Hedgeweek Interviews

Challenges and opportunities: How hedge funds are grappling with ESG, remote working and the ‘portfolio conundrum’ Submitted 08/10/2021 - 2:15pm

With traditional equity and credit returns set for a squeeze, and ESG, Covid-19 and remote working upending the hedge fund industry from both an investment and operations perspective, managers face both considerable challenges and sizable opportunities up ahead, speakers at EisnerAmper’s 6th annual Alternative Investment Summit said this week.

Opening this year’s event, the ‘Future of Hedge Funds’ panel explored an assortment of industry themes and trends – including the increased importance of ESG considerations, the far-reaching operational changes stemming from the Covid-19 pandemic, and the range of emerging investment opportunities coming down the pipeline.

Simon Fludgate, head of operational due diligence of Aksia, described a “cataclysmic shift” in how much investors care about ESG, but observed how different people want different things from ESG policies, acknowledging a contrast between sentiments in US and Europe. He pointed to “two fundamental pillars” – the diversity of a firm’s staff and management team, and the carbon footprint of a firm and its investments – as key areas of focus in ESG considerations right now.

Paul Glazer, CEO at Glazer Capital, said that in the past two years a majority of potential investors doing due diligence on his firm now probe its ESG policies.

However, ESG remains “very much in the eye of the beholder,” according to Alan Reid, founder and managing partner, at rPartners, who noted that “one of the challenges is that very few people share the same similar values on all fronts.”

Scott Radke, CEO of New Holland Capital, pinpointed how hedge fund firms are implementing ESG and sustainability factor in two main ways. The defensive approach centres around risk identification, with fundamental credit and equity managers zeroing in on the earnings or balance sheet implications of an environmental or social event. The offensive implementation, meanwhile, sees managers building portfolios specifically designed to have an impact orientation.

The session also examined some of the major emerging industry trends, with Radke highlighting the growing interest in private investment by hedge funds who had historically focused on public equities.

“Obviously this isn’t brand new - we saw hedge funds dip their toe in a reasonably big way into illiquid assets prior to 2008 and then saw a big pullback from that. So I think to some extent there’s some cyclicality to this,” he told the panel.

Glazer meanwhile explained how his firm – which focuses on merger arbitrage opportunities – has been investing in SPACs since 2009, with this corner of the market becoming “a hot area” towards the end of 2019 into 2020.

“I think due to Covid people were at home, they were bored and they just started buying SPACs anytime they announced a deal,” Glazer said of the SPACs surge. “It was good for us – we were up 37 per cent in 2020 which is far beyond anything we ever had before.”

While last year’s SPACs frenzy “seems to be over right now,” the sector has become legitimate, with some 400 SPACs outstanding, he added. “That’s a permanent change and that's going to be with us going forward as a place to invest.”

“Families continue to be very focused on fees and they hate paying fees,” Reid said of the family office perspective. “People care about fees and they want to feel like they’re getting something for their fees. So typically families are much more interested in co-investment opportunities, opportunities where they feel like they can add some value.”

Expanding on this point, Reid pointed to a number of families, particularly among first generation entrepreneurs on the west coast, that are working together to make direct investments themselves. “They believe that they bring the alpha themselves and that Wall Street doesn't have any alpha to offer.”

The panel discussion also touched on the evolving nature of hedge funds’ operations, reflecting on how the Covid-19 pandemic has shaken up the working environment, and weighing up what changes may be here to stay.

Glazer spoke of the effectiveness of conducting due diligence via virtual conferencing, while Fludgate noted that although many firms are gradually returning to the office, many are likely to remain in a hybrid model. Both however acknowledged the challenges of building a team culture in the remote working environment.

Reid meanwhile underlined the importance of in-person meetings, describing a recent family office-focused event he had held in the Hamptons, which was attended by more than 150 people in August during the hurricane season.

“Hurricane or no hurricane, these families showed up because they want to be there in person,” he added. “People understand the value of in-person meetings, and so while I think that there will be far more opportunities to serve clients remotely, and by Zoom, there also will be a lack of patience for folks that aren’t willing to show up in person for meaningful relationships.”

Looking ahead, Radke said one of the biggest pressures facing allocators is the view that traditional equity and credit returns are set to be lower than they have been over the last decade.

“The challenge for the hedge fund absolute return community is to identify what role we can play in trying to help solve the portfolio conundrum that this conclusion creates,” he says. “In a way it could be the biggest opportunity since, going back two decades, you saw institutional capital begin to flow in to hedge funds.

“There’s an opportunity for hedge funds to play a much more meaningful role going forward in terms of helping allocators – be it pension funds, sovereign wealth, family offices –achieve their return goals in the future in a more sustainable, robust way than just a more concentrated allocation to equity risk.”

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Hedge funds ride out market reversals with “impressive” September performance Submitted 08/10/2021 - 10:00am

New data published by Hedge Fund Research shows managers overall gained 0.13 per cent in September. That gain puts HFR’s main Fund Weighted Composite Index – a broad-based index tracking the monthly returns of some 1400 single manager hedge funds across all strategy types – up 10.09 per cent since the start of January.

“Hedge funds posted broad-based gains in September across fixed income, commodity and event-driven strategies, which were inversely-correlated to steep declines across global equity and fixed income markets,” stated HFR president Kenneth Heinz. “Given the magnitude of equity and bond declines, the positive outperformance represents one of the most impressive performances of the HFRI in recent history.”

On a quarterly basis, the benchmark was flat in Q3, dipping 0.03 per cent in the three months between July and September. However, that disappointing showing was outweighed by positive gains earlier in the year of 5.74 per cent in Q1 and 4.14 per cent in Q2. Over the past nine months, the benchmark has suffered just one down month, a slight 0.91 per cent dip in July.

“In contrast to prior periods in which hedge fund performance was driven by a high beta, risk-on market environment, the current fluid macroeconomic environment requires greater specialisation, tactical flexibility and strategic portfolio execution, all of which were exhibited in September,” Heinz observed.

Fixed income-focused hedge funds led the pack in what proved to be a lukewarm month for returns. HFR’s fixed income-based, interest rate-sensitive Relative Value was up almost 1 per cent for the month – gaining 1.21 in Q3 and 7.86 per cent year-to-date - as managers capitalised on interest rates rises fueled by stimulus forecasts, as well as decreased bond purchases by the US Federal Reserve and rising inflationary pressures.

Within the sub-sector, convertible arbitrage strategies, multi-strategy managers, fixed income asset-backed managers, and corporates-focused funds were all up in September, albeit less than 1 per cent.

Equity-focused hedge funds have made the biggest gains on a year-to-date basis, with the HFRI equity hedge index up 11.46 per cent since the start of January. But the sector lagged the rest of the industry in September, sliding 0.35 per cent for the month.

As oil and gas prices spiked, energy and basic materials-focused hedge funds added 4.11 per cent last month, and are up more than 24 per cent so far this year. Quantitative directional strategies took the biggest hit, losing 3.62 per cent in September, though they remain up 6.54 per cent in 2021. Despite falling 1.54 per cent last month, multi-strategy equity funds have advanced 11.14 per cent YTD. Fundamental growth, technology, and healthcare-focused hedge funds all registered monthly losses, while fundamental value was up slightly at 0.18 per cent, and has risen more than 15 per cent in 2021.

Macro hedge funds – which trade broader macroeconomic and geopolitical trends using equities, bonds, currencies, and commodities, among other assets – returned 0.54 per cent last month, aided by rising rates, spiraling energy prices and falling equities. Overall, the sector is up more than 8 per cent in the nine months since the start of the year.

Commodities-based macro funds were the standout performer, up 5.18 per cent in September, bringing YTD returns to more than 21 per cent. Currency macro funds were up 1 per cent, while discretionary thematic macro funds dropped slightly into the red, losing 0.40 per cent in September.

Meanwhile, event driven hedge funds – which target stock mispricings and other valuation anomalies stemming from mergers and acquisitions, bankruptcies, takeovers and other corporate events – added just 0.04 per cent in September. But thanks to stronger returns earlier in the year, these managers are up more than 11 per cent in 2021. Merger arb funds gained 1.24 per cent, while credit arb, distressed and restructuring and multi-strategy funds were up just under 1 per cent. Year-to-date, distressed/restructuring funds lead the event driven pack, with a 14.47 per cent advance.

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Monroe Capital appoints Managing Director, Head Business Strategy Submitted 08/10/2021 - 9:52am

Monroe Capital LLC today announced Sweta Chanda has joined the firm as Managing Director, Head of Business Strategy based in the firm’s New York office. She will be responsible for firmwide strategy, product and corporate development, and new initiatives to expand Monroe’s global footprint.

Prior to Monroe, Sweta was a Director at New York Life Investment Management (NYLIM) within the Strategy and M&A team responsible for heading alternative investment strategy, where she helped launch a European Opportunistic Credit Fund, European CLO platform, GP Stakes Fund, and a Social Impact Fund amongst other strategic business development and growth opportunities for NYLIM. She has over 18 years of experience in asset management and has achieved business growth through strategic stewardship, new product development and sourcing of M&A opportunities. 

Prior to NYLIM, Sweta was a Vice President at Blackstone, where she led initiatives related to cross platform mandates, relationship management, and operations across the firm’s Hedge Fund Solutions platform. Prior to Blackstone, she was an Assistant Vice President at Lehman Brothers in the Business Process Alignment Group working on strategy and process alignment for the investment banking division, and a Client Relations Associate, Management Consultant at Starpoint Solutions. Sweta earned her BS in TXA Management and Foundations in Business Administration from The University of Texas at Austin.

“We are very excited to add Sweta to the Monroe Capital team," says Ted Koenig, President & CEO of Monroe Capital. "Sweta has an accomplished career of over 18 years of experience in alternative investments focusing on business strategy. She brings with her many relationships and experience across the globe working with firms’ strategic efforts and new product development.

“For the past 18 years, our core investment efforts have always been, and continue to be, focused on the US Lower Middle Market, targeting companies with USD35 million or less of EBITDA. We have been fortunate to expand our efforts in areas such as healthcare, software, technology, FinTech, real estate, litigation finance, and structured credit, among others. We look forward to Monroe Capital’s continued growth, as we seek to find new and attractive adjacencies in direct lending where we can continue to generate 'alpha' for our limited partners and other investors.”

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Digital asset hedge fund ARK36 appoints COO Submitted 08/10/2021 - 9:48am

Digital asset hedge fund ARK36 has adjusted its management structure with the appointment of Anto Paroian as Chief Operating Officer (COO). 

Paroian will supervise all of the fund’s operations and activities, effectively taking the helm along with ARK36  co-founder Mikkel Mørch and Executive Director Loukas Lagoudis.

ARK36’s other co-founder Ulrik Lykke will now be focusing on exploring how the company's offerings can be expanded to other facets of the digital asset space.

The new COO will introduce core elements from a more traditional financial background to the digital asset space which are instrumental in ARK36’s vision of bringing the best of these two worlds together. Anto Paroian has more than a decade’s worth of experience in establishing and managing data analytics teams in the hedge fund and alternative asset industry. His impressive track record includes cooperations with prominent institutions such as Goldman Sachs, Blackrock, Vanguard, Brevan Howard, and JP Morgan. Additionally, Anto is an exceptional communicator and an expert on non-verbal communication, a subject he has taught as an independent lecturer for two years. 
 
Lykke says: “The addition of Anto Paroian as part of the team has allowed me to free up substantial time to focus more on expanding the offerings of the company while knowing ongoing operations will be in good hands.” 
 
Paroian says: “I’m excited to be joining the incredibly capable team at ARK36 and bring my managerial skills to use in a company that works at the forefront of what is happening in the financial sphere.” 

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Macrobond appoints North America Business Development Director Submitted 08/10/2021 - 9:25am

Macrobond Financial, a provider of economic and financial data and analytics, has appointed Larry Neiman as Director of Business Development, effective 1 November.

Neiman, who will be based in New York, will be responsible for growing Macrobond’s business in the US and managing strategic customer relationships in the region.

Neiman joins Macrobond after 21 years at Haver Analytics, a provider of financial and economic data and analytic tools, where he most recently served as regional account manager based in New York. He holds an MBA in Economics and Finance from New York University’s Stern School of Business and a BS in Economics & Political Science from James Madison University in Virginia, US. 

Neiman says: “I am thrilled to be joining Macrobond at such an exciting time for the business, where I have the opportunity to play a part in its continued expansion across geographies and teams. I was attracted to working with Macrobond because it is not just committed to supplying the most comprehensive macroeconomic data sets, but is also committed to solving many workflow problems that the industry is well aware of, such as collaboration solutions that financial firms and their dispersed teams increasingly demand. I was also impressed by their future road map which includes forward thinking analytics that the industry is crying out for.”

Howard Rees, Chief Commercial Officer at Macrobond, adds: “We have seen very strong growth recently with well over 100 new clients in the last 12 months opting to use the Macrobond solution. Larry’s hire is part of our strategy to invest in our presence in the US and capitalise on the growing demand from firms in the region. Larry brings with him invaluable relevant experience and we are confident that our US clients will benefit from his expertise and insights.”

Macrobond is the world’s most comprehensive source of economic intelligence for more than 4,000 finance professionals globally. Its flexible SaaS platform provides instant access to macroeconomic, aggregate financial and sector time-series data from more than 2,000 global sources, along with integrated analytics that enable users to quickly analyse, visualise and share the data - helping them gain strategic insights and collaborate better across their businesses.

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Multi-strategy hedge fund Brummer navigates equities and energy upheaval Submitted 07/10/2021 - 1:22pm

Swedish asset manager Brummer & Partners’ flagship multi-strategy hedge fund vehicle edged into positive territory in September, as stock market highs earlier in the month rapidly reversed amid renewed volatility, and commodity prices surged higher.

The Brummer Multi-Strategy (BMS) vehicle – which comprises nine hedge fund strategies spanning equity, macro, trend-following and more - saw its SEK-denominated share class rise 0.5 per cent last month, and 0.4 per cent in its USD class. However, on a year-to-date basis the fund is still down 0.4 per cent following losses earlier in the year.

Meanwhile, the BMS 2xL twice-levered version was up 0.8 per cent (SEK) and 0.9 per cent (USD) in September, but remains in the red to the tune of 1.6 per cent since the start of 2021.

As oil, electricity and gas prices soared, systematic trend-following strategy Florin Court was the best performer, generating an 8.1 per cent monthly return from correct calls in energy, commodities and fixed income markets. The advance brings Florin Court’s year-to-date gain to more than 23 per cent.

Meanwhile, Lynx, another managed futures quant fund, rose 1.1 per cent, helped by commodities and FX positions, with the fund now up 1.4 per cent YTD.

Amid supply chain disruptions and rising consumer price inflation, the strong equity market gains earlier in the month – which saw the S&P500 and Nasdaq reach all-time highs – receded, with the indices ending September down 4.7 per cent and 5.3 per cent respectively.

Against that backdrop, long/short equity manager Manticore navigated the month’s volatility well, Brummer said, adding 1.2 per cent thanks to successful bets across its long and short book. Manticore is now up 1.7 per cent over the nine-month period in 2021.

On the downside, tech-focused long/short equity hedge fund Black-and-White slipped 1.8 per cent last month thanks to losses in longs and shorts, and has fallen a hefty 18.7 per cent so far this year. Meanwhile, Kersley – a newly-added financials-focused long/short equity name to the BMS vehicle – rose 0.3 per cent last month.

Elsewhere, macro strategy Arete tumbled 1.8 per cent as a result of losses in equity markets, but it remains up 6.8 per cent in 2021. Quantitative equity manager AlphaCrest posted alpha losses, with the fund down 2.1 per cent for the month, but up 2.1 per cent YTD.

Fixed income relative value strategy Frost dipped 0.9 per cent, but stays in the black year-to-date by some 0.3 per cent, while Lynx Constellation, a machine-learning hedge fund strategy, fell 7.4 per cent and has now lost more than 16 per cent year-to-date, according to a Brummer update this week.

BMS is set to redeem its entire investment in Black-and-White after Seth Wunder announced he is stepping down as CIO of the technology-focused manager.  Following the closure of Black-and-White – which has generated a return of 42 per cent since its start in 2016 – BMS has added two sector specialist long/short equity funds, Kersley and Pantechnicon.

The shuffle comes as the long-running Stockholm-based multi-strategy pioneer’s flagship recently unveiled a new leadership.

Deputy managing director and partner Markus Wiklund is named as managing director, and Kerim Celebi, currently head of research, becomes a portfolio manager for BMS, together with founder Patrik Brummer, with the addition of a new risk manager Andreas Ekenbäck. Portfolio manager Mikael Spångberg is leaving the firm.

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State Street’s Collateral+ business now operational with Acadia Submitted 07/10/2021 - 9:36am

State Street Corporation's Collateral+ business is now operational with Acadia’s Initial Margin Exposure Manager (IMEM) and Margin Manager (MM) service. 

This integration provides automated dispute management for initial margin agreements and electronic margin call messaging across multiple products.

By leveraging IMEM & MM, State Street’s Collateral+ business will now enable clients to more efficiently comply with Unclear Margin Rule (UMR) regulations, via proven industry-leading solutions. By integrating Acadia’s services onto the Collateral+ platform, State Street’s clients will avoid and resolve disputes for SIMM/Grid calculations, and increase their operational efficiency by providing standard calculation, reconciliation and straight-through margin processes. This latest operational development furthers the firm’s fully integrated, yet modular, approach to UMR compliance which is a key benefit in State Street’s Collateral+ platform.

“We are pleased to announce this latest milestone for the firm’s Collateral+ business. With the pending final phases of the Uncleared Margin rules (UMR) for over-the counter (OTC) derivatives, an increasing number of our clients are looking to replace manual processes with new tools that focus on workflow automation,” says Staffan Ahlner, Global Head of Collateral+ for State Street. “By maximizing low touch operational processes and speedy resolution of disputes, we continue to focus on ‘enabling the trade’ for current and future clients.”

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Cboe appoints Senior Vice President, Global Sales and Index Licensing Submitted 07/10/2021 - 9:35am

Cboe Global Markets, a provider of global market infrastructure and tradable products, has expanded its Data and Access Solutions leadership team to successfully position the business for further global growth.

Bo Chung, a long-time veteran of the financial services industry, has joined the company as Senior Vice President, Global Sales and Index Licensing. In this role, Chung will be responsible for overseeing the strategic growth and adoption of Cboe’s holistic Data and Access Solutions offering.

Catherine Clay, Executive Vice President, Global Head of Data and Access Solutions, says: “For many years I have admired Bo’s impressive track record of success and industry leadership and I’m thrilled to have him join the team. Cboe’s expansive Data and Access Solutions offering is an integral part of the company’s global vision and we could not be more excited to have Bo help us execute on this strategy to bring Cboe’s suite of data analytics, indices, market intelligence and execution services to new markets and users.”

Chung has led a distinguished 30-year career in the financial services industry, holding several senior leadership roles and managing teams across continents. Prior to joining Cboe, Chung served as an independent strategic advisor to select start-ups in the early and growth stages. Previously, he was Managing Director, Global Head of Sales and Relationship Management at S&P Dow Jones Indices (S&P DJI), where he worked for more than two decades. In this role, he led a team of 50 global sales and relationship managers and was responsible for business expansion, revenue growth and strategic partnership development. Prior to that role, Chung was Managing Director, Business Development, Sales and Marketing, and focused on identifying opportunities to increase S&P DJI’s brand recognition and index adoption among asset managers and investment banks.

Additionally, Michael Hollingsworth was promoted to Vice President, Global Head of Risk and Market Analytics, and Geralyn Endo was promoted to Vice President, Global Data and Access Solutions Client Engagement. Previously, Hollingsworth was Senior Director, Financial Risk Analytics, leveraging his extensive trading and analysis experience to help lead Cboe’s financial risk analytics business. Endo was previously Head of Client Engagement, Data and Access Solutions at Cboe.

Clay adds: “Mike has been an asset to our team since joining Cboe as part of the Hanweck acquisition in early 2020. His in-depth knowledge of Cboe’s data and analytics services and vision for the future of our products is unmatched. Likewise, Geralyn has been an integral member of the Data and Access Solutions team for two  years, helping grow the business substantially throughout her time at Cboe. Her passion for making trading solutions accessible to all market participants drives our entire team to continuously reach new heights. I am confident that Mike and Geralyn will help accelerate our global growth as we build one of the world’s largest global derivatives and securities trading networks.”

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Sentieo doubles staff in London to support growth Submitted 07/10/2021 - 9:21am

Sentieo, a financial research platform provider, has expanded its presence in the European market and doubled its team in the United Kingdom. 

The growth is driven by increasing demand for the company’s AI-driven financial research platform and represents a firm commitment to more than 50 active customers in the region, including Schroders, Kames, SW Mitchell, Cape Capital, Amiral Gestion and Ownership Capital. The London-based team has been bolstered by the addition of a Director of UX Design, a Director of Product, and three sales and client success executives, with the expectation to double the sales team again over the next 12 months.

The London expansion follows Sentieo’s Series B funding round in May 2021, which was led by Ten Coves Capital with participation from existing investors Centana Growth Partners and Studio Management. The capital supports the company’s mission to invest in the people and the technologies that are helping global customers transform the way they conduct financial and corporate research. 

“We are excited to expand our business and grow our team in Europe, to meet increasing demand for our solutions in the region,” says David Lichtblau, CEO of Sentieo. “Providing an innovative cloud-based platform that can modernise the research workflow and drive analyst collaboration for more powerful investment analysis has catapulted our momentum around the globe. As the industry evolves, our team will continue to lead our clients through their digital transformation process and help deliver the competitive insights they need to succeed.”  

Following record revenues in 2020, demand for Sentieo’s AI-driven platform continued throughout the pandemic as investment firms sought cloud-based solutions that could enable their teams to work remotely and collaborate seamlessly. Featuring innovative AI search and sentiment analysis, market and alternative data, modelling and analytics – all supported by an integrated research management system – Sentieo is empowering customers around the world to reinvent how the investment research process is done.

With Sentieo, research analysts no longer need to rely on disparate tools and legacy applications like terminals, emails, and Excel documents to conduct financial research. By providing a centralised hub for analysts to do their work – in or out of the office – investment firms can modernise their research workflows, share ideas, and strengthen the investment analysis process to achieve Alpha for their clients.

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Itiviti successfully integrates NYFIX Matching post-trade solution with Broadridge Investment Management Solutions Submitted 07/10/2021 - 9:19am

Itiviti, a Broadridge Financial Solutions company, has integrated its NYFIX Matching solution with the portfolio, order, and investment management system from Broadridge.

“The post-trade space has historically been defined by manual processes, but given shrinking technology budgets, many firms have been unable to address these challenges,” says Ray Tierney, President of Itiviti, a Broadridge business. “Now, less than six months after being acquired by Broadridge, Itiviti can deliver our automated NYFIX Matching solution for trade allocation, confirmation and affirmation to a far greater number of clients, helping them save money and expedite trade matching. This integration is a testament to the full power of Broadridge’s capabilities, which can scale to support clients now and into the future.”

The new solution will empower Broadridge’s client base with direct access to NYFIX Matching’s automated trade allocation, confirmation and affirmation capabilities. Clients will gain the ability to consolidate matching of multiple asset classes on a single platform and match trade details at a granular level, delivering efficiency and cost benefits. NYFIX Matching’s FIX-based affirmation occurs in near real time, seamlessly catching errors, minimising costly trade breaks, and supporting accelerated settlement cycles. As with most Itiviti products, this solution is multi-asset, global and fully hosted and offers a modern user interface. This is the first of many product integrations between Itiviti and Broadridge and serves as a compelling example of the strong synergies between the two.

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EEX registers first trades in new long-term Power Futures Submitted 07/10/2021 - 9:17am

The European Energy Exchange (EEX) has registered its first trades in the new long-term Power Futures contracts.

On 5 October 2021, EEX registered a 10 MW transaction in EEX Spanish Power Futures for the delivery in the calendar year 2028 (which corresponds to a volume of 87,840 MWh) as well as for the delivery in 2029 (which corresponds to a volume of 87,600 MWh) with Audax Renovables SA being active as one of the counterparties trading via Renta 4 Banco SA.

Steffen Köhler, Chief Operating Officer of EEX, says: “We decided to offer our customers the opportunity to trade Power Futures in Germany, Spain and Italy up to 10 years, as subsidy schemes continue to be phased out across Europe. We noticed strong interest and a demand to find a trustful and secure market based solution. I am thrilled to see these first trades which prove that our contracts are meeting the market’s expectations for long-term hedging.”

By extending the power futures product suite from six to 10 years in Germany, Italy and Spain, EEX is facilitating long-term PPA hedging on the exchange. This enhancement enables customers to hedge their price exposure up to 10 years in advance with the standardised and financially settled power futures at EEX. At the same time, customer are able to hedge their future price risk and mitigate their counterparty risk through secured clearing, so that all positions will be fulfilled.

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British hedge funds show ‘patriotic bias’ towards UK stocks, study finds Submitted 06/10/2021 - 2:01pm

A ‘patriotic bias’ towards London-listed stocks has increased among UK hedge funds during the Covid-19 pandemic, and is stifling managers’ efforts to diversify portfolios, according to a new industry survey.

Institutional prime broker IG Prime surveyed 250 hedge fund portfolio managers and hedge fund traders, exploring what influences their diversification strategies, the internal and external factors shaping investment decisions, and what they consider when trading internationally.

A remarkable 96 per cent of hedge fund respondents believe UK stocks to be more successful compared to other markets – despite US equities outflanking those in the UK during the course of the Covid-19 pandemic. 

This indicates a ‘patriotic bias’ which is influencing portfolio asset allocation decisions at UK hedge funds, IG Prime said.

“Our survey data shows that hedge funds have been focused on the markets they know best and are most comfortable trading in,” said Chris Beauchamp, chief market analyst at IG Group. 

“Although markets like the US have significantly outpaced the UK, ‘safe’ investments that managers feel more confident will produce a return are likely to be prioritised over ‘riskier’ investments – despite the potential for enhanced profits.”

The report probed the internal and external factors weighing on hedge funds’ investment decisions and portfolio-building process.

Despite their general faith in UK equities, more than half – 57 per cent – of those quizzed said ‘pressure from management’ was a factor to diversify outside of UK assets, while an equal number cited a desire to ‘benefit from other strong performing markets’. 

Of the two, 59 per cent of portfolio managers said that management pressure was the reason for diversification, and 53 per cent said it was to ‘benefit from other strong performing markets’. Hedge fund traders, on the other hand, appear more focused on performance – with 52 per cent citing management pressure compared with 65 per cent naming strong performing markets exposure. They also prioritised balancing risk (64 per cent) and minimising volatility (65 per cent).

The report said: “Despite the overall confidence in UK stocks, the reported pressure to diversify may come as a result of general economic uncertainty brought on by the pandemic and geopolitical influences such as the US elections and Brexit, which could be among some of the factors that have helped the US economy outpace the UK’s.”

Elsewhere, some 46 per cent of survey participants said they still felt cautious about trading in international markets due to lack of experience, while another 46 per cent of all respondents also said they were concerned about the impact of political volatility on markets. Another 45 per cent named different trading legislation as a barrier to trading stocks in markets outside their main domicile.

Pre-pandemic, some 59 per cent of UK hedge funds said that they had dedicated between 76–100 per cent of their portfolio to UK investments. That number has since grown to 63 per cent. At the same time, there has also been marginal shift towards European stocks since the pandemic began, IG Prime noted, with the number of hedge funds investing 26-50 per cent of their portfolio to European stocks rising from 6 per cent pre-pandemic to 8 per cent. 

“Although home bias was a significant factor in hedge funds’ portfolios before the pandemic, patriotic investing has since increased as investors have directed more of their funds to UK stocks,” the survey observed.

“Meanwhile, the slight increase in European investments may be the result of local political uncertainty brought on by Brexit, which may have led to some investors seeking to profit off European companies that stand to benefit from the shakeup in EU trade. However, it’s worth noting that the increase in European investments is minimal and may not be indicative of a wider trend.”

Beauchamp said: “It’s no surprise that hedge funds would look to mitigate as much risk as possible during a time of crisis, and if lack of knowledge and experience of a certain market is to be deemed a risk then it would appear that this mitigation is a driver of continued ‘patriotic investing’ during the pandemic.”

The study follows recent research published jointly by the Alternative Investment Management Association, Simmons & Simmons and Seward & Kissel which showed a marked increase in UK hedge funds’ confidence in their business prospects over the coming year, outpacing sentiment among US, EMEA and Asia Pacific-based managers.

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EEX Group reports Power volume of 772 TWh in September 2021 Submitted 06/10/2021 - 12:24pm

EEX Group’s Global Power volume amounted to 772 TWh (+45 per cent y-o-y). Volumes increased after many traders returned from an extended summer break to observe increasing levels of volatility on the world markets.

European Power Derivatives exceeded the mark of 500 TWh which is the highest monthly volume in this year and an y-o-y increase of +44 per cent.

New monthly records in German (+57 per cent), Nordic (+104 per cent) and Greek Power Futures (+ 1,388 per cent) also resulting from daily records.

Greek Power Futures recorded 7 TWh traded this year which more than double the 2020 volume, while power options volume more than quadrupled.

US Power Derivatives meanwhile, increased by 63 per cent to 206 TWh while Japanese Power Futures reached 395 GWh (+834 per cent) in September.

European Natural Gas Spot markets increased by 37 per cent to 148 TWh.

Volumes were up across almost all hubs, with German GASPOOL and NCG reporting increases by 53 per cent and 47 per cent respectively, CEGH + 37 per cent and TTF +38 per cent
Gas Derivatives in Europe almost doubled to 104 TWh.
TTF Futures +94 per cent, PEG Futures more than doubled
Strong performance of Czech gas hub on both Spot (+345 per cent) and Derivatives (+1,545 per cent).

US environmental markets posted a new monthly volume record in September with 35,438 lots traded, up 244 per cent compared to the same period last year end exceeding the prior monthly record set last month (August 2021: 31,703 lots).

Freight markets were up 23 per cent to 79,173 lots driven by Freight Futures which rose by +48 per cent.

Agricultural derivatives contracts rose by 38 per cent driven by volume increases in both segments, Processing Potatoes (+54 per cent) and Dairy (+39 per cent).

In the dairy segment EEX Butter Futures increased by 25 per cent while Skimmed Milk Powder Futures rose by 24 per cent.

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United Fintech appoints Senior Sales Exec from JP Morgan Submitted 06/10/2021 - 9:57am

Jeremey Gzaiel has joined United Fintech’s London-based team as Senior Sales Executive, with a remit to grow the firm’s client base in French speaking territories.

Gzaiel brings a wealth of institutional sales experience to United Fintech, which helps banks, hedge funds and asset managers to accelerate their transition to a digital world through access to fintechs specialising in capital markets. He joins from JP Morgan, where he specialised in Emerging Markets Sales, helping institutional clients with solutions in credit, FX and equity derivatives. Prior to that, he worked at Commerzbank in Cross Asset Solutions Sales.

As a native French speaker, Jeremy’s initial sales focus at United Fintech will be on building a French speaking client-base including insurance companies, pension funds, hedge funds and asset managers. Jeremy Gzaiel joins a global team at United Fintech which consists of over 70 employees across five offices: London, Copenhagen, Berlin, Romania and the US.

Tom Robinson, Partner and Head of Sales, United Fintech, says: “Jeremy is another great hire for United Fintech as we continue to assemble a world-class sales team. His experience, relevant skills and multi-lingual capabilities will be a real asset to the organisation and we are delighted to welcome Jeremy to our EMEA Sales Team.”

Jeremy Gzaiel, Senior Sales Executive, United Fintech, adds: “This is a fantastic career opportunity for me and I am very excited to be joining the United Fintech team, leveraging my knowledge and contacts to help United Fintech grow. From personal experience, I know this is ideal timing to be focusing on accelerating the digitalisation of banks and hedge funds. United Fintech’s vision is extremely powerful, providing financial institutions with access to a one-stop-shop of fintechs specialising in capital markets.”

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LibreMax Capital raises USD225m for Structured Opportunities Fund Submitted 06/10/2021 - 9:40am

LibreMax Capital (LibreMax), an asset management firm specialising in structured products and corporate credit, has successfully closed its fifth drawdown vehicle, LibreMax Structured Opportunities Partners I, with total capital commitments of approximately USD225 million.

The Structured Opportunities Fund will target investments that have unconventional asset pools or are created in less liquid forms. The Fund will focus primarily on private asset-backed securities across the consumer, residential and commercial credit sectors.

Greg Lippmann, Chief Investment Officer of LibreMax, says: “In today’s environment, we believe private lending affords an attractive opportunity to generate uncorrelated returns. Leveraging our market relationships, asset expertise and proprietary technological infrastructure, LibreMax is uniquely positioned to provide bespoke capital solutions to help companies fund future growth or meet liquidity needs in a post-Covid world. The Structured Opportunities Fund complements and extends our growing franchise of credit products, and we are grateful for the support of our limited partners.”

Since 2012, LibreMax has managed four drawdown vehicles totalling over USD1.4 billion in committed capital as part of its diversified platform of alternative and long-only strategies. LibreMax also offers collateralised loan obligation management through its Trimaran Advisors, LLC subsidiary.

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EEX launches sell-off in German national emissions trading scheme Submitted 06/10/2021 - 9:22am

The European Energy Exchange AG (EEX) has successfully launched the sell-off of national emission certificates (nEHS certificates, identified on EEX by the abbreviation nEZ) in the German national emissions trading scheme (nEHS).

At the start of the sell-off, 500,012 nEHS certificates were sold via EEX to a total of 4 participants at the fixed price of EUR25 Euros. Significantly more users from different participants have logged in during the first sell-off to test the new platform. Due to the settlement modalities for the so-called DCP nEHS customers, the sell-off volume and the number of DCP customers will be published one week later. Thus, the final sales and participant figures for a sell-off date are finally determined after one week in each case and are communicated on the EEX website. EEX publishes further details on its website under this link.

Peter Reitz, Chief Executive Officer of EEX, comments: "The German national emissions trading scheme is a major instrument to achieve the national climate targets in addition to the already established European emissions trading scheme (EU ETS), since the German heat and transport sectors will be included in CO2 pricing for the first time. We are proud of the successful start of the sell-off and very pleased to be able to contribute to the national climate protection goals."

All CO2-causing fuels, in particular petrol, diesel, heating oil, LPG, natural gas and, from 2023, coal, will be included in the German national emissions trading scheme. Those companies that bring the fuels into circulation, for example natural gas suppliers or companies in the mineral oil industry, are obliged to purchase national emission certificates.

The nEHS certificates can be purchased directly via EEX or indirectly via an intermediary. The list of the current 25 intermediaries on EEX’s website contains detailed information on their services within the national emissions trading scheme.

The sell-off of national emission certificates for 2021 will be offered twice a week between October and December 2021, on Tuesdays and Thursdays, in the period from 9:30 to 15:30 CET. A further 18 sell-off dates are scheduled between now and the end of the year. 7 December 2021 is expected to be the last sell-off date of the year.

Until 2025, a fixed-price phase is envisaged under the scheme, in which an unlimited quantity of national emission certificates will be issued at a fixed, annually increasing price. From 2026 onwards, the sell-off shall be transferred to an auction procedure. EEX publishes detailed information on the national emissions trading scheme on its website.

Further information on sell-offs under the German national emissions trading scheme is published on the DEHSt website.

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Brevan Howard takes minority stake in structured credit manager 1543 Capital Submitted 05/10/2021 - 5:59pm

Brevan Howard, the high-profile global macro hedge fund firm co-founded by Alan Howard, has taken a minority stake in 1543 Capital, an alternative credit and structured finance-focused investment manager, as part of a new strategic partnership.

The partnership will see Brevan Howard take a board seat in the credit manager, which has around USD450 million in assets. The hedge fund giant will also acquire capacity rights to invest in future funds managed by 1543, whose focus spans asset-based investing, commercial real estate debt and equity, consumer and student loans, and trade finance.

Alan Howard meanwhile has made a personal investment in 1543 Capital Fund I, the firm’s private equity-style fund vehicle which aims to generate risk-adjusted returns from market opportunities across investment cycles.

1543 Capital LP – which originally launched its drawdown private credit-oriented fund in August 2019 with USD75 million, now with USD125m of capital commitments – already advises Brevan Howard on USD200 million of structured finance assets, up from USD100 million at inception.

The firm focuses on structured credit, corporate loans and private credit opportunities over multiple market cycles, with target returns of between 10-15 per cent annually. Specific trading themes include rising credit demand and credit needs among private debt and real estate borrowers, a slew of new asset classes arising from venture capital-backed specialty finance firms, and the funding gap arising from regulatory changes which have curbed certain traditional bank lending avenues.

Prior to launching 1543 Capital in 2019, Andrew Ulmer, the firm’s founder and CIO, had been a credit-focused portfolio manager at Brevan Howard before launching DW Partners, a spin-out of Brevan’s credit unit, in 2009.

Along with Ulmer, 1543’s team comprises portfolio manager Geoff Williams, a former executive managing director at Goldman Sachs who co-ran its CMBS, CDO and commercial real estate loan trading business; portfolio manager Brian Zola, former co-head of structured finance and partner at DW Partners, and Richard Gannalo, CFO and former US CFO & COO at Cross Ocean Partners.

Brevan Howard CEO Aron Landy said 1543 Capital’s team has long-standing links to Brevan Howard and a “track record of success”.

“Partnering with them is a testament to our belief in their quality and skill as well as the firm’s potential, and we look forward to developing the relationship further in the years to come,” Landy said.

Andrew Ulmer, founder and CIO of 1543 Capital, said: “Brevan Howard is a firm with an exceptional pedigree, built over many to years and is rightly considered one of the pre-eminent asset managers in the world. This partnership will be a catalyst to the development of 1543 in the years ahead.”

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Putting an end to manual processes

Despite the push to increase automation across the financial services industry in recent years, manual processes continue to create operational risk and maintain unacceptable high costs, an issue which was brought to the fore once again by the recent pandemic.
 
This report, produced in conjunction with AutoRek, investigates the resistance to change in the hedge fund industry so far, the drivers to automation, and the benefits to be gained across the industry by moving away from manual processing.

Pico launches ultra-low latency venue connectivity across key global venues Submitted 05/10/2021 - 3:14pm

Pico, a provider of mission critical technology, data and analytic services for the financial markets community, has introduced ultra-low latency venue connectivity. 

Pico’s ultra-low latency solution supports clients with latency-sensitive trading strategies requiring highly accurate views of the market and faster execution times. Utilising high-performance Layer 1 switching technology, Pico can now achieve one-way market data latency of 5-87ns and round-trip latency of 140ns for order entry (an 80 per cent reduction from standard Layer 3 access). 

This new Layer 1 offering is supported by Pico’s global engineering expertise and instrumented with its best-in-class Corvil Analytics, assuring operational performance, transparency, and visibility. Corvil’s real-time analytics continuously monitors Layer 1 switch transit latency, with immediate alerts generated if nanosecond thresholds are violated, providing maximum operational transparency for latency-sensitive trading. 

End-of-day reports on details including message rates, microbursts, and gap detection give clients important service assurance visibility. 
 
Layer 1 connectivity is available across venues in North America, Europe and Asia-Pacific (APAC), with Pico’s global service delivery team providing the required support for this turnkey solution to ensure rapid time to market. 
 
“Layer 1 access is an important component for many trading strategies and Pico’s advances in optimizing exchange connectivity latency set a new benchmark which gives clients the ability to gain a significant competitive edge,” says Roland Hamann, Chief Technology Officer & Head of APAC at Pico.  

“Pico is committed to delivering a differentiated client experience and we continue to invest in our next generation network to remain ahead in performance, security, scalability and transparency. This launch further strengthens our comprehensive range of network products that meet the full spectrum of electronic trading requirements.”

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How “explosive” energy prices are fuelling a quant hedge fund surge Submitted 05/10/2021 - 1:43pm

The “explosive” upward price movements in energy markets are helping power performance among machine-based hedge funds this year, as CTAs and trend-following strategies successfully lock onto strong price signals.

The rally in energy prices have proven one of this year’s most reliable and enduring trends, according to David Gorton, founder and chief investment officer, DG Partners.

Gorton noted that the energy “complex” of oil and gas has rapidly closed the gap on other commodity sectors this year – having earlier lagged them in 2020 - as economic reopening and increasing social mobility has bolstered demand. At the same time, supply-side factors have also come to a head as the green energy transition has struggled to fill the gap left by sustained underinvestment in more traditional fossil fuels, Gorton told Hedgeweek.

The price of Brent crude oil rose above USD81 on Monday - its highest level in two years - with the West Texas Intermediate benchmark hitting USD77, while natural gas futures reached USD5.9, a seven-and-a-half year high. 

Trend-following hedge funds – as measured by Société Générale’s SG Trend Index, which tracks the daily net returns of a pool of 10 of the biggest trend-following managers – have scored a 10.2 per cent gain year-to-date on the back of the upward moves. The main SG CTA Index – a broader industry benchmark offering a daily performance snapshot of 20 of the largest CTAs – is up more than 7 per cent in 2021.

“Whilst energy markets have suffered several notable corrections this year, prices have consequently quickly recovered to new highs. As such, our models have been persistently long throughout the year,” Gorton said.

Gorton’s strategy comprises several models with differing characteristics which aim to take advantage of different market regimes, coupled with a series of risk modulators that dynamically allocate risk across sectors, which have persistently added exposure to the sector this year. 

As a result, DG Partners’ models – which have been persistently long the commodity throughout 2021 – were also well-positioned to capture September’s energy price spike.

“The price action in natural gas has perhaps been the most explosive,” Gorton observed. “When markets become more volatile, and the price action less stable, the position-sizing algorithms endogenous to our models are designed to automatically reduce positions accordingly. In the case of natural gas, the rally reached such extreme proportions recently that our models began exiting their long exposure, quite aggressively in some cases. 

“Nevertheless, with the longer-term trend still in-tact, we retain a core net long exposure heading into Q4. This perhaps illustrates the benefits of running several models with differing characteristics and reaction speeds.”

Meanwhile, Nicolas Gaussel, founding partner and CEO of Paris-based Metori Capital Management, said natural gas has been the best performing position in his strategy, both over the past month and year-to-date. Gaussel said recent energy upward moves had a positive impact on the fund, with the model considering the natural gas bet to be “the best risk adjusted/expected returns call” in the portfolio.

“The model is quite stable and remains long but not overexposed on energies, considering the high correlation across energy trends,” he said of Metori’s current positioning. “Since the end of July, our positioning has remained quite stable. The model has inner moderation principles which prevent it from over exposing to a trend and, hence, to a reversal.”

Jonathan Singh, discretionary manager at Fulcrum Asset Management in London, said further price moves can be expected up ahead, noting there is still “room for change” on both the supply and demand side.
 
“OPEC+ remain disciplined but may become less so as inventory continues to draw - we are now back to pre-pandemic levels for the first time - and if price levels remain high,” Singh told Hedgeweek.
 
“On the demand side, of course Covid mutations are a risk, but the recent rise in natural gas prices has brought into play questions around oil substitution for electricity generation this winter. Implied 1 million volatility in Brent is now back down to pre-pandemic levels, however, suggesting the market doesn’t see large volatility on the immediate horizon.”

He said CTAs’ positioning in crude is at post-pandemic highs, given the strong medium-term signal and low realised volatility. “Currently, with our momentum signal being at its maximum level since Q1, stronger upwards momentum in price will not in itself increase positioning. Instead, realised volatility will be the driver,” he said of the prospect of renewed volatility.

Pointing to the reactive nature of CTAs, Singh believes an increase in realised volatility will likely see long positions reduced, even if the momentum signal remains at the maximum level.
 
“But given signals in highly correlated markets are the pointing the same way, a broader energy sector significant price decline is a risk to current positioning.”

Looking ahead, Gorton said the interlinkages across commodity markets and the “often intense” energy required for their production may risk a further upward spiral across the broader commodity asset class.
 
Noting the impact of high energy prices in the UK on fertilizer production – and the attendant consequences for agriculture commodities and food supply – he said: “With governments unlikely to allow rising food prices to compromise their popularity with the electorate, in our view, and fiscal laxity having become more prevalent in the post-pandemic era, there is a risk that state intervention or subsidy prevents the necessary demand destruction to see prices normalise in the near term.”

He added: “As such, with supply bottlenecks likely to persist for some time, there may be further upside for commodity prices in the near-term, particularly as the post Delta-variant recovery continues and global economies run above potential.”

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