End of year report card: Hedge funds

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Performance: D-

The class last year got a D-. Sadly performance has been even worse in 2016 with many strategies losing money. Hedge funds in the Lyxor Hedge Fund Index lost 1.6% for investors in the year to November 28, particularly disappointing was the performance of the class’s most well-known strategy – long/short equity, with the Lyxor long/short equity index losing 4.2% over the course of the year.

Some pupils who were formerly top of the class continued to show lacklustre performance, including Alan Howard and Crispin Odey.

However, the sharp moves in currencies and bond yields following Donald Trump’s unexpected presidential victory in November helped pick up performance for some funds and ignited a hope that trading opportunities – suppressed by quantitative easing – would return. If so Master Howard and Ewan Kirk of Cantab may have a better 2017.

A number of well-known firms, such as Perry Capital and Bluecrest Capital Management in December 2015, decided to call it a day, shutting their doors to external capital.

Behaviour: C

The debating society’s motion on “This house believes Britain should leave the EU” attracted strong interest (and funding) from the class. Hedge fund pioneers Paul Marshall and Crispin Odey both backed the Leave campaign, while Winton Capital Management’s David Harding, Caxton Associate’s Andrew Law and Cantab’s Ewan Kirk all donated to the Remain camp. We applaud this willingness to engage in extra-curricular activity.

There was also much to applaud on fees. Firms such as Brevan Howard, Caxton Associates and Pershing Square Capital all offered some version of fee breaks in 2016 and more broadly, fee levels continue to tick down across the asset class – although not enough to keep many investors happy.

Areas to work on

The class desperately needs to improve its grades. The end of quantitative easing and low interest rates could be a boon to hedge funds and help boost returns say some managers and investors. But further cutting fees and creating lower cost products such as Ucits or alternative beta products for investors would also be welcomed. Some hedge funds seem ready to drop out of the class and switch to a broader asset management curriculum with a specialism in asset gathering and management fees – they should be warned that this is a very competitive group also.

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