Monthly Hedge Fund Trends – May 2014 (Deutsche Bank)

May 2014

KEYWORDS: Equity markets, S&P 500, Japan, Bank of Japan, Germany, hedge funds, Institutional Investors, asset allocation, Australia, Global, managed futures, multi-strategy funds, credit hedge funds, Asia Pacific, SEC, Securities and Exchange Commission, FCA, European Commission, MiFID, United Kingdom, European Union, broker-dealer, cyber-security

Authors:

Deutsche Bank

Organizations:
  • Deutsche Bank

Summary:

Key findings in the report:

  • In our first research piece, the US Equity Insights team explains that the key to S&P performance is how five and ten year treasury yields react to acceleration and predicts 5-6% EPS growth through at least 2016. The team presents three reasons to wait for a dip while watching treasury yields this summer. Next, the Global Economic Perspectives team examines the widening gap between investor expectations and Bank of Japan expectations about the success of BOJ’s reflationary policy. The team concludes that the BOJ is unlikely to make significant further easing moves any time soon. Finally, the Focus Europe team discusses the EBA’s macro scenario for the 2014 euro area stress test finding that non-performing loans, pre-provision profits and risk-weighted assets will be key drivers of the stress test, but it is unlikely that the results will generate material and widespread capital needs.
  • The Capital Introductions team met with allocators in Germany finding that sentiment towards hedge funds remains cautiously optimistic and investors are mainly looking for discretionary macro and fixed income relative value strategies. In the US, institutional allocators, as well as family offices and fund of funds, are generally maintaining allocations, but remain open to best ideas. Large hedge fund allocators in Australia have reaffirmed their commitment to hedge funds with several institutions growing their hedge fund specialist teams.
  • It was a challenging month for hedge funds with the median fund flat (0.00%) over the period. There was an unusually wide dispersion of returns among equity long/short strategies in particular. Global gains in April were led by credit (+0.81%), CTA / managed futures (+0.51%) and multi-strategy funds (+0.42%). Regionally, credit strategies continue to perform well gaining 4.32% in the US and 3.10% in Europe YTD; however, Asia ex Japan l/s leads with gains of 0.29% YTD.
  • Though another difficult month in the equities market, deal activity picked up substantially in April, especially in the pharmaceuticals sector, with offers for AstraZeneca Plc and Meda of particular notice. Merger activity was complemented by strong convertible issuance throughout the month. Recent tech-related IPO names saw strong short interest in April including Twitter, Japan Display Inc. and Hitachi Maxell.
  • In the US, the SEC announced its intention to examine around 25 funds over the next six months to review whether certain alternative mutual funds that follow riskier hedge-fund strategies are complying with leverage and liquidity rules. The SEC also issued a risk alert on cyber security and plans to examine more than 50 investment advisers and broker-dealers regarding their level of preparedness. In the UK, the FCA published survey results on the composition of the UK hedge fund industry finding that the UK’s top 20 firms control over 80% of AUM. In Europe, the EU rejected the UK’s legal challenge of the EU FTT and the EU Commission requested technical advice on the detailed rules of MiFID 2.

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