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IT Insider: How to play the slow death of listed hedge funds
by James Carthew on Apr 11, 2011 at 11:15
The funds of hedge funds sub-sector continues to shrink, one of the latest to go is Dexion Commodities , and a number of others have continuation votes scheduled; Goldman Sachs Dynamic Opportunities , which I mentioned at the start of the year, is one of them.
Thames River Multi-Hedge upset some investors when it announced, early in March, that it would not operate its discretionary redemption facility in June and December this year, citing problems with realising some of the funds holdings. I was not surprised to see an update, on 5 April, that “following consultation with certain of the company's large shareholders” they intend to put a continuation vote to shareholders – though some may be disappointed that this will not be held until early in 2012.
Dexion Absolute may have been surprised to see that its Euro class of shares failed its continuation vote on 24 March. One broker suggested that arbitrageurs, rather than building up holdings across the fund, simply targeted the most vulnerable share class. This is a tactic that could be repeated in future.
Some are surviving, Alternative Investment Strategies and Signet Global Fixed among them, though 24.6% of Signet’s shareholders voted against continuation and a resolution to gradually wind up the company from 31 March 2013 was supported by 97.6% of those voting.
The main problem is that these funds are just not delivering on their performance targets, the average fund has returned less than equities, less than the HRFX Global Hedge Index and, worst of all, less than inflation over the past twelve months. The layering of fees on fees may be part of the issue but I cannot help wondering if, more often than not, these funds end up diversifying away all their returns in an attempt to reduce risk.
The single manager hedge funds have always seemed more appealing to me but it has to be said that, although on average they modestly outperformed the funds of funds, returns over the past year have been subdued.
If we discount RAB Special Situations, where the end may be nigh now that 80% of investors in the underlying master fund have opted for redemption, the worst performer over the past year was Cazenove Absolute Equity which lost 4%. The Cazenove team are pessimistic about the pace of global growth and positioned accordingly.
Third Point Offshore’s managers took the opposite view and were rewarded as the net asset value of the sterling class rose by over 26% higher over the year. The other success story has been Black Rock UK Emerging Companies, up almost 21% in NAV terms over the past year and, having moved to trade at a premium, up almost 31% in price terms.
BH Macro is the largest of the single manager funds. It returned just under 1% during 2010. They got caught out by a number of changes to US and EU policy that they had not anticipated. Their first major upset was caused by the Greek crisis (they were betting that Euro interest rates would rise and the crisis delayed that); then, given that things in the EU seemed to be falling apart, they bet against the Euro.
This worked for a time but it rallied when the stability pact was agreed and they lost what they had made. They were also positioned for improving US bond prices but, when Obama caved into demands for an extension to the Bush tax cuts, US bonds fell. For 2011 they believe the EU’s problems will intensify, China will struggle with inflation, US growth will be anaemic and the US deficit problem will persist.
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Look up the shares
- Thames River Multi Hedge PLC
- Alternative Investment Strategies Ltd
- RAB Special Situations Co Ltd
- Cazenove Absolute Equity Ltd
Look up the investment trusts
- Dexion Commodities GBP (Ordinary Share)
- GS Dynamic Opportunities GBP C (Ordinary Share)
- Dexion Absolute GBP (Ordinary Share)
- Dexion Absolute EURO (Ordinary Share)
- Signet Global Fixed Income GBP (Ordinary Share)
- Third Point Offshore GBP (Ordinary Share)
- BH Macro GBP (Ordinary Share)
- BlueCrest AllBlue GBP 'C' (Ordinary Share)
- Boussard & Gavaudan EUR (Ordinary Share)
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