Fund manager investor surveys

Written By: Xi Dong, Qi Liu, Lei Lu, Bo Sun, Hongjun Yan Abstract The authors analyze a model in which an anomaly is unknown to arbitrageurs until its discovery, and test the model implications on both asset prices and arbitrageurs’ trading activities. Using data on 99 anomalies documented in the existing literature, they find that the discovery of an anomaly reduces the correlation between the returns of its decile-1 and decile-10 portfolios. This discovery effect is stronger if the aggregate wealth of hedge funds is more volatile. Finally, hedge funds increase (reverse) their positions in exploiting anomalies when their aggregate wealth increases (decreases), further suggesting that these discovery effects operate through arbitrage trading.…

TOP 50 BEATS THE MARKET BY MORE THAN 23 PERCENTAGE POINTS IN 2022 Bucking virtually all market trends, Global Investment Report’s Top 50 hedge funds gained more than 5 percent last year. With fund selection based on the most consistent historical performance through 2021, more than two thirds of the group delivered positive returns in 2022. Leading the way were global macro, multistrategy, and volatility arbitrage funds. This year-end report includes full-year 2022 returns of each fund in the Top 50, analysis and interviews of leading fund managers, and insights from major hedge fund allocators about what to expect.…

Written By: Yigit Atilgana, K. Ozgur Demirtasb, A. Doruk Gunaydinc and Mustafa Oztekind Abstract Extant research provides evidence for financial innovation’s contribution to market efficiency by documenting that hedge funds which bet on positive earnings surprises manage their sector risk by shorting industry exchange-traded funds (ETFs). The authors add to this literature by considering a hypothetical hedge fund that can anticipate positive earnings news. They construct return series for a naked strategy that only takes long stock positions and a hedged strategy that also holds short positions in industry ETFs around earnings announcements with positive content. The main result is that hedging with industry ETFs improves fund performance based on various reward-to-risk ratios. This finding holds in various equity subsamples and both strategies tend to perform better among riskier stocks.…

Written By: Yong Chen, Sophia Zhengzi Li, Yushan Tang, Guofu Zhou Abstract This paper identifies nine factors out of a large set of anomalies and macroeconomic factors for explaining hedge fund returns by using machine learning methods. The new factor model outperforms existing models both in sample and out-of-sample. Moreover, the model leads to a significant reduction in hedge fund alphas compared with other models, while revealing substantial cross-sectional performance heterogeneity. Further subsample analysis provides evidence of style shifting in the hedge fund industry. Overall, the proposed factors quantify well strategies and risk exposures of hedge funds and can be used for fund performance evaluation.…

Written By: Michael Bowe, Olga Kolokolova, Lijie Yu Abstract This paper examines the impact of investment banks’ prime brokerage connections to hedge funds on the choice of an advisor and the deal outcome in M&As. Acquirers are more likely to choose advisors connected to hedge funds that hold equity in the target before the deal announcement. Such connections reduce deal duration, increase the likelihood of deal completion, and increase the acquirer abnormal return when target firms are characterised by a high degree of information asymmetry, suggesting an ‘indirect toehold’ mechanism of information transmission.…

The Top 50's Remarkable Outperformance Spiking volatility fueled by rising interest rates, high energy costs, and sustained inflation sent the market plummeting by nearly 24% through the first three quarters of the year. Russia's increased shelling of critical Ukrainian infrastructure as winter sets in is turning the war even more horrific. This is ratcheting up geopolitical tensions and global economic uncertainty as Europe appears headed for recession that's likely to jump the Atlantic and hit the US in 2023. And growing liquidity concerns threaten to turn this troublesome brew toxic. All this makes the Top 50 hedge funds’ performance even more noteworthy. The group was up nearly 4.5% year-to-date through September, outpacing the market by 28 percentage points. Outperformance continues to be driven by multistrategy, volatility arbitrage, and global macro funds. In addition to extensive data reporting and analysis, this update includes interviews and commentary from Graham Capital Management's Ken Tropin, hedge fund manager Dan Zwirn, economic historian Niall Ferguson, economist and senior fellow at the American Enterprise Institute Desmond Lachman, and New York Times columnist Thomas Friedman.…

Written By: Andrew J. Sinclair, Chuyi Zhang Abstract We use a novel fund-level measure to identify 877 retail hedge funds. On average, retail funds do not underperform, either on an absolute basis or relative to institutional funds. In the cross-section, 14.3% of retail funds produce positive alpha and performance is predictable: funds with low systematic risk outperform, and poor performing funds persistently underperform. Turning to investor behavior, retail investors are “hot money” and are more likely to divest following poor performance. They do not exhibit selection ability but are not “dumb money,” and they also chase alpha and ignore (or avoid) common factor returns.…

A First Half Of Historic Divergence July brought some relief: a market rally, a soaring jobs report, and inflation numbers that didn’t accelerate as commodity prices continued their decline. This may suggest to some investors we’re past the worst of the bear market. But inflation remains stubbornly high, rising interest rates are threatening recession, food and energy insecurity are growing more acute, and serious supply chain issues remain. Somewhat forgotten: The tragic six-month Russian war against Ukraine shows no signs of letting up, exacerbating macroeconomic and security problems and raising geopolitical tensions. All of this has contributed to one of the market's worst first-half starts since the Great Depression. More remarkable that the Top 50 Hedge Funds ended the first half of 2022 in the black, outpacing the market by 21 percentage points.…

Hedge Fund Investing During a Time of War Like the 2020 edition, this year’s survey collides with a seismic event — a geopolitical shock wrapped around soaring inflation, rising interest rates, and weakened supply chains. Several key takeaways: Over the past five years through 2021, the Top 50 hedge funds collectively generated net annualized returns that trailed a red-hot S&P 500 by just several percentage points, but did so with significantly less risk. The group’s largely uncorrelated returns produced a 5-year Sharpe Ratio that was more than 60 bps higher than the market. Equity, multistrategy, and credit funds led the way, and nearly half of the Top 50 were smaller funds, managing less than $1 billion. As was shown in the 2020 survey, the current Top 50 funds have again preserved capital better than the S&P 500 during the first quarter drawdown. They delivered positive returns, having outpaced a declining market by more than 7 percentage points through March. This year’s survey includes interviews with leading managers and allocators from Citadel, Amundi, Generali, EFG International, NS Partners, along with six hedge fund managers who made this year’s Top 50.…

Fourth Quarter Market and Performance Update The S&P 500 soared nearly 29% in 2021, nearly half of which was generated just in the 4th quarter in spite of clear threats to growth. It was during these last 3 months of the year when the gap between the index and the Top 50 Hedge Funds drastically expanded from nearly 5% to more than 18%. While most of the 50 sustained their historical annualized returns, two basic factors drove last year’s performance gap. One: the 10 largest contributors to the S&P 500’s returns were responsible for more than one-third of the index’s total gains. Two: the reversal in fortunes suffered by a handful of veteran hedged equity and global macro managers who had a long history of consistent solid returns. This report will explore why this occurred. Note: two thirds of the 4th-quarter gains linked to the index's top contributors’ were lost during the first 7 weeks of 2022 —before Russia invaded Ukraine.…

Third quarter volatility ended up sending many trends sideways, leaving the market and the hedge fund industry flat for the period. Meanwhile, hedged equity, macro, and emerging market managers helped the Top 50 funds add nearly two full percentage points during the quarter. This select group outperformed the BarclayHedge average hedge fund return by 2.3% through the first 9 months of 2021, narrowing the amount by which it trails the market.…

Fewer than half of hedge fund managers currently consider environmental, social and governance (ESG) factors when selecting equity securities for their portfolios. But, of those that do take ESG into account, ESG ratings factored in the inclusion of more than half the assets currently in their portfolios. The significant role ESG ratings play in a significant number of investment decisions is the key takeaway from the latest Barclay Hedge Fund Manager Survey, a quarterly report on the sentiments of professionals in the alternative investments sector. Other significant findings include: Hedge Fund Managers who consider ESG factors in their investments will allocate well over half their assets next year based on ESG rankings. Most managers using ESG ratings do so to screen candidates for both Long and Short positions. Governance is the factor weighed most heavily by those managers using ESG scores. On average, managers considering ESG factors in their investments have been doing so for nearly six years. Here are the survey’s detailed findings about hedge fund managers’ consideration of ESG factors: Q1: Do you currently take ESG factors into consideration when selecting equity securities for portfolio inclusion? Q2: How long have you been taking ESG factors into consideration when making an investment? On average, managers considering ESG factors in equity investment decisions have been doing so for 57 months. Survey respondents included managers who’ve just begun considering ESG factors to many who’ve applied them to investment decisions for more than eight years. While the concept of “socially responsible investment” has a longer history, the introduction of considering more specific environmental, social and governance factors in investment decisions dates to the early 2000s. Q3: What percent of your assets are currently allocated based on ESG ratings? Of those considering ESG factors in equity investment decisions, on average 52% of assets are currently allocated based on ESG ratings. Among those surveyed, 41% of respondents indicated that ESG ratings factored into 100% of their asset allocations. While several of those who indicated ESG ratings factored in 100% of their allocations are also among those who’ve been considering ESG factors the longest, there were some managers who’ve considered ESG ratings only recently. Clearly, they’ve decided to go all-in with their ESG-based investment strategies from the start. Q4: What percent of your assets did you allocate last year based on ESG ratings? On average, among those considering ESG factors, 42% of last year’s asset allocations were based on ESG ratings. Responses ranged from 0% of allocations to the several respondents indicating they allocated 100% of assets based on ESG ratings. It would be interesting to see if the average increases in coming years, and whether more hedge fund managers reach the 100% allocation rate. Q5: What percent of your assets do you anticipate allocating next year based on ESG ratings? In fact, respondents’ allocation plans for next year indicate that the percentage of equity investments based on ESG ratings is likely to increase. Respondents indicated that on average 58% of next year’s allocations will be based on ESG factors, a significant increase from last year’s 42%. The trend is consistent with reports that ESG investing grew at record levels during this year’s first quarter. Q6: If you are using ESG considerations in your security selection process, how are you implementing those considerations? Of those employing ESG factors in their security selection process, a considerable majority – 61.5% — do so to screen candidates for both Long and Short positions. Slightly more than a third – 38.5% — do so solely to screen candidates for Long positions. No respondents reported using ESG factors solely to screen candidates for Short positions. Q7: If you use ESG scores for selecting Short candidates, which ESG factors do you weigh most heavily? Governance is far and away the ESG factor weighed most heavily by investors considering Short candidates. Of those surveyed, 61.1% chose governance as the most significant ESG criteria in considering Short candidates, while 27.8% said they weigh environmental factors most heavily and 11.1% said sustainability was their top consideration. This is another finding that probably shouldn’t be surprising given the positive correlation studies have shown between governance and company performance. Q8: If you use ESG scores for selecting Long candidates, which ESG factor do you weigh most heavily? While the emphasis remains on governance for most investors viewing Long candidates through an ESG lens, the percentage is slightly less than for Short candidates at 55.6%. The emphasis on environmental factors also is somewhat less in considering Long candidates at 18.5%. The difference is in the consideration of social sustainability factors, 25.8% for Long candidates. The larger emphasis on the “S” in ESG for Long candidates may well reflect growing investor recognition of the value of intangible assets like brand or customer loyalty – and how easily the value of those assets can be eroded through reputation-damaging human capital or supply chain events or other negative social factors. Q9: Several firms publish ESG ratings/scores. Which publisher is your preferred provider? Survey respondents indicated a preference for four sources of ESG ratings and scores. Bloomberg and Sustainanalytics led the way, each favored by one-third of those surveyed. MSCI was selected by 20.8% of those surveyed and Thomson Reuters by 12.5%. While the concept of “socially responsible investment” has a longer history, the introduction of considering more specific environmental, social and governance factors in investment decisions dates to the early 2000s. Of those considering ESG factors in equity investment decisions, on average 52% of assets are currently allocated based on ESG ratings. Among those surveyed, 41% of respondents indicated that ESG ratings factored into 100% of their asset allocations. While several of those who indicated ESG ratings factored in 100% of their allocations are also among those who’ve been considering ESG factors the longest, there were some investors who’ve considered ESG ratings only recently. Clearly, they’ve decided to go all-in with their ESG-based investment strategies from the start. Note: The Barclay Hedge Fund Manager/Investor Survey went out to hedge fund professionals between June 24 and July 11, 2019. We received 70 responses from people working in hedge funds and commodity trading adviser (CTA) funds.…

Hedge fund investors are coming to terms with the likelihood of slower economic growth and a gradual uptick in interest rates in 2019, according to the latest BarclayHedge, MPI Hedge Fund Investor Survey. Those concerns could be driving a shift in investor interest toward global macro managed futures and fixed income and away from equity strategies in the year ahead.…

Artificial intelligence and machine learning are here to stay in the hedge fund industry, but the humans are still making the most critical decisions.…

February’s spike in volatility prompted nearly half (42.1%) of investors to adjust their equity market outlook, according to the results of the BarclayHedge, MPI Volatility Angst Survey. Investors also cited rising rates and growing geopolitical tension as cause for concern in the year ahead.…

A survey conducted by BarclayHedge among the CTA community has revealed considerable uncertainty about the investment value of the new Bitcoin futures contracts offered from December 2017 by CBOE and CME.…

Year-end is traditionally a time when investors review their investment portfolios and make decisions about how to best rebalance their holdings for the coming year. As we approach the end of 2017, BarclayHedge surveyed fund of funds managers and other large investors to find out which sectors they most favor for 2018.…

Little Expectation that Gains Will Be Shared Broadly…

Cryptocurrencies appear to be taking the world by storm, but many alternative investment managers are unconvinced. A survey conducted by BarclayHedge finds that more than two-thirds of hedge fund managers have no intention of investing in cryptocurrencies.…

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The August Fund Manager Survey takes a look at machine learning and artificial intelligence (AI). After many false starts, these disciplines are having a big impact on every aspect of business that is data driven and are finding advocates in the trading and investing realms. We queried hedge fund managers and CTAs and asked for their opinion and position in this area; here are the findings.…

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Fund fees have been coming under pressure from investors. In order to get a clearer picture of how fund managers are responding, we've asked two questions on the topic.…

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