Hedge Funds Eke Out Modest Gains in July, Appetite for Talent Continues Unabated
Hedge funds squeaked by in July, ending the month with modest gains. The industry managed to survive the recent plunge in stocks and emerge relatively unscathed. And that performance appears to be driven primarily by short-sellers and exposure to emerging markets. Meanwhile, credit-market turmoil and subprime woes are handing losses to some merger arbitrage managers. And according to executive recruiting firm, A.E. Feldman, as concerns mount over leverage and credit derivatives, hedge funds are on the hunt for bankers specializing in capital markets.
Globally, hedge funds returned 0.49% in July, according to a report from Chicago-based Hedge Fund Research Inc. (HFR). That brings the average hedge fund advance to 8% this year. Meanwhile, macro-fund managers, who make bets on trends in stocks, bonds and global currencies, trailed behind in July with a 0.34% increase, or 5.9% year to date.
Performance in July was driven by funds which were able to take advantage of strong interest rate and commodity moves and those with exposure to emerging markets, reports HedgeCo.Net. The HFN Emerging Markets Average was up 2.5% in July and up 14.5% so far this year. HFN says emerging markets was the fastest-growing strategy in the second quarter, with total assets up 14.2%. This marks the fourth consecutive quarter of double-digit growth. The $20.9 billion that flowed in the emerging markets strategies is also the second highest on record. Emerging market equities saw similar growth, up 13.7%. The markets with the strongest moves: India and Russia and China.
New hedge funds investing in China are entering the market in droves. The number of existing hedge funds has doubled in the region. Total assets under management have increased by more than 100% in the past few years, according to FINalternatives.
On the flip side, hedge funds focused on merger arbitrage lost about 2% in July, HFR said. Merger arbitrage hedge funds bet on the outcome of mergers and acquisitions. These funds buy shares of target companies and bet against the stock of acquiring firms. As a deal nears completion, the share prices of the two firms usually converge, generating returns for managers. That’s known as the spread. A surge in leveraged buyouts in recent years helped generate big gains for these types of hedge funds. Merger arbitrage funds generated returns of 12.9% on average in 2006, according to Hedgefund.net. But last month told a different story as concerns continue to mount over turmoil in the credit market, widening spreads on M&A deals.
As a result, professionals with expertise in capital markets looking for hedge fund opportunities may be in a position to benefit from the trend. Executive recruiting firm, A.E. Feldman, says hedge funds are increasingly looking to hire bankers who specialize in capital markets to serve in administrative and advisory roles for the debt and equity markets. The recruiting firm adds that hedge fund demand for traders, quantitative analysts as well as sales and marketing professionals remains unabated.
