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Updated: 20 weeks 1 day ago

BNY Mellon to launch FX prime brokerage service

Tue, 01/23/2018 - 04:29

BNY Mellon is to launch a new prime brokerage service for its institutional clients in 'early 2018' aimed at allowing partcipants to trade, finance and margin their FX more efficiently.

BNY Mellon says the new will provide clients with access to a significant new source of FX liquidity while helping streamline and reduce operational expenses, including legal and onboarding costs, as well as generating substantial capital and netting gains.
Clients will be able to transact an extensive suite of FX products while also enjoying access to pre- and post-trade services and BNY Mellon's collateral, funding and liquidity capabilities.
The introduction of the new service comes at a time when some clients are experiencing challenges in sourcing liquidity or are facing increased funding costs in a constrained market.
"We're launching a traditional prime brokerage service with a twist. By leveraging BNY Mellon's leadership in collateral management, funding and liquidity, clients will benefit from a fully-integrated and complete FX service," says Jason Vitale (pictured), Chief Operating Officer, Foreign Exchange & Head of Client Execution Services at BNY Mellon Markets.
"FXPB is just one of a number of new services BNY Mellon Markets is introducing that will enable our clients to more efficiently access global currency markets."
"BNY Mellon's new service benefits from the combination of a highly-rated counterparty with the capacity of a market-leading custodial bank. It opens up access to multiple new sources of liquidity for new and existing clients. FXPB is the ideal tool for those looking to balance the challenges of the uncleared margin regime with the need to deliver better execution on behalf of their clients," says Michael Cooper, head of FXPB at BNY Mellon in London. 

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Investor inflows accelerate as hedge fund capital eclipses milestone

Mon, 01/22/2018 - 04:01

Hedge funds concluded 2017 with the strongest capital inflows since Q2 2015, driving total assets to new record, while completing the first performance year without a monthly decline since 2003; according to the latest HFR Global Hedge Fund Industry Report.

Total hedge fund industry capital increased by USD59 billion to USD3.21 trillion, the sixth consecutive quarterly record for total industry capital.
Investors allocated USD6.9 billion of new capital to hedge funds in Q4 2017, the highest quarterly inflows since Q2 2015, bringing total 2017 inflows to USD9.8 billion. December marked the fourteenth consecutive monthly advance of the HFRI Fund Weighted Composite Index, which gained 8.7 per cent in 2017, the strongest calendar year return since 2013.
Driven by an active M&A environment, Event-Driven (ED) strategies led inflows for Q4, with investors allocating USD6.9 billion of new capital to the strategy, bringing total ED hedge fund AUM to USD831.6 billion. Multi-Strategy funds led ED sub-strategy inflows for both Q4 and FY 2017, receiving USD4.9 billion for the quarter and USD10.0 billion for the year. Partially offsetting the annual inflow, USD4.7 billion of net investor capital was redeemed from Special Situations funds in 2017. The HFRI Event-Driven (Total) Index produced a +7.7 per cent return for the year, led by an 11.9 per cent gain from the HFRI ED: Special Situations Index.
Fixed income-based Relative Value Arbitrage (RVA) strategies received USD1.3 billion of net inflows in Q4 2017, increasing total RVA capital to USD840 billion. RVA inflows were led by USD2.2 billion of new capital invested into RVA: Corporate funds, which was partially offset by outflows of USD1.7 billion from RVA: Multi-Strategy funds. The Q4 inflow helped to pare the FY17 outflow of USD5.6 billion from RVA strategies, of which USD5.4 billion occurred in 1Q17. The HFRI Relative Value (Total) Index gained +5.1 per cent for 2017, as US interest rates remained relatively stable throughout the year and a new Chairman of the US Federal Reserve Bank was appointed.
Macro funds received USD660 million of net inflows in Q4 2017, increasing the FY17 inflow to USD10.8 billion, which led all hedge fund strategies. Total Macro AUM ended the year at USD599 billion, an all-time high. Sub-strategy inflows for the year were led by quantitative, trend-following CTA funds, which received USD9.8 billion of new capital, and Currency strategies, which collected over USD5.1 billion. The HFRI Macro (Total) Index climbed 2.2 per cent in 2017, led by a 5.3 per cent gain from the HFRI Macro: Multi-Strategy Index.
Equity Hedge (EH), the industry’s largest strategy area, experienced outflows over the quarter, as investors pared equity beta exposure on strong gains in both direct equity markets and EH hedge funds. Investors redeemed USD2.0 billion from EH funds in Q4, bringing the FY17 outflow to USD5.4 billion, though total EH AUM increased to USD939 billion as a result of strong performance gains. For the year, EH sub-strategy inflows were led by Multi-Strategy and Quantitative Directional funds, each of which received USD7.1 billion of net investor capital, but these were offset by outflows of USD13.6 billion from Fundamental Value and USD9.2 billion from Fundamental Growth funds. The HFRI Equity Hedge (Total) Index topped all main strategies with a +13.5 per cent return in 2017, while the HFRI EH: Fundamental Growth led all sub-strategies with a gain of +19.5 per cent. The HFRI Emerging Markets (Total) Index surged 20.1 per cent in 2017, led by the HFRI India and HFRI China indices, which gained 36.9 and 32.2 per cent, respectively.
Flows by firm size for 2017 were led by managers with than USD1 billion, as these received USD7.4 billion of new capital, while the industry’s largest managers, those with greater than USD5 billion AUM, received USD6.3 billion of inflows. Investors withdrew a net USD3.9 billion from firms managing between USD1 billion to USD5 billion.
“2017 was a historic year in the hedge fund industry that included advancements in both the core and emerging areas of the industry, and that combined record capital levels and consistent performance gains with the evolution of risk parity, blockchain and cryptocurrencies,” says Kenneth J Heinz (pictured), President of HFR. “Having successfully navigated financial market challenges over the past year, 2018 presents an entirely new set of challenges and opportunities, including a new US Federal Reserve Chairman, infrastructure spending and tax cuts, the second year of the Trump administration, M&A and special situations driven by powerful trends in retail, technology, media and governance, as well as the transformative impact of blockchain technology. It is likely that the hedge fund industry will continue its powerful expansion into these core and emerging areas throughout 2018.”

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Four fifths of CTAs have no plans to trade Bitcoin futures

Thu, 01/18/2018 - 05:49

An international survey of CTAs – managed futures managers – has revealed limited enthusiasm for the new Bitcoin futures contracts offered, since December 2017, by CBOE and CME Group.

The survey was conducted in early January by BarclayHedge, a leader in the field of alternative investment data analysis.
The survey, which involved managers from as far afield as Japan, Cyprus and Switzerland although predominantly based in the USA, indicated that some 73 per cent of those questioned, did not “consider Bitcoin futures to be a valuable/useful addition to a diversified futures portfolio” and that over 80 per cent had no plans to trade these contracts either now or within the next six months.
Among the reasons given for this negative viewpoint was the fact the contracts are too new to judge (31 per cent); the margins are too high (30 per cent) and/or that Bitcoins are too volatile (35 per cent). That said, one third of managers surveyed agreed with the strident proposition that “Cryptocurrencies are a bad idea and should not be encouraged.”
Among the 5 per cent of managers who are already trading Bitcoins, and those who also chose to answer this question, there was a marked preference for the contracts offered by CME (25 per cent) over those from CBOE (4 per cent) despite the fact that current volume figures favour CBOE. These statistics may, however, reflect the fact that CME is an active supporter of CTAs and offers a significantly larger range of contracts familiar to most US and international managers.
“Looking ahead a year, it’s clear the jury is still out,” says Sol Waksman (pictured), founder and president of BarclayHedge. “While nearly 60 per cent of respondents thought that Bitcoin futures would be inconsequential in 12 months’ time, a good proportion (over 30 per cent) thought these contracts would be high volume and very successful. In short, it’s too early to tell.”

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Global institutional investors braced for market risks and pursuing an active approach in 2018, says BlackRock study

Thu, 01/18/2018 - 05:14

Faced with low interest rates and relatively high valuations for risk assets, large global institutional investors are looking to protect themselves against downturn risks through maintaining their cash levels and selectively increasing allocations to active strategies.

That’s according to a new survey by BlackRock which finds that while 65 per cent of clients plan to leave cash allocations unchanged for the year ahead, there is an interest in active management among institutional investors, which should play out across a diverse set of alternative asset classes, including illiquid assets and hedge funds, and also within public equities.
The survey of 224 institutional clients globally, representing USD7.4 trillion in assets, found that illiquid or real assets remain the frontrunner within the private market universe for large global institutional investors and are expected to be the largest beneficiary of asset flows. Three fifths (60 per cent) of institutional investors globally are expecting to increase their allocations to Infrastructure and Renewables.
Real Estate is similarly set to gain, with more than two fifths (42 per cent) of institutions increasing allocations to the asset class. Over two fifths of institutions (43 per cent) are looking to increase private equity allocations globally.

“Clients’ intention to reallocate to private markets and other highly active strategies is a recognition that global risks persist and of the value of portfolio managers’ skill. Despite synchronised global growth, our overall return expectations for most segments of institutional investors are well below their return targets,” says Edwin Conway, Global Head of BlackRock’s Institutional Client Business. “Maintaining current cash levels and increasing allocations to active managers may seem counterintuitive. But for many of our clients, it’s their two-pronged strategy for navigating risk and potentially volatile markets.”
Hedge funds appear to be back in favour with investors, who have shifted from an intended decrease in 2017 to an anticipated increase in 2018. One fifth of those surveyed (20 per cent) plan to increase their allocations to hedge funds.
Despite an anticipated overall decrease in equity allocations, almost one quarter of institutions (24 per cent) expect to shift allocations to active  relative to index investments, versus 16 per cent that plan to do the opposite.

Globally the hunt for yield means alternative forms of credit such as private credit remain attractive, with over half of respondents (58 per cent) looking to increase allocations.
Within credit more broadly, emerging markets also find favour, with almost two fifths (37 per cent) looking to increase allocations here. Overall a decrease is expected in core and core plus allocations (28 per cent), a consistent trend in the survey’s year-over-year results.
Conway says: “In the current environment of record-high asset performance, we believe that active portfolio decisions need to be taken by institutional investors this year. For several years, we have been talking to clients about the need to embrace alternative strategies as a way to add diverse sources of return, and offset the current rate environment. It’s gratifying to see them continuing to embrace these assets as they slowly become the norm for institutional investors seeking differentiated sources of return, inflation hedging and counter-cyclical investments.”

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Morphic to launch UCITS-compliant long/short ESG strategy on the Trium UCITS platform

Wed, 01/17/2018 - 05:29

Sydney-based Morphic Asset Management is launching a new global equity strategy on the Trium UCITS platform, employing ESG factors to generate alpha on both short and long positions.

The Trium Morphic ESG L/S Fund launches on 20 February 2018, targeting European investors. It will be managed by experienced portfolio managers Jack Lowenstein (pictured), and Chad Slater.
Both managers have a multi-decade track record in successful, sustainable investing and will apply a fundamental equity long/short approach to the fund, targeting absolute returns. Multi-level risk management is at the heart of their approach and the fund will offer investors daily dealing. Typically, the fund will hold 20-60 long and short positions.
At the core of the Morphic investment process is the belief that markets have an inability to adapt to price changes in the real world. This also extends to changes in ESG for individual companies where studies suggest improvers are rewarded the most (Statman et al). 
By embedding ESG into the research process, the fund is able to find multiple new alpha sources. This includes shorting using a selection of ESG and non-ESG signals; for example, failed engagements are often a signal that a share price is likely to fall (Hoepner et al). Most of the shorts will be implemented through pair trades or as single stock shorts.
The team uses a two-stage ESG approach that, initially, applies a negative ESG screen to a universe of stocks and, then, this is used to analyse stocks to identify change. 
The final portfolio consists of fundamental longs and shorts that are consistent with both the firm’s ESG charter and the portfolio construction process. 
According to Jack Lowenstein, co-CIO of the Trium Morphic ESG L/S Fund, the idea that change creates opportunity is central to Morphic’s investment philosophy: “Responsible investing is having a gravitational effect on investment markets – reshaping the flow of capital to those companies demonstrating improvements in ESG and delivering sustainable returns to investors.”
“It is clear markets reward those companies making material ESG improvements. Hence, we don’t view exposure to companies with impressive ESG scorecards as a source of maximising alpha; instead, we seek companies implementing measures to improve their ESG profiles. This means accessing the future shape of change by identifying early catalysts for ESG improvements.”
Change is viewed through the lenses of evolving fundamentals and value opportunities through mis-pricing. Once an early catalyst has been identified, the team undertakes a forensic valuation and risk analysis before deciding on portfolio inclusion.
Lowenstein adds: “This process applies to both longs and shorts working from the premise that if companies outperform due to material ESG improvement, we can consequently expect stocks to underperform if they continue to exhibit poor or materially deteriorating ESG practices.”
Improving ESG factors, such as increasing boardroom diversity and the appointment of external directors, have been shown to produce better investor returns. During market crises, ESG or sustainable strategies have also been shown to outperform significantly. 
Chad Slater, co-CIO of the Trium Morphic ESG L/S Fund explains why an ESG strategy can provide stronger defences against draw-down risk: “ESG offers downside protection in three key ways: from an environmental perspective, companies have less exposure to ‘green risks’ such as increases in carbon and fuel taxes – as well as diminished exposure to one-off pollution-driven disasters.”
“Secondly, companies displaying improving commitment to the ‘S’ of ESG are less likely to suffer from employee lawsuits and have constructive relationships with regulators. Finally, demonstrable improvements to governance codes mitigate fraud through stronger auditing processes, while reducing conflicts of interest, bribery and other illegal activity.” 

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Another year of double digit asset growth for Alternative UCITS, says LuxHedge

Mon, 01/15/2018 - 12:56

Offering a unique combination of hedge fund like returns in a liquid and regulated form, Alternative UCITS funds continued to increase their popularity with investors in 2017. Total Assets under Management for the industry grew 16 per cent EUR450 billion.

That’s according to the latest Market Overview from LuxHedge which reveals that asset growth was nicely distributed across the different strategies with Equity Hedge Funds attracting 14 per cent and Fixed Income Relative Value funds gaining 17 per cent in assets. The largest asset growth was realised by Global Macro and CTA funds which both advanced 25 per cent in 2017. 2017 also saw a record of 248 new fund launches, just falling short of one new fund launch every business day. Some 178 Alternative UCITS funds were liquidated during 2017, bringing the total number of funds to 1429 at the year end. 
In line with the broader Hedge Fund market, performance for Alternative UCITS funds was solid in 2017 with close to 80 per cent of funds in our database posting positive returns. The LuxHedge Global Alternative UCITS Index, representing more than 1000 funds that have assets over EUR20 million and a minimum track of six months, advanced with 2.27 per cent for the year. All broad strategy groups realised gains in 2017.
On the back of rising equity markets, performance was led by Equity Hedge strategies which generally kept a long bias to equity markets. Especially Asia proved to be the most fertile ground to find equity long/short trading opportunities with the LuxHedge Long/Short Asia incl. Japan UCITS index advancing 25.6 per cent in 2017. In this bullish equity market environment, two out of three Equity Market Neutral funds posted a positive return and the LuxHedge Equity Market Neutral UCITS index gained 2.31 per cent for the year.
Within Fixed Income Arbitrage, most funds took more conservative approaches and realised volatilities of around 1 per cent to 1.5 per cent during 2017. Annual performance came in positive for four out of five funds, the LuxHedge Fixed Income Relative Value UCITS Index gained 1.65 per cent in 2017. 
With bonds and currencies at the mercy of central banks, many Global Macro funds struggled to add value during 2017. Performance was wide spread with the worst funds returning -20 per cent and the best funds returning close to 30 per cent. Tracking the average fund, the LuxHedge Global Macro UCITS Index realised a modest gain of 1.16 per cent in 2017.
Also CTA funds did not have a trivial 2017. Low volatility and trend reversals hurt performance in the first half of the year, but most funds could make this up in the second half. Performance came in just positive for 2017: LuxHedge CTA & Managed Futures Index 0.26 per cent.

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Last chance to vote! Hedgeweek Global Awards 2018

Mon, 01/15/2018 - 03:16

Voting for the for the 2018 edition of the annual Hedgeweek Global Awards closes at midnight on Monday 15 January. These prestigious awards recognise excellence among hedge fund managers and service providers around the world.

Uniquely, our awards are based on a 'peer review system' whereby our readers – including institutional and high net worth investors as well as managers and other industry professionals at fund administrators, prime brokers, custodians and advisers – are invited to elect a 'best in class' in a series of categories via an online survey.

Please make your nominations by completing this survey. 

Please note that you can self-nominate and participate in more than one category.

Award winners will be the companies with the most votes in each of the categories at the end of the voting period. The Hedgeweek Global Awards 2018 provide an excellent opportunity to highlight a company you feel has excelled during the past 12 months and provides a key marketing opportunity for winners. 

The Awards ceremony in London in March 2018, will be covered, along with profiles of the winning companies, in a Hedgeweek Awards Special Report that is distributed to investors and intermediaries globally.

We look forward to announcing the winners in due course.