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Weekly Brief: Hedge funds rebound as market conditions normalise

All lights turned green for Hedge funds after a difficult start to the month. All strategies ended the week in the black pushing the Lyxor Hedge Fund index higher, however, the index remains negative at -0.2 per cent month to date. Earlier in May, the higher volatility regime exhibited by several asset classes impacted hedge funds negatively.


Philippe Ferreira

Head of Research – Managed Account Platform

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All lights turned green for Hedge funds after a difficult start to the month. All strategies ended the week in the black pushing the Lyxor Hedge Fund index higher, however, the index remains negative at -0.2 per cent month to date. Earlier in May, the higher volatility regime exhibited by several asset classes impacted hedge funds negatively.

CTAs recovered well, posting 1 per cent over the week, though the strategy remains the worst performer month to date. The relief came from the rebound in equity markets and lower bond yields in Europe following comments by the ECB announcing that it will front-load asset purchases in May and June to take into account lower liquidity during the summer. Global Macro managers also gave back performance at the beginning of May but overall fared better than CTAs. The Lyxor Global Macro index ended the week up 1 per cent on the back of a stronger USD and positive equity performances.

Event Driven continued trending upwards last week, in line with our expectations. US special situation managers outperformed peers as they benefited from positive developments in several deals including: SunEdison, Yum! Brand and Altera. More generally, the current month is turning out to be a good month for Event Driven, with more than 80 per cent of the managers in our sample being positive month to date and half of the funds being up in excess of 4 per cent YTD.

L/S Equity also performed well with EM managers leading the pack, still buoyed by positive momentum in Asia. With multi-strategy managers also contributing to returns, most L/S Equity managers finished the week in positive territory. In Europe, strong alpha on the long side of the book helped several managers to outperform the indices despite limited net exposure. The L/S Equity remains the best performing strategy YTD with 50 per cent of funds above 4 per cent YTD and several above 10 per cent.

Last but not least, Credit and Fixed Income strategies remain ahead of the pack in May. Credit has been sheltered from the recent spike in volatility in fixed income markets and HY spreads continue to tighten globally. Fixed Income managers have benefited from the rise in volatility which has increased arbitrage opportunities.

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