Prospects for the hedge fund business a 12 months after the COVID-19 outbreak are sturdy given good efficiency, the primary optimistic flows since 2018 and loads of market dislocation offering alternatives for alpha manufacturing.
“2021 is shaping as much as be an excellent surroundings for hedge funds as managers focus extra on fundamentals,” mentioned John F. Frede, managing director and head of analysis at 50 South Capital Advisors LLC, a Chicago-based alternate options funds-of-funds supervisor.
“Portfolio managers of lengthy/quick fairness hedge fund methods, for instance, are making the most of market disruption and dislocation. It is actually an excellent surroundings for inventory pickers,” Mr. Frede mentioned.
50 South Capital had a complete of $10.5 billion in belongings as of Dec. 31, with $6.9 billion of belongings un- der administration and the steadiness in belongings underneath advisement.
Sources mentioned the outlook for the hedge fund business this 12 months stays optimistic regardless of loads of headline threat and common skepticism ensuing from the market turmoil brought on by retail buying and selling in shares like GameStop Corp. in January and excessive losses incurred in March by household workplace Archegos Capital Administration LP. Archegos’ losses have broadly been labeled as hedge fund issues.
A hedge fund advisor who requested to not be named referred to each incidents as “a flash within the pan,” noting that they have been painful however short-lived and markets shortly recovered.
“These have been good reminders that everyone must be cognizant of leverage, threat focus and illiquidity,” the advisor mentioned.
Like different hedge fund and hedge funds-of-funds managers, 50 South Capital is seeing web inflows from each new and current shoppers, as are AQR Capital Management LLC, Greenwich, Conn.; Capstone Funding Advisors LLC, New York; and Man Group PLC, London, the corporations mentioned.
Concerning asset house owners’ present and future hedge fund allocations, “the query institutional traders are asking is ‘did hedge funds do what they’re alleged to do and mitigate threat when the fairness market was down 20% within the first quarter final 12 months?’ The reply is sure,” mentioned Daniel Stern, a senior managing director at alternate options advisor Cliffwater LLC.
In distinction, Cliffwater shoppers’ hedge fund portfolios have been down 4% to five% within the tumultuous first quarter of 2020, Mr. Stern mentioned.
He added that “hedge fund alpha (manufacturing) has been very sturdy since April final 12 months and continues in 2021. We predict alpha shall be persistent for a number of years.”