With volatile asset prices and collapsed liquidity due to the COVID-19 pandemic, first quarter 2020 was one for the record books in terms of capital markets gyrations. To date, hedge funds in general have weathered this crisis relatively well. In such an environment, we believe the most skilled hedge fund managers with the strongest business models can thrive.
Major global equity markets enjoyed healthy gains in fourth quarter 2019 and generated double-digit returns for the full calendar year, in stark contrast to the broad-based declines experienced in 2018. Hedge fund performance also bounced back last year, finishing 2019 on a high note. While hedge funds fared better in 2019, disappointing alpha generation at the overall industry level in recent years has resulted in a large disconnect between limited partners’ performance expectations and hedge fund fees and terms.
Our thoughts on key macro questions, emerging opportunities, and risks in 2020.
Third quarter 2019 proved to be the most challenging of the year for many hedge fund strategies. In this quarter’s edition, we discuss recent credit market developments and key sources that contributed to the challenging environment for credit-focused hedge fund strategies.
Second quarter 2019 saw most major global equity markets continue their recovery from the sharp fourth quarter 2018 market correction, with the S&P 500 Index reaching record highs in late June.
In this quarter’s edition, our focus continues to be on fundamental equity long/short managers, but now from an internal perspective. The overall strategy performed well during first quarter 2019, capturing more than 60% of the strong gains generated by the MSCI All Country World Index. While the extreme market action of the last two quarters occurs infrequently, this type of trading environment can provide useful insight into portfolio manager behavior and psychology. Analyzing portfolio management decisions, as opposed to stock selection or external factors, though interconnected, can help improve future manager selection.
Following a more gradual climb in first half 2018, US equities appreciated materially in third quarter, ending September just off record highs set in the prior weeks. The S&P 500 Index returned 7.7% in third quarter and 10.6% year-to-date; by comparison, the Russell 2000® Index returned 3.6% and 11.5%, respectively. All Global Industry Classification Standard…
Global risk assets appreciated materially in fourth quarter 2017 and for the year as a whole, and US equity indexes once again ended both the quarter and calendar year near historic highs. This quarter, we examine the cyclicality of recent performance trends and consider what the future may hold for event-driven strategies.
Global equity markets continued to advance in third quarter 2017. This is in stark contrast to recent years when US markets were generally the top performer. This quarter, we discuss the positive effect this reversal had on fundamental strategies, and the challenges momentum-based managers confronted.
Major hedge fund strategies diverged in performance in second quarter 2017. In this edition, we examine the progress in the long/short equity space and challenges in the macro landscape.