FlyTitle: Hedge funds
Once the kings of capital markets, hedge funds have become a sideshow. Now many hedgies hope the slump will make them relevant again
HEDGE FUNDS have had a rotten decade. Star managers were once perceived to be infallible “masters of the universe” who made money for wealthy individuals and big institutional investors in both good times and bad. But steep losses during the global financial crisis of 2007-09 tarnished that reputation, and subsequent returns have failed to resurrect past success. The result has been a humbling comedown. Many of the hedge-fund industry’s biggest names—like Leon Cooperman, who ran Omega Advisors, and Eric Mindich, once the youngest-ever partner at Goldman Sachs—have thrown in the towel, returned investors’ capital and converted their hedge funds into family offices.
对冲基金经历了糟糕的十年。明星经理曾经被认为是战无不胜的“宇宙之主”，无论年景好坏都能为富人和大型机构投资者赚钱。但是，在2007至2009年全球金融危机期间发生的巨额亏损败坏了这种声誉，之后的回报也未能使重现过去的成功。其结果是令人沮丧的没落。行业里的许多最知名人士，例如经营欧米茄顾问公司（Omega Advisors）的利昂·库珀曼（Leon Cooperman），还有曾是高盛有史以来最年轻合伙人的埃里克·明迪奇（Eric Mindich）都已经洗手不干，将资本返还给投资者，并将他们的对冲基金转变为家族办公室。
These woes have been exacerbated by seismic shifts in the allocation of capital. As hedge-fund profits wilted, institutional investors—such as pension funds and university endowments, which make up the bulk of hedge funds’ clientele—saw little reason to pay meaty fees for mediocre performance. Investors turned to cheap index funds instead, or sought out the juicier returns dangled by private-equity and property funds. Having managed more capital than their private-equity peers for much of the past decade, by 2019 the hedge-fund industry was a fifth smaller than private equity (see chart 1). Index funds, or “passive” investors, have eclipsed both. The Bank for International Settlements, a club of central banks, estimates that almost half of the roughly $30trn invested in American equities is now passively managed.
Hedge-fund managers have long warned that these trends in investment allocation might pan out poorly for investors in a crisis. The financial-market chaos wrought by the pandemic has tested that claim, and hedge funds have been vindicated, though only partially. They have not made big gains. And they have experienced outflows: figures released by Hedge Fund Research on April 22nd suggest that these amounted to 1% of assets under management in the first quarter. Still, they have, so far, lost less than the market. And there are early signs that the crisis could benefit the industry in the longer term, if it causes investors to appreciate the benefits of hedging their equity exposure, and to shift away from illiquid assets.
对冲基金经理一直以来警告说，投资配置的这些趋势在危机期间可能对投资者不利。疫病大流行造成的金融市场混乱已经证实了这一说法，而对冲基金则证明了自己——尽管只是在一定程度上。它们也没有取得重大收益，而且还经历了资金外流：对冲基金研究公司（Hedge Fund Research）4月22日发布的数据表明，外流资金占第一季度管理资产的1%。然而到目前为止，它们的损失仍少于市场。而且，有早期迹象表明，如果这场危机令投资者意识到对冲股票敞口并远离非流动资产的好处，那么从长远来看可以使该行业受益。
How you think hedge funds have performed during the market turmoil depends on how stern a test you apply. If you think their purpose is to make steady returns, regardless of how markets fare, then most have failed. On average, the value of their portfolios has fallen by 10.5% (see chart 2). But they have at least beaten the market: the S&P 500 fell by 20% in the first three months of the year. True, average annualised returns of the S&P 500 in the past five years, at 4.6%, still beat those of the average hedge fund, at 3%. But the goal for most institutional investors is not to achieve the juiciest returns; it is to generate good returns that are steady and low-risk. If hedge funds beat the market during times of stress, they become a source of portfolio diversification that is useful to endowments and pension schemes.
By and large, machines have done better than humans. Around a third of hedge-fund assets are managed in so-called “systematic” funds, which write investment rules based on historical-data analysis and use algorithms to execute trades. On average, these have done best: systematic investors have seen the value of their assets slip by only 2.1% this year. The Medallion fund, the flagship fund run by Renaissance Technologies and set up by Jim Simons in 1988, was up by 24% in March. By contrast, discretionary funds, which are run by human managers picking and choosing trades, are down by 12.7%.
总的来说，机器比人的表现好。对冲基金资产中约有三分之一由所谓的“系统化”基金管理，这些基金根据历史数据分析编写投资规则，并使用算法执行交易。平均而言，它们的表现最好：系统化投资者今年的资产价值仅下降了2.1%。大奖章基金（The Medallion Fund）是由文艺复兴科技公司（Renaissance Technologies）管理的旗舰基金，由吉姆·西蒙斯（Jim Simons）于1988年创立，到3月增长了24%。相比之下，由人类经理选择交易的全权委托基金下跌了12.7%。
Systematic-fund managers offer a few explanations for their better relative performance. Carter Lyons of Two Sigma, one such fund, claims that systematic investments have done well because they can diversify more. “A systematic fund may take several thousand positions, whereas a discretionary manager may only have 100.” That helps keep systematic portfolios’ losses down when markets are tumbling. Others claim that consistency has helped. “The great thing about systematic processes is that they stick to their knitting,” says Luke Ellis, the chief executive of Man Group, the third-biggest hedge-fund manager in the world. Some of its discretionary funds have done well, but its best performing ones have been systematic.
系统性基金经理就其相对较好的表现给出了一些解释。双西格玛（Two Sigma）就是此类基金之一，该公司的卡特·里昂（Carter Lyons）称，系统性投资之所以表现不错，是因为它们可以更好地分散投资。“系统性基金可以持有几千个头寸，而全权委托经理可能只有一百个。” 当市场动荡时，这有助于降低系统性投资组合的损失。其他人则称一致性有所帮助。“系统性流程的优势在于它们坚持规则。”全球第三大对冲基金经理曼集团（Man Group）首席执行官卢克·埃利斯（Luke Ellis）说。该公司的一些全权委托基金业绩不错，但表现最好的是系统性基金。
Some bets have come off better than others. Macro strategies, which place bets on economic developments, have fared best on average, down just 2%. But Bridgewater Associates, a big macro fund, has done poorly, brought down by its risk-parity strategy.
At the bottom of the heap are activist funds, which buy stakes in companies in the hope of changing their strategies or management. These were down 16.8% on average at the end of March. Activists may have suffered as a result of loading up on shares at lofty valuations earlier in the year. According to Lazard, an investment bank, activists deployed $2.8bn of capital per week in February. With corporate deals off the table and shareholder meetings postponed, they might spy fewer opportunities to take on company bosses.
Varied though their performance has been, hedge funds still look appealing when compared with many private-equity funds. The pandemic seems likely to pose the most financial danger to highly leveraged businesses—precisely the type of firm that private-equity funds tend to invest in. Buy-out firms themselves do not disclose returns, but some of their investors—like banks—must. Last month one of America’s largest lenders admitted to writing down its private-equity investments by 20% in the first quarter.
Another drawback of private equity may prove to be its illiquidity. Pension funds and university endowments have outgoings that are more or less fixed. Stable cash flows in normal times meant that they became more comfortable with illiquid assets. Few will be prepared for a situation in which the economy is shuttered and pension contributions and tuition payments dry up. Large institutional investors might face an unprecedented need for cash.
It is still too soon to know which funds will navigate the crisis best, let alone how the pandemic will reshape investment decisions in the longer term. “Returns in March will end up being just one piece of the puzzle,” says Mr Ellis. Many investors claim they are using the turmoil to make long-term bets that may not have lifted returns yet. But the early signs are that hedge funds might not come out too badly. The pendulum seems likely to swing back towards holding liquid assets, and hedge funds appear to be doing well enough that they might benefit from the reallocation.
If hedge funds were once a flashy way to generate extra returns for rich individuals, they have since become more pedestrian—reliable sources of diversification for big institutional investors. In turbulent times, perhaps that is enough. ■