Monthly Hedge Fund Trends – August 2014 (Deutsche Bank)

August 2014

KEYWORDS: investor confidence, Emerging Markets, long/short equity, Hedge Fund Performance, United Kingdom, AIFMD, OTC derivatives, SEC, Securities and Exchange Commission, Portugal

Authors:

Deutsche Bank

Organizations:
  • Deutsche Bank

Summary:

We are pleased to present Deutsche Bank’s Global Prime Finance Monthly Hedge Fund Trends, August 2014, the industry’s premier report delivering intelligence on investor sentiment, in-depth market performance and trends impacting the hedge fund industry.

Key findings in the report:

—      In our first research piece, the team introduces a new alternative investment research series that provides investors with a toolkit for alternative investment analytics. The second research piece, from our European HY team, focuses on flows. Due to geopolitical concerns, the situation at Banco Espirito Santo and Argentina’s default, EUR HY spreads widened and July experienced the first negative total returns since June 2013. Focusing on how flows correlate with performance, the team finds that, if anything, flows tend to react to performance rather than the other way around, particularly in Europe in recent years. Finally, our US Equity team looks at climbing treasury yields and expects that 10 year yields are likely to continue to climb over the rest of this year and next. They no longer expect the S&P to dip below 1800 this autumn and are maintaining S&P 500 targets for now, but are uncertain about the next 5%+ move.

—      The Capital Introductions team met with Boston-based single and multi family offices finding that these investors are particularly interested in emerging markets managers. In Texas, the team met with endowments and foundations who are requesting managers that fit their “opportunistic” asset risk bucket which typically includes short credit, equity event driven and specific short-term trade ideas. The European team conducted a year-to-date analysis of their investor requests finding that equity long/short, event and global macro have dominated European investor requests in 2014. In Japan, the team hosted a series of pension fund seminars finding that these allocators are in the nascent stages of hedge fund investing.

—      Amid weakness in equity markets in July, the median global fund lost 0.18% last month. Emerging markets equity funds managed to gain 0.91% over the month, while equity l/s strategies focused on Europe and the US lost 0.64% and 1.35%, respectively. Year-to-date, distressed (+6.85%) and credit (+5.32%) strategies continue to lead performance globally. Equity strategies globally showed the widest dispersion of returns in July.

—      The securities lending team saw short interest pick up due to disappointing earnings reported by European firms, particularly in technology, airlines and banking. M&A seemed to outpace convertible issuance in July with a series of international deals across industries.

—     European regulators remained active throughout the summer with the UK FCA publishing papers on wholesale competition review, dealing commission and banking accountability. The European Securities & Markets Authority (ESMA) also published updates on its Q&A document on the Alternative Investment Fund Managers Directive (AIFMD) to clarify reporting obligations, published draft rules on central clearing of OTC derivatives and consulted on UCITS counterparty risk. In Hong Kong, the regulators also focused on OTC derivatives, releasing a consultation paper on transaction reporting and record keeping. In the US, the SEC approved final rules to reform money market funds.

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