The Preqin Quarterly Report for Hedge Fund Activity for the first quarter 2015 is out. Among its findings about the $800+ billion in assets industry: “65% of investors surveyed at the end of last year stated that hedge funds either met or exceeded their expectations and many other investors initiating mandates for new allocations.”
Preqin is a leading source of data and intelligence for the alternative assets industry. Here’s a breakdown of hedge fund activity for the quarter by investment strategy:
First Quarter 2015 Returns:
3.03% Hedge Fund of Funds
2.13% Emerging Market Hedge Funds
2.26% Event Driven Funds
0.63% Discretionary CTAs
By contrast, the MSCI EAFE was up 4.88% during the first three months of 2015; the Barclays U.S. Aggregate Bond Index grew 1.61%; and the Standard &Poor’s 500 Index grew 0.95%.
Fund of Funds
“Fund of funds” is an investment strategy of holding a portfolio of other investment funds rather than investing directly in stocks, bonds or other securities; it’s often referred to as multi-manager investment. The fund of funds sector continued to grow, adding $8 billion in the first quarter of 2015. In 2014, assets in the sector grew for the first time since 2011, by $33 billion.
Preqin recorded no new discretionary CTA funds launches in Q1 2015, compared with 18 new funds in 2014.“CTAs experienced a revival in the latter half of 2014 following several years of subdued performance,” according to Preqin. (A Commodity Trading Advisor “CTA” specializes in trading futures contracts, commodity options and/or swaps within managed futures accounts.)
Emerging market hedge funds produced negative returns for the five months prior to February, but rebounded with positive returns in March 2015. Poor performance in 2014 was fueled mostly by funds focused on Latin America and Russia and Eastern European investment allocations.
Event Driven Funds
The performance of event driven funds rebounded in 2015, generating a return of 2.26% for the first three months of the year. For 2014, however, event driven funds were the worst performing, on average, of the major strategies tracked by Preqin. These funds, which seek to exploit pricing inefficiencies before or after a corporate event, such as an earnings call, bankruptcy, merger, acquisition, or spinoff, produced gains, on average, of just 1.73% for 2014. (By contrast, the Standard & Poor’s 500 Index was up 14.04% for 2014, with reinvested dividends.)
New Hedge Fund Launches
Preqin reported 100 new hedge fund launches during the first quarter of 2015, a nice round number, but a decrease from 166 new funds in the fourth quarter of 2014. “Single-manager hedge funds accounted for the largest proportion (68%) of fund launches in Q1 2015, with their fund of hedge funds counterparts comprising just 5%,” said Preqin.
The biggest category winner was credit driven funds. “Hedge funds have stepped up to take advantage of significant credit opportunities in the first quarter, said Preqin. “Of the vehicles launched in this period, 20% pursued credit strategies, an increase of 14 percentage points from the previous quarter.” The biggest category losers were equity and macro strategies, which fell by eight and five percentage points over the same period.
The lion’s share of new funds in Q1 2015 by regional investment focus were global funds, with more than half of all new offerings. Similarly, by investment category, new equity fund launches lapped the second largest category, 41% to 20% to the runner-up credit funds.
New Launches by Regional Focus – First Quarter 2015
26% North America
7% Asia Pacific
4% Emerging Markets
New Launches by Core Strategy – First Quarter 2015
7% Event Driven
7% Relative Value
Investment manager’s search for uncorrelated returns continues. To see how, please click here for a free copy of The Q1 2015 Hedge Funds Preqin Quarterly Update. For more information on Preqin: www.preqin.com