Hedgeweek Features

Speculators are increasingly optimistic about gasoline futures, reaching their most bullish stance in eight months amid low prices and looming concerns about supply constraints next year, Bloomberg reports.

According to data from Commodity Futures Trading Commission (CFTC), the report finds money managers’ net-long positions on gasoline climbed by 6,546 lots to 73,037 in the week ending 10 December.

This marks the highest bullish sentiment since mid-April.

Front-month gasoline futures are currently trading around $1.99 per gallon, reflecting a 5% decline for the year, potentially presenting a buying opportunity for traders.

Market participants appear to be positioning for higher prices in 2024 due to planned refinery outages and closures that could tighten fuel supplies. Notably, LyondellBasell’s Houston refinery, which processes approximately 264,000 barrels per day, is slated to close by the end of the first quarter.

Adding to supply concerns, US government data revealed that gasoline inventories have fallen to their lowest seasonal levels in three years, further fuelling the shift to a more bullish outlook on the fuel market.

Hedge funds have set a record for short positions on ether futures at the Chicago Mercantile Exchange (CME), with contracts reaching an all-time high of 6,349, reports BeinCrypto, citing a release by Zerohedge.

This bearish stance comes as ether struggles to hold above $4,000, despite over $2bn in recent ETF inflows, including a record $854m weekly influx, according to the report, referencing data from SpotOnChain.

Analysts attribute ether’s lacklustre price performance to the surge in shorts, signalling cautious near-term sentiment.

However, long-term optimism remains.

CryptoQuant data points to ether’s realised price upper band at $5,200 – on par with its 2021 bull run peak – indicating potential for upward movement.

Network activity also reflects strong interest, BeinCrypto finds, with Santiment reporting 130,000 new Ethereum addresses created daily in December, an eight-month high, while IntoTheBlock notes weekly transaction fees hit $67 million – the highest since April – driven by DeFi activity and market adjustments.

Following Hilbert Group AB’s recent acquisition of Liberty Road Capital (LRC), the quant investment firm has now integrated Liberty’s advanced AI technology into its trading and analytics ecosystem, paving the way for new user-centric products on the Coin360 side.

By analysing millions of data points, Liberty AI generates predictive signals and trade ideas and highlights anomalies, with the system able to scan spot, futures, and options markets and and guiding trading teams for execution.

Hilbert Group will also integrate Liberty AI into its Coin360 platform to: provide content tailored to individual user interests, enhancing engagement and retention; generate actionable scoring for any coin, equipping users with invaluable insights for investment decisions.

A future rollout meanwhile, will offer Coin360 users access to an AI-powered trading assistant, mirroring the sophisticated tools used by the firm’s trading teams on the asset management side.

Hilbert is currently exploring the potential of Liberty AI in market-making and other advanced trade-related services.

With hedge funds including Millennium, Citadel, and Balayasny having upped their activity in Europe’s natural gas markets ran by extreme price swings, their growing dominance now risks destabilising the market and potentially triggering a slump, according to a report by Bloomberg.

As 2024 concludes, these funds hold unprecedented volumes of long positions in European gas futures, and while such bets have benefited from volatile conditions, concerns are mounting that their concentration could exacerbate instability.

With market liquidity thinning as year-end approaches, the sheer size of hedge fund wagers looms large. Traders warn that a sudden shift — such as profit-taking or changing fundamentals — could lead to a rapid selloff, intensifying volatility in an already fragile market.

The report quotes Arne Lohmann Rasmussen, Chief Analyst at Global Risk Management, as saying that: “The heavy concentration of positions stresses the market, pushing it to a limit that will eventually break. And it becomes a real risk when everyone wants to get out at the same time.”

Unlike traditional power companies, hedge funds do not buy gas for consumers or sell production from physical assets, making their trades more speculative and less tied to operational needs, which can amplify volatility and cause abrupt price movements.

Hedge funds have reaped massive profits from Europe’s energy volatility, with Millennium earning about $600m from commodities trading in 2023, while Citadel’s commodities division brought in $4bn. Despite these gains, hedge funds’ speculative positioning could backfire if market conditions shift.

Concerns over colder winter forecasts, depleting gas inventories, and delayed liquefied natural gas (LNG) projects have fuelled a bullish outlook for gas prices, but optimism is tempered by factors such as stronger LNG flows and the potential continuation of Russian gas through Ukraine despite the expiry of a transit deal.

If geopolitical risks subside, prices could plummet as risk premiums evaporate. “For now, the market is quite bullish,” said George Cultraro, global head of commodities at Bank of America. “But the most pain is not to the upside. It’s definitely to the downside because of that same positioning, and I don’t think anybody is quite ready to give up on the bull story just yet.”

The Chicago Teachers’ Retirement System (TRS) has announced plans to invest nearly $1bn in hedge funds over the next three years, as part of a bid to address its financial challenges, according to a report by the Chicago Tribune.

The decision comes as the $39bn pension system grapples with only 62% of the funding needed to meet its future obligations and the lingering impact of a kickback scandal.

TRS has decided to allocate 2.5% of its assets to hedge funds, a more conservative approach compared to the 10% recommended by external consultants. “TRS wanted to take it slowly and get its feet wet,” said spokeswoman Eva Golterman, who also highlighted that the system currently has the internal staff needed to manage this allocation.

The investment decision follows a kickback scandal involving former TRS director Stuart Levine, who pled guilty in October to federal charges of accepting millions in bribes in exchange for steering state contracts.

Hedge funds and leveraged investors have scaled back their bearish positions on US five-year Treasury futures, bringing net short positions to their lowest level since July, according to a report by Reuters citing the latest Commodity Futures Trading Commission (CFTC) data.

This shift suggests that market participants are adjusting their positions in anticipation of year-end portfolio rebalancing.

Positioning trends in the Treasury futures market also hint at a decline in the influence of so-called basis trades – arbitrage strategies that exploit the price differences between cash Treasuries and their futures. Based on the latest data, basis trades seem to have been less prominent during the past week.

In the week ending 10 December, leveraged funds reduced their net short positions in five-year Treasury note futures to 2,776,446 contracts, marking the third consecutive week of declines from the record short levels seen on 12 November.

Speculative traders, or non-commercial investors who take positions in futures without underlying business interests, also pared their net short positions in five-year note futures, trimming them to 1,790,430 contracts from 1,861,100 contracts the previous week.

Meanwhile, institutional asset managers reduced their net long positions on five-year Treasury futures to their lowest levels in six weeks. This follows a surge in net longs to record highs about a month ago. Asset managers frequently use long positions in Treasury futures to align portfolios with benchmark indices, leading them to maintain a generally long bias.

Positioning across other Treasury maturities, meanwhile, showed mixed sentiment, with hedge funds increasing their net short positions on two-year futures to 2,473,163 contracts, the highest level since mid-November. Asset managers, however, reduced their net longs to their lowest level since early September, retreating from record highs reached last month.

Ten-Year Futures: Hedge funds slightly increased their net short positions in ten-year futures, while asset managers modestly boosted net long holdings.

Two Seas Capital (Two Seas), an investment management firm that focuses on litigation-driven investments arising from restructurings, bankruptcies, and regulatory events, has appointed Altaf Mackeen as Managing Director and Head of Research, effective 1 January, 2025.

Mackeen brings approximately 20 years of buyside investing experience to Two Seas across multiple asset classes, geographies, and industries. Most recently, he spent nearly a decade as a Senior Portfolio Manager at VR Capital, where he focused on distressed corporate and sovereign credit investments and reorganisations in both North America and emerging markets.

Before his time at VR Capital, Mackeen was a Vice President at Harbinger Capital Partners, specialising in complex turnarounds and special situations. He also covered stressed and high-yield investments at Sankaty Advisors, which is now Bain Capital Credit.

Mackeen has served on multiple boards over his career and prior to his investing career, spent three years at Houlihan Lokey advising companies and creditors involved in insolvency proceedings, out-of- court restructurings, and recapitalisation transactions.

A Danish court has sentenced Briton Sanjay Shah, founder of hedge fund Solo Capital Partners, to 12 years in prison for orchestrating a $1.3bn fraud scheme, marking one of the harshest sentences for tax fraud in the country’s history, according to a report by Reuters.

Shah, 54, was found guilty of defrauding Denmark’s treasury through a ‘cum-ex’ trading scheme between 2012 and 2015.

The Copenhagen court ruled that Shah masterminded the fraudulent operation, which secured DKR9bn ($1.27bn) in dividend tax refunds. Prosecutors alleged that his London-based hedge fund manipulated share transactions to create an illusion of multiple owners, each falsely eligible for tax refunds on dividends.

Despite prosecutors seeking the maximum sentence, Shah, who wore a red Christmas hat during court proceedings, denied wrongdoing. He claimed he exploited a legal loophole and has appealed the verdict to the Danish High Court.

In a TV interview with Danish broadcaster TV2 ahead of the sentencing, Shah admitted to being “a greedy bastard” and likened his scheme to “playing Space Invaders,” where he sought to surpass his previous successes. He acknowledged that the strategy was so lucrative he rewarded himself with a Ferrari and a £19m bonus on his 40th birthday.

Shah’s trading activities have drawn international scrutiny. He is also facing a £1.44bn ($1.83bn) civil tax fraud case in London, with a verdict expected in April.

The case has become a high-profile example of the cum-ex scandal, which has drained billions from public treasuries across Europe since the 2008 financial crisis.

Shah was apprehended in Dubai in 2022 and extradited to Denmark the following year.

Digital asset investment products saw the largest weekly inflows on record last week totalling $3.85bn, smashing the prior record set just a few weeks ago, according to the latest Digital Asset Fund Flows Weekly Report from CoinShares.

Ethereum saw its largest weekly inflows on record of $1.2bn, higher than the ETF launches in July. The inflows came at the expense of Solana which saw $14m outflows.

Blockchain equities, meanwhile, saw inflows of $124m, the largest since January this year.

Fred Desobry, a former portfolio manager at BlueCrest Capital, has joined London-based crypto hedge fund Bastion Asset Management as its Chief Investment Officer as crypto trading continues to gather momentum, according to a report by eFinancial Careers.

Desobry’s appointment strengthens Bastion’s leadership team, which includes Xander Savenberg, a former Citadel quant and fellow BlueCrest alumnus, and Philip Scott, a former partner and COO at Rokos Capital Management.

Since leaving BlueCrest in 2016, Desobry has worked at several firms, most recently serving as CIO at BlueFire AI, a capital markets intelligence firm led by Luke Waddington, ex-global head of BNP Paribas’ electronic markets.

Despite its promising roster, Bastion has struggled to retain key executives. The firm has seen high turnover among its chief technology officers, with Florion Doyon departing for the Abu Dhabi Investment Authority after 18 months, followed by Iain Buchanan, who left for G-Research after just six months. Additionally, Chief Risk Officer Alexandre Loreau exited in June to join Qube Research & Technologies.

Activist investor Palliser Capital has intensified its campaign for mining giant Rio Tinto to unify its dual-listed structure in London and Sydney, advocating for the establishment of a single holding company based in Australia, according to a report by Alternatives Watch.

In a letter addressed to Rio Tinto’s board on Wednesday, the UK-based hedge fund described the dual-listed company (DLC) framework as an “unmitigated failure for shareholders” and called for an independent review to assess the feasibility and benefits of unification.

Palliser argues that the current structure hampers shareholder value, stating: “Our extensive analysis indicates that unifying the structure into an Australian-domiciled holding company could deliver a near-term upside of $28 billion (27%) for PLC shareholders, with further gains for the combined group in the medium term.”

The hedge fund, which holds a significant stake in Rio Tinto, considers this reform an “urgent” necessity to address inefficiencies and unlock value trapped in the outdated system.

Rio Tinto’s Chief Executive, Jakob Stausholm, has previously dismissed the idea of unification. In July, he cited the company’s internal review, which concluded that merging the dual structure would erode shareholder value.

Stausholm also highlighted key differences between Rio Tinto and BHP, the world’s largest miner by market value, which successfully unified its corporate structure in Australia in 2022. He argued that while BHP’s shares were predominantly held in Australia, the majority of Rio Tinto’s shares are owned by investors in London, making the comparison less relevant.

Palliser holds BHP’s unification as a model, noting the operational and shareholder benefits achieved since its transition. It claims Rio Tinto would similarly benefit, addressing inefficiencies related to franking credits — tax advantages in Australia — and improving its ability to execute stock-based mergers and acquisitions.

Rio Tinto, however, has pushed back on these points, with Stausholm previously stating that the current structure does not hinder the company’s capacity for strategic deals.

Monolith Management, a technology-focused hedge fund with $300m under management, has delivered an impressive 53% year-to-date return, riding gains in semiconductors, data centres, and a September rally in Chinese equities, according to a report by Reuters.

The Hong Kong-based firm is now set to expand, with plans to launch a new fund in January that will boost its long-short equity strategy to approximately $500m.

Monolith’s success stands out in a challenging year marked by global economic uncertainty, with Asia’s equity long-short funds achieving an average return of 12.8% through November, according to Goldman Sachs, placing Monolith well ahead of its peers.

The firm has profited from strategic bets on US and Taiwanese semiconductor stocks tied to the artificial intelligence supply chain, investments in US data centre infrastructure, including cutting-edge technologies like liquid cooling solutions, as well as power and network connectivity assets, and gains from crypto and Bitcoin mining companies that support data centre operations.

In September, the fund ramped up its net exposure to Chinese internet and consumer stocks to 50%, capitalising on the government’s massive monetary stimulus. By October, Monolith had pared back its exposure to 20%, avoiding a 17% downturn in Chinese equities since then.

MFA has submitted a comment letter in response to the European Commission’s Consultation on the Functioning of the EU Securitisation Framework, encouraging the introduction of reforms aimed at improving “the appeal and competitiveness” of the markets.

The MFA would like the EC to ‘right-size’ the definition of securitisation, remove duplicative due diligence requirements, and align the securitisation framework with other jurisdictions as part of a package of reforms it believes will improve the attractiveness of EU securitisation markets to investors, including EU and global investment managers.

“Reforming the EU securitisation framework will enhance EU capital markets and drive economic growth and competitiveness throughout the continent,” said Bryan Corbett, MFA President and CEO. “A fresh regulatory approach that recognises internationally accepted standards, promotes harmonisation and cross-border activity, and removes duplicative, burdensome regulation will contribute to the development of the European Savings and Investments Union.”

The MFA says its proposed reforms “will enhance market participation and capital flows from both domestic and international investors, fully unlock the potential of the securitisation markets, stimulate EU economic growth, and contribute to the development of the EU Savings and Investments Union. Additionally, it offers the benefits of reducing risks on banks’ balance sheets, increasing the capital available to borrowers and for investments, and diversifying alternative investment fund investment portfolios”.

A growing market for injecting fresh capital into aging energy assets owned by private equity firms through continuation funds has attracted major hedge funds, including Baupost Group and Elliott Investment Management, according to a report by Bloomberg.

These investors are leveraging continuation funds to capitalise on opportunities in an increasingly challenging sector, marked by volatile commodity prices, ESG concerns, and shrinking asset values.

Continuation funds, which allow private equity firms to transfer assets from one fund to another, backed by fresh capital, are gaining in popularity as a means to extend the lifecycle of hard-to-sell investments with several firms, including Kayne Anderson Capital Advisors, which restructured its ownership in energy producer Kraken Resources across three funds, creating a $911m continuation vehicle led by Baupost.

Similarly, Ridgewood Energy moved its Gulf of Mexico assets into a $500m continuation fund supported by Elliott. Other notable deals include Elliott’s backing of Riverstone Holdings’ $815m continuation fund for ILX Holdings and Quantum Capital Group’s fund for HG Energy.

The continuation fund market for energy assets remains a niche within the broader $50m secondary market, although Baupost and Elliott have seized the opportunity to invest at discounted prices, negotiating deals that provide sponsors with much-needed liquidity.

Tech-focused hedge fund Whale Rock Capital Management plans to reopen its flagship fund in early 2025, seeking to raise between $200m and $300m in new capital, having significantly outperformed the broader market YTD with a 51% gain, according to a report by Reuters.

Whale Rock’s flagship fund, which manages roughly $9bn in assets, has been closed to new investors since 2021.

The report cites an unnamed source familiar with the matter as highlighting that the reopening aims to capitalise on opportunities in smaller semiconductor and supply chain companies poised to benefit from the rapid growth of artificial intelligence (AI).

The fund’s 2024 performance far outpaced the S&P 500, which rose nearly 28% during the same period. Whale Rock also posted a strong 32% gain in 2023, marking a sharp recovery from steep losses of 9% in 2021 and more than 40% in 2022.

Founded in 2006 by Alexander Sacerdote, a former tech portfolio manager at Fidelity Investments, Whale Rock’s early bets on the transformative potential of AI have paid off, including wagers on well-known AI-focused companies including Nvidia and Amazon (AMZN.O), as well as less conventional picks such as Canadian electronic equipment maker Celestica, mobile gaming ad platform AppLovin, education technology provider Duolingo, and AI server manufacturer Super Micro Computer.

The fund gained 8.3% in November alone, while the company’s long-only strategy surged 10.6% last month, bringing its year-to-date return to an impressive 52%.

Hedge funds, including Calamos Advisors, have turned MicroStrategy into one of Wall Street’s hottest trades, with the company leveraging its role as a bitcoin proxy to secure billions in convertible bond investments, according to a report by Bloomberg.

Amid a 500% rally in MicroStrategy’s stock this year, driven by surging bitcoin prices, the firm announced plans to sell $21bn in convertible notes to fund further cryptocurrency purchases. Hedge funds, however, are less interested in MicroStrategy’s stock price or bitcoin holdings. Instead, they are seizing on opportunities for market-neutral arbitrage fuelled by the stock’s extraordinary volatility.

The report cites Eli Pars, co-CIO at Calamos as revealing that his firm has invested over $130m in MicroStrategy’s convertible bonds, which are used in arbitrage strategies that exploit the underlying asset’s volatility.

“Convertibles are a way for issuers to monetise the volatility of their stocks, and MicroStrategy is an extreme example,” he said.

The company has issued $7bn in low-interest, long-term convertible bonds this year, with plans to raise $42bn over the next three years. These bonds, exchangeable for equity at certain price thresholds, are attractive to hedge funds deploying arbitrage strategies also used by firms like AQR Capital Management and Man Group.

The arbitrage involves hedging the bonds’ equity exchange feature, treating it as an option tied to the stock’s volatility. MicroStrategy’s shares, which average daily moves of 5.2% (compared to 0.6% for the S&P 500), make the strategy particularly lucrative.

MicroStrategy, led by co-founder Michael Saylor, has accumulated a Bitcoin stash worth around $40bn since adopting its cryptocurrency-focused strategy in 2020. The firm has continued to purchase Bitcoin aggressively, buying $13.5bn worth since 31 October.

Saylor has touted the stock’s volatility as an asset, describing it as more volatile than any S&P 500 component. This dynamic, partly driven by Bitcoin’s wild price swings, has made MicroStrategy’s convertible bonds a top pick among hedge funds.

“The trade is attractive because the implied volatility of the converts is way below realised volatility or option-implied volatility,” Pars said.

Despite the appeal, MicroStrategy’s approach hinges precariously on bitcoin’s value, according to sceptics. David Trainer, CEO of market research firm New Constructs, likened the strategy to “a game of musical chairs,” with potentially disastrous consequences if bitcoin’s rally reverses.

“It could be a giant house of cards that will crush many shareholders when it crashes,” Trainer said.

Transaction Network Services (TNS) has unveiled two new solutions – Data Usage Optimizer (DUO) and TNS Market Data as a Service – aimed at helping banks and hedge funds optimise market data management and reduce costs.

The tools are designed to assist buy- and sell-side firms in managing data usage and streamlining subscription expenses.

DUO is a data monitoring product that generates detailed reports identifying unused market data feeds within organisations. By highlighting employees who have not accessed specific data feeds, DUO enables firms to eliminate unnecessary subscription costs.

In addition to DUO, the new TNS Market Data as a Service is a vendor-agnostic platform that combines hosting, connectivity, application management, and administration for market data services. The service integrates seamlessly with client systems, offering 24/7 monitoring and proactive alerting.

According to a press statement, the integration of DUO with TNS Market Data as a Service allows firms to “gain full visibility into data usage, enabling more efficient infrastructure monitoring, cost management, and productivity improvements”.

Pershing Square Holdings has confirmed plans to delist from Euronext Amsterdam, aiming to consolidate trading on the London Stock Exchange in a decision driven by cost-saving measures and a desire to simplify regulatory requirements, according to a report by MorningStar.

The report cites Chair Rupert Morley as highlighting that the decision will also improve liquidity for shares of the Guernsey-based closed-ended investment fund, which is managed by Pershing Square Capital Management and focuses on concentrated, long-term investments in North American companies.

The fund is led by billionaire investor Bill Ackman.

The delisting follows a review of Pershing Square Holdings’ listing arrangements that began in January. Recent incidents, including clashes involving Israeli football fans in Amsterdam, accelerated the decision, Ackman suggested in comments reported last month by The Times.

On Tuesday, shares of Pershing Square Holdings rose 1.2% to 3,872.00 pence in London, valuing the company at $10.06bn.

European hedge funds, including Metori Capital Management and Marshall Wace, posted strong performances in November, driven by a surge in global stock and currency markets tied to Donald Trump’s US election victory which bolstered US equities and the dollar, according to a report by Reuters.

The report cites an unnamed source familiar with the matter as revealing that Metori, a Paris-based hedge fund managing $700m, saw its Metori Epsilon Diversified fund gain 4.6% in November, raising its year-to-date returns to 13.4%.

Marshall Wace, meanwhile, one of Britain’s leading hedge funds, recorded a 2.8% return in its Eureka fund, bringing its 2024 performance to 14.5%, with the firm’s Market Neutral Tops fund adding 1.75% in November, contributing to an impressive 21.49% year-to-date return, according to a separate source.

Winton Capital, which manages $13bn, reported 0.3% gains in its multi-strategy fund, achieving a cumulative 8.8% return for 2024. Its Diversified Macro fund delivered 0.2% in November, raising its yearly performance to 2.9%, according to another source.

Capital Fund Management (CFM) delivered returns ranging from just over 8% in its CFM Stratus Fund to an impressive 18.88% in its IS Trends fund, which manages $15.5bn, said a fourth insider.

Globally, hedge funds posted an average 1.4% return for November, marking a rebound after two months of flat performance, according to a note from JPMorgan Prime Brokerage. Stock-focused funds led the charge, with global equity hedge funds returning around 2%, bolstered by investments in North American stocks.

Clear Street, a cloud-native financial technology firm providing prime brokerage services, has formally launched Clear Street UK, having recently secured approval from UK regulator the Financial Conduct Authority (FCA).

Clear Street UK has also been approved as a Category 1, ring-dealing member by the London Metal Exchange (LME).

In a press statement, Ed Tilly, President and CEO-Elect of Clear Street, said: “We are building a global, full-service institutional business powered by our cloud-based, financial technology platform and our best-in-class teams who provide financing, derivative products, execution services and more, empowering our clients for success across geographies, asset classes, and mandates. The UK is a critical market for us as a financial hub worldwide and a gateway to Europe and beyond.”

As well as direct access to the LME’s trading floor, Clear Street also now has access to global reference prices for the metals community allowing the company to issue LME contracts, execute trades on behalf of institutional clients, and clear transactions.