Many hedge fund strategies reach positive territory in Q1
Skip to main content
pilogo-NEW
Subscribe
  • Subscribe
  • My Account
  • login
  • NEWS
    • Asset owners and the coronavirus
    • Alternatives
    • Consultants
    • Coronavirus
    • Defined Contribution
    • ESG
    • Frontlines
    • Hedge Funds
    • Investing / Portfolio Strategies
    • Money Management
    • Pension Funds
    • People Moves
    • Private Equity
    • Real Estate
    • Searches & Hires News
    • SECURE Act
    • Special Reports
    • WorldPensionSummit
    • Ron Schmitz
      Pandemic drives faster transition for Virginia to private markets
      Mubadala Investment Co. logo
      Mubadala draws on portfolio in coronavirus fight
      T.J. Carlson
      Texas Muni reduces downside risk during pandemic, finding opportunities now
      Scott Davis
      ‘Triage plan’ at Indiana system helped stem losses
    • Varagon Capital fills new business development role
      Fitch Group in deal to acquire CreditSights
      Credit managers’ outlook still gloomy but brightening – survey
      Digital Colony picks head of Europe capital formation
    • Will Martindale
      Cardano Group chooses group head of sustainability
      Meketa hires first chief marketing officer
      Nick Horsfall
      Redington names managing directors for investment consulting team
      Marsh & McLennan Agency sets sights on Compass Financial
    • New York State Common challenges Tyson’s dual-share stock structure
      Credit managers’ outlook still gloomy but brightening – survey
      Investors call for action on COVID-19-induced humanitarian crisis at sea
      U.S. jobs worker restaurant
      Job market slipped in December as virus surge hindered activity
    • Ascensus, Empower acquire Truist record-keeping business
      PCS Retirement acquires Alliance Benefit Group-Rocky Mountain
      David Ireland
      Sponsors returning to questions about in-plan annuities
      Shawn O'Brien
      Annuities coming to target-date funds, but not right away
    • New law requires MassPRIM to increase diversity of managers, consultants
      Impact investors getting savvier, more efficient – report
      SSGA alum named head of ESG at Mirova
      Aegon moves to cut carbon from workplace DC business
    • Blackstone holiday video
      Blackstone would like to show you how things are done around the office
      Galina Churkina
      Building research earns honor from Aquila Capital
      MacArthur Foundation invests in women’s safe housing fund
      CAIA’s expansion to online exams yields big results
    • The Sun Hung Kai Properties Ltd. logo is displayed on the Sun Hung Kai Centre building in Hong Kong on Sept. 13, 2018
      SHK spins out East Point Asset Management
      Man holding a business card with Hedge Fund written on it
      Hedge funds chalk up decade’s best returns in 2020 – HFR
      New hedge fund launches surpass liquidations in third quarter
      Michael Hintz
      CQS deal with spinoff team falls apart
    • New York State Common challenges Tyson’s dual-share stock structure
      A sign on the exterior of a Northern Trust Corp. branch in Chicago on July 13, 2017
      Northern Trust to cut 500 jobs
      Wells Fargo targets $8 billion in cuts
      Maine Public Employees boosts target to alternative credit
    • A sign on the exterior of a Northern Trust Corp. branch in Chicago on July 13, 2017
      Northern Trust to cut 500 jobs
      Wells Fargo targets $8 billion in cuts
      A sign at a China Telecom Corp. store in Shanghai on Jan. 6, 2021
      Managers make further divestments from sanctioned Chinese firms
      The Chinese flag flies in front of the Liaison Office of the Central People's Government in Hong Kong on May 22, 2020
      Standard Life Aberdeen JV to open mainland China pension insurance company
    • Maine Public Employees boosts target to alternative credit
      Los Angeles City Deferred Comp narrows list to 2 in manager search
      Connecticut pension fund CIO resigns
      Arizona State Retirement looking for CIO
    • Sharmila Chatterjee Kassam
      AIF Institute hires former Texas ERS deputy CIO as executive director
      Varagon Capital fills new business development role
      SSGA alum named head of ESG at Mirova
      Capital Group hires BlackRock executive to launch ETF unit
    • Pension funds continue private equity investing spree
      Big jump in private equity AUM expected over next 5 years
      Thoma Bravo takes in $22.8 billion for 3 funds
      Jason Thomas
      Data, technology become new prized possessions
    • Ivanhoe Cambridge Inc. signage is displayed outside the company's office near Bay Street in Toronto on Aug. 29, 2011
      Ivanhoe Cambridge, PAG announce joint venture for Japan logistics investments
      Residential buildings in Hong Kong on Feb. 20, 2020
      KKR closes first Asia-Pacific real estate fund at $1.7 billion
      CPPIB in deal with Greystar to develop U.S. housing
      Global real estate investments to hit $79 billion in 2021 – survey
    • Neal and Brady
      Retirement security could be only issue both sides accept
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
      Shawn O'Brien
      Annuities coming to target-date funds, but not right away
      David Ireland
      Sponsors returning to questions about in-plan annuities
    • Outlook 2021
      The top 10 stories of 2020
      The best places to work in money management
      Investment consultants
    • U.S. still a key market for investors
      Collected coverage of P&I's 2020 WorldPensionSummit
      Pedestrians pass a large advertisement on the Arndale Center shopping mall reading 'Act now to avoid a local lockdown' in Manchester, England
      COVID-19 puts new opportunities and risks on the agenda - WPS panelists
      Screens display stock price information over the trading floor of the NYSE Euronext exchange in Paris
      Private assets will continue to grow in portfolios – WPS panelists
  • Data
    • Research Center
    • Searches & Hires Database
    • Searches & Hires News
    • RFPs
    • Charts / Infographics
    • Sponsored Research
    • Trackers
    • Q2 2020 searches and hires overview report
      Q2 2020 money manager M&A activity summary
      Q2 2020 legal overview report
      Q1 2020 searches and hires overview report
    • San Jose Federated commits $11 million to real estate fund
      Essex Pension Fund on the lookout for private debt manager
      Lexington Contributory wants large-cap equity manager
      Fort Lauderdale fund scouting for large-cap manager
    • San Jose Federated commits $11 million to real estate fund
      Essex Pension Fund on the lookout for private debt manager
      Lexington Contributory wants large-cap equity manager
      Fort Lauderdale fund scouting for large-cap manager
    • International Small Cap Manager Services
      Financial Expertise
      Passive Index Manager Services
      Emerging Markets Equity Investment Management Services
    • U.S. fixed-income returns post another positive year
      Nasdaq delivers an impressive year
      U.S. dollar's recent decline continues
      Hedge funds warming up to financial sector, remain long U.S. equities
    • Institutional Investors: Shared Expectations, Divergent Paths
      Global Investor Study 2016
      Workplace Financial Wellness
    • U.S. Endowment Returns Tracker
      Pension Fund Returns Tracker
      Earnings Tracker
      Corporate Pension Contribution Tracker
  • Insights
    • Opinion
    • White Papers
    • Industry Voices
    • Letters to the Editor
    • Partner Content
    • Publisher's Update
    • Retirement cartoon
      Hopes rising for retirement readiness in 2021
      view gallery
      25 photos
      2020 in editorial Cartoons
      view gallery
      25 photos
      Cartoons depict a year like no other
      Consultants cartoon
      Seeking an investment consultant? Caveat emptor
    • Climate change and emerging markets after Covid-19
      An Asset Owner's Guide to Multi-Manager Portfolio Management
      Research for Institutional Money Management
      The Future of the U.S. Dollar - Dominant currency or one of many?
    • Michael McNally
      Commentary: New ‘investment-plus’ test poses risks to private equity investors
      Adam Waterous
      Commentary: Institutions urged to act now on opportunities created by current global oil disruption
      Ron Lagnado
      Commentary: Straw man critiques don’t hold up in face of real world success
      Robert Raben
      Commentary: What the asset management industry must do to bolster diversity
    • Writer using a typewriter
      OCIO industry needs to adopt GIPS
      Writer or journalist workplace. stock illustration
      Even as it assails China, Trump administration emulates it
      Skeptical of Main Street support for proxy adviser proposal
      Focus on manager diversity pushes asset owners’ to walk the talk
    • Sponsored Content By iShares
      ETFs are becoming a cornerstone of insurance equity portfolios
      Sponsored Content By Aberdeen Standard Investments
      Taking a passive approach to the hedge-fund universe
      Sponsored Content By World Gold Council
      Gold: the most effective commodity investment
      Sponsored Content By iShares
      For institutional investors, ETFs can make meeting liquidity needs easier
    • Help us help you by supporting quality journalism
      You Must Believe in Spring
      Everything Must Change
      Tomatoes & Investments
  • Multimedia
    • Videos
    • Webinars
    • Polls
    • Slideshows
    • Charts / Infographics
    • watch video
      1:24
      U.S. stocks were 2020’s comeback kid
      watch video
      1:23
      Outlook 2021
      watch video
      1:52
      Buy gold's pullback?
      Coronavirus and the S&P 500: 2020
    • Getting Back to Normal: How to Creatively Manage Fixed Income Portfolios in a Rising Rate Environment
      What might a Biden DOL and SEC mean for retirement plans?
      Staying on target with target-date funds
      The Institutionalization of Retail Part Two: A Webinar Series from P&I Content Solutions and Chestnut Advisory Group
    • POLL: Retirement issues in 2021
      POLL: Money managers' priority in Asia-Pacific region
      POLL: Retirement issues in the presidential election
      POLL: The S&P 500 in the third quarter
    • view gallery
      9 photos
      Coronavirus and the markets
      view gallery
      22 photos
      The 1,000 largest retirement funds: 2020
      view gallery
      10 photos
      Outlook 2020
      view gallery
      10 photos
      2019 as seen through the eyes of Roger
    • Graphic: U.S. stocks were 2020's comeback kid
      U.S. fixed-income returns post another positive year
      By the Numbers
  • Events
    • Conferences
    • Webinars
    • Defined Contribution Spring Virtual Series
      DC Investment Lineup Virtual Series
      ESG Investing Virtual Series
      Private Markets Virtual Series
    • Getting Back to Normal: How to Creatively Manage Fixed Income Portfolios in a Rising Rate Environment
      What might a Biden DOL and SEC mean for retirement plans?
      Staying on target with target-date funds
      The Institutionalization of Retail Part Two: A Webinar Series from P&I Content Solutions and Chestnut Advisory Group
  • Careers
  • Research Center
MENU
Breadcrumb
  1. Home
  2. Online
May 08, 2009 01:00 AM

Many hedge fund strategies reach positive territory in Q1

Christine Williamson
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    Updated with correction on June 1

    In a widespread reversal of fortune, many hedge fund strategies returned to modest positive performance in the first quarter of 2009.

    According to Morningstar Inc., average performance in the first three months of the year was positive for 68% or 15 of the 22 hedge fund strategies within its hedge fund database. Morningstar data, calculated exclusively for Pensions & Investments, is based on the funds managing more than $100 million from among the 8,000 hedge funds that report data to the fund researcher.

    That’s a big improvement over the fourth quarter, when 77%, or 17 of Morningstar's 22 hedge fund style classes, turned in deeply negative average returns.

    The average return in the first quarter for all hedge funds in P&I's customized universe was 0.42%.

    Hedge funds smartly outperformed traditional market indexes in the first quarter, with the average performance of every Morningstar style category beating the -11.01% return of the Standard & Poor's 500 index and the -12.5% performance of the Morgan Stanley Capital International World index. Only seven style categories — all in negative territory — failed to beat the 0.12% performance of the Barclays Capital Aggregate Bond index for the three months.

    Convertible arb stages a comeback

    With average performance of 12.45% in the first quarter, convertible arbitrage strategies outpaced all other Morningstar style categories and represented a big comeback for the style, which ranked 16th of 22 in the fourth quarter with an average return of -10.83%.

    Chicago-based Morningstar hedge fund analyst Nadia Papagiannis attributed the strategy's turnaround to events in the fourth quarter. She said hedge funds, the biggest holders of convertible bonds, were forced by high redemption requests for Dec. 31 distributions to sell off their securities en masse in the last three months of 2008, which drove prices down and widened spreads. But when spreads tightened last quarter, especially in January and March, convertible arb specialists who held on to their securities made big profits, Ms. Papagiannis said.

    The corporate actions style was even lower on Morningstar's average performance ladder, ranking at 20, with average performance of -12.99% in the fourth quarter. But it climbed to the second rung of first-quarter performance with an average 3.28%.

    Ms. Papagiannis said that after the fourth quarter, which was characterized by many broken merger deals and dried up financing sources, "some life returned to the space, led by bankruptcy- or government-led deals, especially distressed deals. While the total deal volume still was down compared to the same time in the previous year, it was much improved over what we saw in the fourth quarter."

    The 2.93% average return of multistrategy hedge fund managers in Morningstar's universe was good enough to make the category the third best performer in the quarter. Ms. Papagiannis said much of the improvement came from the high exposure managers had to convertible securities.

    A 2008 darling drops to the bottom of the pack

    One darling of hedge fund industry in 2008 — global trend strategies — fell to the bottom of the performance ranking as markets improved in 2009. Global trend managers, who follow strict trading processes that focus on global trends, were the second-worst performing of Morningstar hedge fund style classifications with average performance of -2.85% in the first quarter.

    "When markets whipsaw, it really impacts those quantitatively oriented trend funds badly," Ms. Papagiannis said. She said price gyrations in commodities, especially oil, gold and the U.S. dollar, left trend managers without a trend to follow. Global non-trend strategists who are less quantitative and use more fundamental analysis in securities selection did a fairly good job of neutralizing market impact in the first quarter, with average performance of -0.05%, Ms. Papagiannis said.

    Short equity managers, who did fairly well in the second half of 2008 and were the second best-performing style category in the fourth quarter with average performance of 4.4% were the victims of first-quarter markets, ending up in the 15th spot with flat performance of 0.13%.

    Cautious funds-of-funds managers miss rallies

    Hedge funds-of-funds managers "remained very cautious about market exposure after high redemptions in the fourth quarter. Many don’t want to do anything that will jeopardize their ability to maintain their businesses and had little market exposure, which meant they were not able to take advantage of the market rallies last quarter," Ms. Papagiannis said. She noted that the hedge fund of funds non-directional style category did fairly well with average performance of 2.54% in the three-months ended March 31 because managers did not take directional bets on market performance.

    Except for the fund of funds debt category, which ranked as the worst average performer in the quarter with -3.23%, the rest of Morningstar's style specific hedge fund categories were smack in the middle of the rankings with positive — although essentially flat — average performance.

    Every one of the 25 top-performing hedge funds in the Morningstar universe of funds managing more than $100 million was new to the ranking in the first quarter. There was much less style correlation among the 25 best performers in the first quarter, with a bias toward arbitrage strategies with 10 of the top funds falling into the convertible, equity or debt arbitrage classifications. By comparison, 18 of the 25 best performing hedge funds in the fourth quarter were global trend followers.

    Four of the five best performers were arbitrage managers, led by Barnegat Fund Ltd., Series B, with a 38.3% return in the first quarter. The debt arbitrage fund is managed by founder Bob Treue. The UG Greater China Multi-Strategy Fund, a developed Asia equity fund, managed by UG Investment Advisers Ltd., Singapore, was the second with 32.27%, followed by the Investcorp Silverback Arbitrage Fund in third with 28.8%. Investcorp International Inc., New York, manages the equity arbitrage fund.

    Another equity arbitrage fund, the Canyon Capital Arbitrage Fund Ltd. was in fourth place with 28.04% and is managed by Canyon Capital Advisors LLC, Los Angeles. Waterstone Capital Management LP, Minneapolis, manages the No. 5 fund, the Waterstone Market Neutral Master Ltd., a convertible arbitrage fund, which turned in 22.86%.

    Recommended for You
    No P&I Daily on Martin Luther King Jr. Day
    No P&I Daily on Martin Luther King Jr. Day
    P&I taking the holiday week off
    P&I taking the holiday week off
    No P&I Daily for Thanksgiving holiday
    No P&I Daily for Thanksgiving holiday
    Research for Institutional Money Management
    Sponsored Content: Research for Institutional Money Management
    sponsored
    Events
     
     
    Sponsored
    White Papers
    Climate change and emerging markets after Covid-19
    An Asset Owner's Guide to Multi-Manager Portfolio Management
    Research for Institutional Money Management
    Bond ETFs show maturity during Covid market mayhem
    Global gold-backed ETFs: A popular gateway to the gold market
    The Future of the U.S. Dollar - Dominant currency or one of many?
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    pilogo-NEW
    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    150 N. Michigan Ave.
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • NEWS
      • Asset owners and the coronavirus
      • Alternatives
      • Consultants
      • Coronavirus
      • Defined Contribution
      • ESG
      • Frontlines
      • Hedge Funds
      • Investing / Portfolio Strategies
      • Money Management
      • Pension Funds
      • People Moves
      • Private Equity
      • Real Estate
      • Searches & Hires News
      • SECURE Act
      • Special Reports
      • WorldPensionSummit
    • Data
      • Research Center
      • Searches & Hires Database
      • Searches & Hires News
      • RFPs
      • Charts / Infographics
      • Sponsored Research
      • Trackers
    • Insights
      • Opinion
      • White Papers
      • Industry Voices
      • Letters to the Editor
      • Partner Content
      • Publisher's Update
    • Multimedia
      • Videos
      • Webinars
      • Polls
      • Slideshows
      • Charts / Infographics
    • Events
      • Conferences
      • Webinars
    • Careers
    • Research Center