Hedge fund managers, true to form, have been quick to assess the impact of Donald J. Trump's impending presidency on global markets and their own investment strategies.
Most hedge fund chiefs expect continued U.S. economic growth within a deregulatory environment and possibly uneasy relations between the Republican president and the Republican majority in the Senate and the House of Representatives.
“I think it unlikely the U.S. economy will be derailed,” said Sir Michael Hintze, CEO, senior investment officer and a portfolio manager, CQS (UK), London, in a statement.
“Market attention will also now turn to Europe ahead of the Italian (constitutional) referendum and the French and German elections — anything is now possible. While volatility is the name of the game, credit provides some attractive opportunities,” Mr. Hintze added.
Mr. Hintze focused on the likelihood that Mr. Trump's presidency will feature “more deregulation than at any other time since (Ronald) Reagan's presidency is certainly on the agenda,” but he also noted that “Donald Trump was always an outsider. He had minimal support from the Republican Party and therefore has minimal obligation to them. Of particular interest will be how a Republican Senate and Congress will work with the new president.”
CQS manages $12 billion in multistrategy and credit hedge funds and long-only strategies.
Jens Foehrenbach, deputy chief investment officer of hedge funds-of-funds manager Man FRM noted in an e-mail that “one of the attractions of the new political leadership seems to be that they are not part of the establishment (and) as such, there is a higher degree of uncertainty surrounding likely future actions.”
He added that the increased uncertainty going forward could lead to a period of higher market volatility and new correlation regimes which “may give hedge funds a chance to prove their value in portfolios as investments that aim to be uncorrelated to markets and seek to provide alpha in uncertain environments in particular. I believe that systematic strategies that run diversified books across asset classes have an advantage over hedge funds that run concentrated positions,” Mr. Foehrenbach said.
Man FRM manages $12.8 billion in hedge funds of funds and customized hedge fund portfolios.
“In general, a lower-regulation environment should be good for more deal-making,” said John Melsom, chief investment officer of Omni Partners' $350 million Omni Event Fund, a traditionally managed event-driven hedge fund, in an e-mail.
Mr. Melsom said he thinks there may be increased activity in health-care stocks “since a Hillary win was seen as a negative due to her pushing for increased regulation and pricing caps on drugs.”
“On the other side of the coin, Trump will be more protectionist from a foreign investment point of view, so we expect Chinese inbound investments to face more pushback than they did under Obama,” Mr. Melsom added.
Hedge fund manager David M. Einhorn decided against making tactical changes in his portfolio to prepare for market volatility tied to the results of U.S. elections, according to Bloomberg.
“I'm sure it matters to a lot of the holdings. It's not clear when it matters to the portfolio as a whole, however. The portfolio is a mix of longs and shorts, and I'm sure various securities will be impacted in different ways,” Mr. Einhorn said during an earnings call Tuesday discussing results for Greenlight Re, the offshore reinsurer for which he serves as chairman.
Mr. Einhorn also is president and director of Greenlight Capital Inc., which manages $8.6 billion in hedge funds, including for the firm's affiliated reinsurer.
By contrast, Daniel S. Loeb, founder and CEO, of hedge fund manager Third Point, said he had reduced some positions and increased hedges because of concerns that election-related surprises could rattle financial markets, during a Nov. 3 earnings call for offshore affilitate Third Point Reinsurance, Bloomberg reported.
Third Point manages $16 billion in hedge funds, including the assets of its reinsurance affiliate.
Kenneth J. Heinz, president of industry tracker Hedge Fund Research, said he is “extremely positive. There’s no question that the Trump administration is more pro-business, and that’s going to be good for the broader U.S. economy.”
The hedge fund industry will benefit as economic and market conditions improve, Mr. Heinz said, adding that as interest rates are allowed to rise normally — “which we haven’t seen for some time” — global markets will be easier for hedge fund managers to make money in.
As markets further normalize, equities will continue to rise and correlations between individual stocks likely will fall, providing hedge fund managers with more opportunity to exploit differences to produce alpha, Mr. Heinz said.
Bloomberg contributed to this story.
