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March 21, 2013 7:37 pm
The first quarter is likely to be one of the strongest ever for some hedge funds, in spite of a host of macroeconomic concerns worrying many mainstream investors.
European equity-focused hedge funds have fared particularly well.
Lansdowne Partners, Europe’s largest equity hedge fund manager, has seen its flagship vehicle, run by Pete Davies and Stuart Roden, rise 7.75 per cent in the first two months of the year. The fund has profited from bets on Lloyds Banking Group and retailer Ocado, according to an investor.
Crispin Odey, head of Odey Asset Management, has seen his main fund rise 11 per cent this year thanks in part to profitable investments in Man Group, and a short position against newspaper group Trinity Mirror.
Other blue-blood European performers include Sloane Robinson, which has seen its global fund rise even more – 17 per cent – in the same period, and Egerton, up more than 8 per cent.
The performances compare with a 7 per cent rise in the FTSE All-World Index of global equities since the beginning of this year and around a 8.5 per cent gain in the S&P 500 index.
“Last year and in 2011, everybody jumped at every shadow,” said Luke Ellis, president of Man Group, the world’s second-largest hedge fund. “This year, if you look at the shadows – the Italian election, sequestration in Cyprus, things that would have caused a massive run for the doors – we have been able to ignore them.
“People have been able to stay in their positions without being knocked out.”
Many hedge funds have until now disappointed with a dire past three years of performance relative to most other asset classes. According to Hedge Fund Research, the average hedge fund has made just 8 per cent over the past five years.
Managers have blamed high correlations between assets, driven by unpredictable political intervention in markets, for their troubles. So-called “risk on, risk off” shifts in sentiment have dashed their ability to invest based on fundamentals, or even on momentum – the hedge fund industry’s two biggest trading styles.
This year, they believe, will prove more fruitful because markets appear to be more immune to new shocks from the eurozone, while other macroeconomic events – such as greater monetary easing in Japan – have been telegraphed enough for managers to be able to position accordingly for them.
While investors’ faith in the industry has largely been undimmed, managers themselves have sometimes struggled to come to terms with the difficult conditions in recent years and the lack of boomtime bonus windfalls.
A spate of high-profile traders threw in the towel last year, including Greg Coffey at Moore Capital Management and Christopher Rokos at Brevan Howard.
The industry’s biggest new launch since the crisis began, Edoma Partners, a spinout from Goldman Sachs, meanwhile shut down in November because of its “disappointing” performance.
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