What do hedge funds celebrate

The kings of Wall Street are making a comeback

23.11.2020

Hedge fund managers are widely known as the "kings of Wall Street". One of their famous and most successful stars, John Paulson, was even named the “King of Cash” by the investment magazine “Alpha”. They earn billions for their investors - and often become billionaires themselves in the process.

Hedge fund managers are widely known as the "kings of Wall Street". One of their famous and most successful stars, John Paulson, was even named the “King of Cash” by the investment magazine “Alpha”. They earn billions for their investors - and often become billionaires themselves in the process.

But: Are hedge fund managers still the stars of Wall Street, or shouldn't it be more correctly: They were once! 2019 was a year to forget for the money professionals industry. And what about this year? Volatile markets like the Corona year 2020 should actually offer hedge funds an excellent environment in which to make money. But much of the industry has performance problems. The $ 3.3 trillion industry gained 0.4 percent through October, according to the Bloomberg Hedge Fund Indices, outperforming stocks and bonds. Things look even worse for the index from Hedge Fund Research, which shows a decline of more than 4 percent. But experts like Tilo Wendorff, Managing Director for Absolute Return at Prime Capital, are of the opinion that hedge fund indices are basically of little informative value. The results of the hedge funds would show too wide a spread for this. It is therefore important to find the best active managers. Then hedge funds would also fulfill their “airbag” function in the event of price collapses.

Norwegian sovereign wealth fund gives billions to hedge fund managers

This is also shown by a current analysis of the industry, because not all hedge funds are created equal. After all, there are more than 8,000 funds with very different investment approaches and strategies. In the third quarter of 2020, for example, the internationally investing hedge funds benefited from the growing uncertainty in the corona crisis and the unclear outcome of the US election. For the first time since the beginning of 2018, according to data from Hedge Fund Research, net money flowed into the asset class, around 13 billion dollars so far this year. And there will be even more, because from next year the Norwegian oil fund, after all the world's largest sovereign wealth fund, wants to give up to five percent of the portfolio to external managers, including hedge funds. That equates to just over $ 60 billion. The head of the state fund, Nicolai Tangen, who has only been in office since September, emphasizes that "considerable additional income can be achieved" by allocating funds to hedge funds. The 54-year-old was previously a hedge fund manager himself.

Around 10 percent of the assets securitized at Chartered Opus are invested in hedge funds

We are also noticing this growing confidence among investors at Chartered Opus, because around 10 percent of all securitized assets are now invested in hedge funds. And some of them are very successful. The hedge funds of funds have achieved a performance of up to 6 percent so far this year, single hedge funds are even up to 50 percent up.

Investors often see hedge funds as too risky, opaque and difficult to access. But this is primarily an image problem: These are bets, it is often said, far too aggressive and inscrutable. This need not be. Many hedge fund certificates are to be regarded as quite conservative, as they have a lower correlation to the markets. Your managers usually take significantly fewer risks than investors who invest in equity, mixed or bond funds. These hedge funds - mostly fund of hedge funds - are intended more for conservative investors such as foundations, pension funds, pension funds and similar institutional investors or as an addition to the portfolios of asset managers, because alternative investments help a balanced asset allocation. Sure, you can also run a “hot tire” with single hedge funds. That depends on the risk profile of the respective investor. But these are rather the exceptions.