Brief: Hedge fund liquidations in the first quarter jumped to the highest level in more than four years as the coronavirus pandemic triggered sharp losses across global markets. About 304 funds shuttered in the first three months of the year, the most since the fourth quarter of 2015, according to a Hedge Fund Research Inc. report released Tuesday. That represents an increase of more than 50% from the 198 liquidations in the last quarter of 2019. Meanwhile, about 84 hedge funds opened in the three-month period, the lowest quarterly estimate since the financial crisis, when startups totaled 56 in the fourth quarter of 2008. Closures have exceeded launches for seven consecutive quarters, according to HFR. Hedge funds have faced a tough money-raising environment for much of the last decade as investors revolted over high fees and lackluster returns. Now startups are dealing with the turmoil caused by lockdown restrictions and social distancing efforts designed to combat the Covid-19 crisis. But things may be turning around as institutional investors gear up for a return to choppy markets. A Credit Suisse Group AG report issued this week found that net demand for hedge funds was at its highest in at least five years going into the second half of 2020.
Brief: A federal face mask mandate would not only cut the daily growth rate of new confirmed cases of Covid-19, but could also save the U.S. economy from taking a 5% GDP hit in lieu of additional lockdowns, according to Goldman Sachs. Jan Hatzius, Goldman’s chief economist, said his team investigated the link between face masks and Covid-19 health and economic outcomes and found that facial coverings are associated with sizable and statistically significant results. “We find that face masks are associated with significantly better coronavirus outcomes,” Hatzius wrote in a note to clients. “Our baseline estimate is that a national mandate could raise the percentage of people who wear masks by 15 [percentage points] and cut the daily growth rate of confirmed cases by 1.0 [percentage point] to 0.6%... He first focused on to what extent, if at all, the actual use of face masks reduces the infection rate of Covid-19 by looking at differences in population behavior by state. For example, Hatizus found only about 40% of respondents in Arizona say they “always” wear face masks in public, compared with nearly 80% in Massachusetts.
Brief: Hedge funds are back in demand as institutional investors including pensions and endowments gear up for a return to choppy markets. Investors are favoring hedge funds heading into the second half of the year, with the industry garnering the most interest among 10 major asset classes, according to a Credit Suisse Group AG report released this week. Net demand, or the percentage of respondents increasing allocations minus the proportion decreasing them, is the highest in at least five years at 32%, the data show. “Given manager performance and the wider return dispersion we’re seeing, this is an environment where hedge funds can shine and separate themselves from the pack,” Joseph Gasparro, who helps hedge funds build capital as head of Americas capital services content at Credit Suisse, said in a telephone interview. “The incredible run-up in equities from late March to early June, the ‘easy money’ if you will, is likely not going to repeat. The environment going forward will include more uncertainties, with investors relying on hedge funds to help navigate.” Hedge funds have largely held their own as the spread of the coronavirus pandemic halted the global economy, ending Wall Street’s longest-ever bull market and seizing up credit markets…
Brief: Jefferies Financial Group Inc. Chief Executive Officer Richard Handler, fresh off the firm’s record quarterly revenue from trading bonds despite the challenges of working remotely, is taking pressure off his traders and bankers to return to the office anytime soon. “I am in awe of how our people became a virtual firm within days of learning about Covid,” Handler said in a phone interview Monday after posting results for the fiscal second quarter. “Our people will work from home until they feel safe coming back.” Handler is emphasizing flexibility a week after larger rivals including JPMorgan Chase & Co. and Goldman Sachs Group Inc. began recalling the first waves of employees to their towers. His New York-based investment bank lost its longtime chief financial officer, Peg Broadbent, from coronavirus complications in the early weeks of shutdown that forced much of the industry to work at home. “While we all want to come back,” Handler said, “no one is under pressure to come back immediately.” The firm’s fixed-income and equity traders brought in $730 million in the three months ended May 31, almost double the amount a year earlier.
Brief: Players in the direct lending market are sharpening their focus on portfolios, as companies battered by the coronavirus pandemic call on their creditors for help and concerns over deal structures intensify. The pandemic hit following years of growth in the direct lending asset class. A May report by Preqin said the asset class has been "the success story of the decade" in North America, with assets growing to $222 billion as of June 2019, compared with $85 billion at the end of 2007. The COVID-19 pandemic, however, could lead to the asset class falling "out of favor," with opportunities set to be focused on distressed debt and other strategies. "Direct lending is likely to become more attractive during a recovery period, as companies seek financing to get back on their feet," the report said. In Europe, direct lending deal volumes are expected to be less healthy than last year, Deloitte LLP said in its Deloitte Alternative Lender Deal Tracker Spring 2020 report. Deals totaled 484 in 2019, a 13.1% increase on 2018 numbers. European direct lenders raised the equivalent of $32.8 billion in capital to deploy, topping the previous record of $27 billion in 2017.
Brief: More than $8 billion is on the move in Charles Schwab Corp.’s exchange-traded funds, stirring speculation the firm could be adjusting the packaged strategies it offers clients as markets gyrate amid the pandemic. Over the past seven trading days, $4.6 billion has exited from a group of four ETFs including Schwab’s fundamental equity and intermediate-maturity Treasury funds. The firm’s emerging-market equity and inflation-focused bond offerings were among four products to rake in $3.9 billion at the same time. Schwab is the biggest holder of all of the funds, according to the latest available filings. The size of the flows -- more than half of the funds posted at least one record daily flow in the period -- and the broad range of ETFs involved is stirring speculation that Schwab is shifting exposure in its model portfolios. Such prefabricated packages of ETFs offer a one-stop solution to a client’s investment needs. Instead of spending time selecting individual funds, investors can pick a portfolio aligned with their goals and risk tolerance. It’s unclear how much cash follows such models, but it’s thought that when one makes a strategic shift, billions of dollars can move between ETFs.