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Back in June I said that hedge funds needed to have a better second half if I were to emerge victorious for the second consecutive year in Hedge Fund Alert’s annual survey.
The industry started the year at an estimated $3.328bn in AUM, according to Nasdaq eVestment. Through August, it’s at an estimated $3.468.15bn AUM. That’s an increase of 4.2% for you math-inclined folks reading this. I predicted a 7.8% jump for this year, so I need hedge funds to bring it home down the stretch.
Which, had I written this at the end of September, might have looked rather bleak as US equities sold off in September (they have been since the beginning of August, of course, and yes, I know that technically, we’re still in the drawdown that began at the beginning of 2022) and bond prices have been falling. Hedge funds followed suit, with equity hedge and event-driven both pulling back, although fixed income and macro were mostly in the green.
But then we got the jobs report last Friday and the S&P 500 bounced as the US economy added 330,000 jobs in September, a welcome result for investors. That said, interest rates look set to stay elevated (when compared to the post-GFC ZIRP environment) because of the strength and resilience of the US economy. And it’s a 50/50-coin flip as to whether the US Fed will put them up again, and if they do – which they could do in both remaining meetings this year – then it could put the dampeners on stocks and bonds again, which feeds into the hedge fund space.
Hedge fund managers plant their hand on their face when people talk about the ‘hedge fund asset class’ because it’s not an asset class – there is just so much difference between the underlying instruments that many of them trade. Whereby any corporate private equity fund is buying and selling companies, and thus the risk exposures are more consistent, it’s not the case in hedge fund land. But what is also true is that the public equity market has a big impact on the overall performance of the industry because of the exposures to it via equity hedge and event-driven strategies (even macro shops trading equity market derivatives).
So, the industry needs the equity market to go up in the next three months to pad year to date gains, which for most of the top-line categories, are solid. And I need it to go up so the industry can get to that magical 7.8% increase in overall assets. Hopefully, last Friday’s bounce wasn’t the dead cat kind.
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Anthony D. Mascia is Managing Partner at EFSI. Connect with him on LinkedIn here.
EFSI is an independently owned, SOC-1 compliant, full-service fund administration firm. We provide accounting, reporting, administrative, and capital introduction services to a wide range of alternative investment funds including hedge funds, funds of funds, private equity funds, real estate funds, venture capital funds, and family offices. The center of EFSI’s service incorporates resilient technology and accomplished staff, providing clients a tailor-made service with exhaustive transparency. Give us a call today or reach out to our support team online. We look forward to hearing from you soon.