s top five losers were short bets. By September, Third Point managing director Stoyan Hadjivaltchev, who oversaw the equity short book, had left the firm and launched a fund of his own.