Brief: For years, hedge funds have blamed placid markets for their uninspiring returns. That excuse won’t fly this year. Volatile markets in which stocks move less in lockstep should be a recipe for making money. But much of the industry is struggling, and clients are losing patience. “This year separates the adults from the children,” said Tim Ng, chief investment officer of Clearbrook Global Advisors, which invests in hedge funds. “If you are a fundamentally driven, bottoms-up securities manager across any asset class, this should have been the year when you did well. Everything you’ve wanted for years exists.” The $3.3 trillion industry gained 0.4% through October, according to the Bloomberg Hedge Fund Indices, trailing both stocks and bonds. Hedge Fund Research Inc.’s index looks worse, showing a drop of more than 4%. Big winners include Brevan Howard Asset Management and Coatue Management, and in the losing column are firms such as Bridgewater Associates, whose flagship fell 19% through Nov. 5. Some investors in struggling funds are asking: If they couldn’t make money before and still can’t now, why keep them? “It’s getting harder to have conviction in hedge funds,” said Adam Taback, chief investment officer of Wells Fargo Private Wealth Management, another allocator. “Many have not protected enough on the downside and others haven’t provided enough upside.” Taback said he isn’t cutting funds from client portfolios, though the bar for getting recommended is higher. He believes more fund shutdowns are coming.
Brief: The coronavirus crisis, Brexit, climate change and the end of the Donald Trump-era will disrupt markets and challenge investors and policy makers heading into 2021. To help sort through the issues, Bloomberg is hosting the Future of Finance conference, a virtual event with leading figures from banking, insurance, regulatory agencies and central banks. On Tuesday, Robert Kaplan, head of the Federal Reserve in Dallas, told the event that the resurgence of Covid-19 jeopardizes the next two quarters for the U.S. economy, which is poised to bounce back. On Thursday, speakers include Felix Hufeld, head of Germany’s financial regulator BaFin, Austrian Finance Minister Gernot Bluemel and Erste Group CEO Bernd Spalt. Key Developments on Wednesday: Deutsche Bank’s Americas chief Christiana Riley said a wave of trading has been unleashed in recent days by vaccine news and clarity in the U.S. election Allianz CEO Oliver Baete said the risks are increasing for a “massive shock” to the global economy as businesses and consumers become less willing to invest in the future.
Brief: Despite extreme levels of market volatility, increased trading volumes and disruptions to society due to Covid-19, alternative fund managers have persevered, and even exceeded, performance expectations from investors. Nonetheless, managers continue to face challenges in addressing important areas of focus, including environmental, social and governance (ESG) products, and diversity and inclusion (D&I), according to the 2020 EY Global Alternative Fund Survey. In times of change, does accelerated adaptation present obstacles or opportunities? – the 14th annual survey (formerly the EY Global Hedge Fund Survey) – reveals that total allocations to alternative investments remain relatively unchanged; however, the competition between asset classes continues to intensify. Following a multiyear trend, allocations to hedge funds shrunk again to just 23 per cent in 2020, compared to 33 per cent in 2019 and 40 per cent in 2018. Investments in private equity and venture capital remained stable at 26 per cent, while investments in private credit increased from 5 per cent to 11 per cent as many market participants anticipate Covid-19 initiating a credit cycle that will create opportunities for these managers. A shift in alternative products is not the only change this year. Hedge funds have been expanding their offerings, or tapping into new markets, such as private asset classes in particular, via a variety of unique structures. More than 40 per cent of hedge fund managers are currently offering co-investment vehicles or best-idea portfolios, and, additionally, almost 20 per cent of managers are creating side pockets, which allow investors an election to participate in illiquid investments within a broader portfolio.
Brief: Pfizer CEO Albert Bourla sold almost $5.6 million worth of stock on Monday, the same day the drugmaker announced positive early data on its experimental coronavirus vaccine that sent shares soaring. Shares of Pfizer jumped by almost 15% on Monday after the company and its partner BioNTech said its vaccine was more than 90% effective in preventing Covid-19 among those in the trial without evidence of prior infection. Bourla sold 132,508 shares at an average price of $41.94 per share, or nearly $5.6 million, according to securities filing. The sale was part of a pre-scheduled 10b5-1 trading plan, which was adopted on Aug. 19, the filing shows, as the company was enrolling participants in its late-stage trial. The sale accounted for 61.8% of the shares owned both directly and indirectly by Bourla. He still owns 81,812 both directly or indirectly, the filings show. Pfizer confirmed the sale in a statement and added that Bourla has a larger holding in the company through the company’s “qualified and nonqualified savings plans,” which likely means stock options. “After being with the company for more than 25 years, Albert owns a substantial amount of Pfizer stock under our qualified and nonqualified savings plans,” a Pfizer spokesperson said in a statement. “He now holds approximately nine times his salary in Pfizer stock after the sale this week.”
Brief: Pandemic payment breaks on European loans totalling billions of euros threaten to undermine efforts by the region’s banks to put the coronavirus crisis behind them. Some of the millions of borrowers who were given repayment holidays by banks and governments across Europe shortly after the outbreak of the pandemic still need relief as a second wave of lockdowns squeezes the economy and puts people out of work. But the longer their loan repayments are kept on ice, the bigger the potential problem for banks as debts stack up, making them more difficult to tackle. The European Central Bank’s chief supervisor Andrea Enria has warned of a “huge wave” of unpaid loans that could top 1.4 trillion euros and has cautioned against postponing writing them off, warning that waiting for loan moratoria to expire could see many borrowers “unravel at once”. Although the volume of loans on pause fell sharply over the summer, a Reuters survey and analysis of the latest data available shows that loans totalling about 320 billion euros ($380 billion) were still on a payment holiday at 10 of Europe’s biggest banks. In Ireland, banks started to phase out payment holidays in September, a move Michelle O’Hara, a manager at a charity advising those in debt difficulty, said prompted a call surge.
Brief: With certain aspects of the EU’s ongoing MiFID II review affected by the coronavirus pandemic, Hedgeweek explores how a fresh overhaul of the framework may further impact hedge fund operations, and why the Covid-19 crisis may provide an easing of the regulatory burden. Introduced in January 2018, the European Union’s Markets in Financial Instruments Directive (MiFID) II brought sweeping changes to transparency rules and transaction reporting requirements across the financial markets spectrum. Among the major reforms impacting hedge funds was a package of measures covering third party research. These included extra scrutiny over the ways that asset managers pay for sell-side analysis, and the unbundling of research from brokerage fees, a move aimed at curbing inducements to trade. Almost three years on, industry consensus indicates MiFID II has led to a reduction in hedge fund research spend. But anecdotal evidence also suggests portfolio managers have sought to capitalise on the reduced amount of stock analysis with targeted research budgets to help them gain an edge. The European Commission kicked off an industry-wide consultation on its planned MiFID II review in February this year. But certain parts of the review have been delayed as a result of the Covid-19 pandemic, with ESMA expected to report back on these in early 2021.