Hedgeweek Features

Hedge funds including Coatue Management and Lone Pine capital, known for their tech-centric investments, are turning their attention to utility and power companies because of their critical role in generative AI operations, according to a report by the Wall Street Journal.

Firms such as Vistra, Constellation Energy, and Talen Energy have emerged as favourite bets as they supply the electricity required for training large language models and running AI chatbots such as ChatGPT.

This AI-driven demand for electricity has propelled power companies into the spotlight. Vistra, for instance, has seen its stock price more than triple this year, making it one of the top-performing stocks in the S&P500 and a lucrative addition to hedge fund portfolios.

Coatue, led by Philippe Laffont, held stakes in Vistra and Constellation valued at $2.3bn as of September. The fund gained approximately 12% by the end of October, supported by these positions.

Lone Pine Capital meanwhile, the $17bn investment firm run by Steve Mandel, reported that investments in Vistra, Constellation, and Talen accounted for one-fifth of its 22% returns up to the end of September.

Third Point, managed by Dan Loeb, saw its flagship fund achieve a 27% return through November, largely driven by its holdings in Vistra. This success complemented its broader AI-focused investments in Amazon, Meta Platforms, and Taiwan Semiconductor Manufacturing.

While the S&P500 returned 28% through November, broad hedge-fund indexes have trailed at about 10% growth over the same period.

Caxton Associates, one of the world’s leading macro hedge funds, has reported a sharp decline in profitability, with profits plunging nearly 80% over a volatile 15-month period ending 31 March, according to a report by Financial News.

The report cites newly released accounts filed with Companies House, as showing that Caxton Europe Asset Management Limited posted a profit of £102m for the 15 months to 31 March, down significantly from £491m for the 12 months ending 31 December.

Revenue also experienced a substantial drop, falling from £544.6m in 2021 to £150.7m during the extended reporting period.

Despite the profit and revenue slump, Caxton increased its workforce by 24%, growing from 84 to 104 employees. The hedge fund paid £31.6m in compensation, averaging approximately £303,000 per employee.

Key management personnel collectively shared £105m in partnership profits, while the highest-paid member of Caxton Europe, the firm’s partnership subsidiary, earned over £73m during the period.

Caxton is led by Andrew Law, listed as a designated member of Caxton Europe and one of three directors of Caxton Europe Asset Management Limited. The firm, originally founded by US hedge fund manager Bruce Kovner, operates out of Mayfair’s prestigious Berkeley Square in London.

Crypto-focused hedge funds have outperformed the broader hedge fund industry’s 10% growth, achieving strong returns of 46% in November and 76% YTD, with Brevan Howard Asset Management and Galaxy Digital among the biggest winners, according to a report by the Financial Times citing data from Hedge Fund Research.

Brevan Howard’s crypto fund rose 33% in November and 51% for the year, while Galaxy’s strategy surged 43% and 90%, respectively. Galaxy also doubled its assets under management to $4.8bn, partly by acquiring assets from bankrupt crypto firms.

Bitcoin’s 130% rise this year to around $100,000 added $1.8tn to the market value of crypto tokens, now totalling $3.5tn, per the FT Wiltshire Digital Assets Dashboard. This rally, driven by Donald Trump’s election victory, renewed optimism for a more crypto-friendly regulatory environment compared to the Biden administration’s cautious stance.

The crypto market’s rebound marks a dramatic turnaround from the 2022 downturn, when the collapse of Sam Bankman-Fried’s FTX exchange pushed bitcoin to $15,500. Galaxy Digital, for instance, reported a $1bn loss during that crisis.

Momentum returned in January 2024 when the US Securities and Exchange Commission approved 11 bitcoin exchange-traded funds, opening new investment opportunities. BlackRock, the world’s largest asset manager, has since endorsed bitcoin’s inclusion in multi-asset portfolios.

NextGen Digital Venture, a $120m crypto equity fund, gained 330% since its March 2023 launch, benefiting from investments in bitcoin ETFs, Coinbase, and MicroStrategy, which rose 60% and 400%, respectively.

Macro hedge funds also increased exposure to digital assets. MP Alpha Capital’s $20m global macro fund gained over 30% this year, driven by investments in bitcoin, ether, and bitcoin miners.

Digital assets market maker Keyrock has achieved Enhanced PSAN registration from the French Autorité des Marchés Financiers (AMF) and secured registration under the TVTG, administered by the Financial Market Authority (FMA) in Liechtenstein.

Both are key milestones in the process of achieving full MiCA compliance.

The Enhanced PSAN (Prestataire de Services sur Actifs Numériques) designation reflects Keyrock’s adherence to the AMF’s standards for Digital Asset Service Providers (DASPs), covering security, internal controls, and client protection. This registration aligns Keyrock with the forthcoming EU Markets in Crypto-Assets (MiCA) regulations and strengthens its position to operate confidently within the digital asset market in France.

In addition, obtaining The Token and TT Service Provider Act (TVTG) registration in Liechtenstein highlights Keyrock’s continued commitment to regulatory excellence across the EU.

Kevin de Patoul, CEO and Co-founder of Keyrock, commented: “For the last seven years, we have championed clear and strong regulatory frameworks to accelerate the growth of digital assets, and we are now walking the talk. These registrations are pivotal milestones, reinforcing our commitment to market integrity and regulatory alignment. As we expand across Europe, we’re focused on delivering secure, transparent, and reliable digital asset services to our clients.”

Tradeweb Markets, a global specialist in electronic marketplaces for rates, credit, equities, and money markets, has appointed Enrico Bruni and Troy Dixon as Co-Heads of Global Markets, effective January 2025.

Reporting directly to CEO Billy Hult, Bruni and Dixon will jointly oversee the execution of Tradeweb’s global markets strategy, including driving growth through both organic and inorganic opportunities across products, geographies, and client channels.

Bruni, currently Managing Director and Head of the Europe and Asia Business at Tradeweb, has been with the company since 2002. He has played a key role in developing Tradeweb’s interest rate swaps business across Europe and Asia. Prior to Tradeweb, Bruni held positions at JP Morgan.

Dixon brings nearly 30 years of financial services experience to his new role. He was most recently the Founder and Chief Investment Officer of Hollis Park Partners, an alternative asset manager specialising in structured products. Dixon also led RMBS trading at UBS from 2002 to 2006 and worked at Deutsche Bank from 2006 to 2013.

Dixon, who is currently a member of the Tradeweb Board, will step down from the Board effective 31 December, 2024, to take on his new role. He will join Bruni on Tradeweb’s Executive Committee, alongside other senior leaders of the company.

Bitcoin’s recent surge to over $107,000 and its 150% year-to-date gain are driving a significant rise in enquiries from new investors, according to digital assets hedge fund firm Nickel Digital Asset Management.

The London-based firm, which was founded by alumni from Bankers Trust, Goldman Sachs, and JPMorgan, has seen increased interest from both existing clients and first-time institutional investors following the US election results.

Nickel’s flagship fund, Diversified Alpha – a quantitative, multi-PM fund – has benefited from a record year, posting over 30% YTD performance, and has experienced a 115% increase in assets under management (AUM) since January.

According to a press statement, the surge in inquiries is largely coming from institutional investors with no prior exposure to digital assets.

Earlier research from Nickel Digital found that while almost all institutional investors and wealth managers surveyed believed bitcoin would eventually surpass $100,000, only one in five expected this to occur within two years. About 40% anticipated it would take three years or more to reach that milestone.

Hedge fund professionals are anticipating bonus increases of 65% in January 2025, according to data from financial services careers platform eFinancialCareers, with the expected bonus growth exceeding the global average by over 15%.

Globally, bonuses are projected to rise by 50% year-on-year on average.

This optimism extends across the buy-side, which includes firms like asset management companies and pension funds that focus on acquiring and holding securities for investment purposes.

Across the financial professional sector, private credit funds are the most optimistic, with 91.3% forecasting bonus increases, while traditional asset managers are the least optimistic, expecting increases of just 26.6%.

In the UK, bonuses are set to outpace other regions, bolstered by the relaxation of the bonus cap. UK professionals predict a 43% increase, surpassing Europe at 40% and North America at 38%.

Meanwhile, the Gulf region emerges as the most optimistic overall, with financial service professionals expecting bonuses to soar by 78% compared to 2024.

Hedge fund manager Boaz Weinstein has called on shareholders of seven UK investment trusts to revamp their boards due to underperformance, proposing his firm, Saba Capital, as replacement manager, according to a report by the Financial Times.

Weinstein’s campaign focuses on Baillie Gifford US Growth, CQS Natural Resources Growth & Income, Edinburgh Worldwide Investment, European Smaller Companies, Henderson Opportunities, Herald Investment, and Keystone Positive Change trusts.

Saba, the largest shareholder in these trusts with stakes between 19% and 29%, totalling £1.5bn, has requested shareholder meetings to vote on removing existing board members and appointing new directors.

In a letter to shareholders, Weinstein criticised the current boards for failing to hold investment managers accountable for weak returns. “The trusts’ managers and their directors have failed shareholders,” he wrote.

Weinstein is reportedly proposing adding two directors to each board, including himself on one trust and Paul Kazarian, who leads Saba’s investment trust strategy, on the other six. If the changes are approved and the new boards decide to replace the fund managers, Weinstein plans to recommend Saba as the new manager.

The UK’s investment trust sector has been struggling with persistent discounts, where share prices trail the value of underlying assets. The seven targeted trusts, managed by firms such as Janus Henderson, Herald Investment Management, Manulife, and Baillie Gifford, have three-year average discounts ranging from 12% to 14.7%.

“What has caught my attention for the past three years is that the UK trust industry’s discounts have deepened as a consequence of investors losing faith in managers after shockingly poor performance in certain trusts,” Weinstein said. “At the same time, the boards have not held those managers accountable.”

Saba has requested that shareholder meetings be held by early February to allow votes on replacing the current directors with “highly qualified candidates.” The hedge fund, which manages $5.5bn in assets, aims to refocus the trusts’ strategies on acquiring other discounted trusts to increase scale and reduce costs.

Weinstein’s push follows setbacks in June when shareholders rejected his proposed board changes for several BlackRock closed-end funds, opting to retain the existing management.

Some of the targeted trusts have pushed back against Saba’s proposals.

Baillie Gifford US Growth Trust labelled the plans as “fundamentally without merit” and against shareholder interests. The European Smaller Companies Trust’s board expressed confidence in its current strategy and governance. Similarly, Edinburgh Worldwide’s board defended its strategy, noting that its discount had narrowed this year.

Point72 Asset Management’s systematic arm, Cubist Systematic Strategies, is ramping up its recruitment efforts, investing tens of millions of dollars to attract PhD graduates, quants from hedge funds, and high-frequency trading (HFT) experts, according to a report by Business Insider.

Recent notable additions to Cubist include Aayush Sharma, a senior quantitative trader, who joined from Tower Research Capital after 12 years working on HFT strategies. Sharma previously developed high-frequency algorithms at Deutsche Bank.

Ribhav Gaur, a quantitative researcher, who transitioned from Balyasny’s commodities team is another recent recruit. A 2023 MIT MFE graduate, Gaur previously worked on natural language processing at Millennium spinoff WorldQuant, while Rohan Prasad, a quant developer, joined Point72 after roles at Jump Crypto, Citadel, and systematic crypto HFT firm Pattern Research. Taoan Huang menwhile, who previously interned with Meta’s AI team and Amazon’s robotics division, is now part of Cubist’s equity alpha research team.

While Cubist is expanding, it has also experienced some notable departures with Vibhav Bukkapatanam, who joined last year from Citadel Securities to lead Cubist’s HFT division, leaving the firm in October.

Portfolio Manager Britney Lam who joined Magellan Capital in May, has left the Dubai-based hedge fund firm just months before its anticipated $700m launch and is no longer based in Dubai, according to a Bloomberg report, citing unnamed sources.

Lam, a 20-year industry veteran, previously worked at Ovata Capital in Singapore, specialising in inter-sector pairs trading among tech and consumer companies in the US and Asia. Earlier this year, she told Bloomberg the fund would focus on equity and credit strategies, using long-short positions and arbitrage opportunities between producers and suppliers.

Magellan, led by Ahmed Omar, has reportedly been recruiting since summer and now employs over 15 investment professionals across public and private investment strategies.

Despite Lam’s departure, the multistrategy fund – one of the largest in the UAE – remains on track for a first-quarter launch with at least three portfolio managers, a spokesperson said. Lam’s replacement is set to start in January.

The fund’s scale is notable, as only 5% of hedge funds globally launched with $500m or more this year, per industry tracker Preqin, adding to Dubai’s reputation as a rising hub for hedge funds.

Magellan’s seed capital comes from Hassan El Ali, founder of Zakher Marine International, which he sold to an Adnoc subsidiary two years ago for $1.1bn.

In June, Omar revealed Magellan had allocated over €700m ($735m) to acquire Danish Ship Finance.

Digital asset investment products recorded $3.2bn in inflows last week, with year-to-date inflows reaching $44.5bn, more than four times higher than any previous year, according to the latest Digital Asset Fund Flows Weekly Report from CoinShares.

Trading volumes in exchange-traded products (ETPs) averaged $21bn per week, accounting for 30% of bitcoin traded on trusted exchanges. Bitcoin trading on trusted exchanges, across all investment types, averaged $8.3bn daily this year – double the FTSE 100’s average daily trading volume.

Regional inflows reflected strong global sentiment, with notable contributions from the US ($3.1bn), Switzerland ($36m), Germany ($33m), and Brazil ($25m).

Bitcoin products led with $2bn in inflows, bringing the post-US-election total to $11.5bn. Short Bitcoin products saw $14.6m in inflows following recent price gains, though total AUM remained modest at $130m.

Ether recorded its 7th consecutive week of inflows, adding $1bn last week and $3.7bn over the past seven weeks.

Among altcoins, XRP attracted $145m amid optimism for a US-listed ETF, while Polkadot and Litecoin saw inflows of $3.7m and $2.2m, respectively.

Cloud-native financial technology firm Clear Street has expanded its recently launched equity research offering with the addition of healthcare franchise led by Director of Research Mara Goldstein, initially focusing on the biotechnology sector.

According to a press release, the new franchise provides in-depth market analysis and investment insights to the firm’s client base of asset managers, institutions, and professional traders across equities, fixed income, derivatives products, and markets.

It will also complement Clear Street’s prime brokerage and clearing solutions.

To launch coverage, Clear Street has appointed Kaveri Pohlman, PhD and William Maughan, PhD as Managing Directors and Senior Equity Analysts, reporting to Goldstein.

Pohlman’s research coverage will initially focus on oncology and autoimmune disease (I&I), spanning multiple technologies, from cell to gene therapy.

Maughan will bring experience in Equity Research across several therapeutic areas, and will continue to do so at Clear Street, including oncology, ophthalmology and genetic medicine, including RNA technologies.

As debates swirl around the fiscal implications of the Trump administration’s proposed tax cuts and their potential to exacerbate the US budget deficit, Bridgewater Associates, the world’s largest hedge fund, sees little cause for alarm, according to a report by MorningStar.

What truly matters to bond markets in Bridgewater’s view is the combined impact of public and private-sector debt, not just the federal deficit.

The report cites the firm as arguing in a research note co-authored by Larry Cofsky, Bridgewater’s Co-Head of Fixed Income Research, that the interaction between public borrowing and private credit creation is key.

“Public and private debt are reasonably fungible as both an asset and a source of spending,” the note reads. “What matters for markets and the economy is how much collective new credit is being created and the willingness of investors to absorb it.”

Bridgewater highlights that overall credit creation in the US is currently unremarkable. While public borrowing has surged, private-sector borrowing remains subdued after its pandemic-era peak. The result? Total borrowing is in line with its 30-year average.

This balanced dynamic has kept bond market risk premiums steady. “The risk premiums on the long end of the yield curve are about average, with no signs that economic or debt thresholds are being breached,” Bridgewater noted. This contrasts with periods of heightened borrowing—such as during the 1980s, the global financial crisis, or the height of the Covid-19 pandemic—when yields and risk premiums spiked.

Bridgewater also points to a favourable environment for bond investors. With yields at attractive levels, unlevered investors, such as pension funds and insurers, remain under-allocated to bonds relative to their long-term targets. Additionally, banks, which have been cautious bond buyers, could increase purchases if the yield curve steepens—a scenario that could unfold if the Federal Reserve eases monetary policy further.

While Bridgewater remains sanguine for now, the firm acknowledges potential risks if fiscal policy becomes overly aggressive. “If the Trump administration pushes fiscal spending to a point where the private sector can no longer offset the higher deficit, issues could emerge,” the note warns.

Bridgewater’s outlook suggests that despite headline concerns about the federal deficit, bond markets remain stable due to the broader debt equilibrium. This perspective aligns with recent market performance, as the 10-year Treasury yield (4.425%) continues to hold steady, reflecting investor confidence in debt absorption.

Bridgewater’s stance underscores its confidence in the US bond market’s ability to absorb elevated public borrowing, provided private-sector debt remains restrained. While the firm sees little reason for immediate concern, it acknowledges that fiscal overreach could disrupt this balance, with inflation and political constraints serving as natural brakes on policy excess.

Sam Hou, head of Cubist Systematic Strategies, the systematic arm of Point72, has left the hedge fund to join quant fund Qube Research & Technologies, according to a report by eFinancialCareers.

Hou has taken on the role of quantitative research director at Qube in Hong Kong.

The report notes that Hou spent the past three and a half years at Cubist and has a long-standing relationship with founder Steve Cohen – having previously been an MD of quantitative strategies at Cohen’s former hedge fund, SAC Capital.

After leaving SAC in 2009, Hou spent 12 years as the founder and CIO of his own firm, TrueArrow Capital, before reuniting with Cohen at Cubist in 2021.

Qube, which employs around 300 people across the APAC region – with half in Hong Kong – has been expanding its team over the past year. However, growth in Hong Kong has been more modest, with about 40 new hires in the past year.

The latest addition to its regional team is Joshua Valencia, a quantitative technology director who previously worked as a trading systems engineer at Maven Securities, Optiver, and IMC Trading.

Asian hedge funds, including Hong Kong-based Monolith Management, are increasing their bets on Chinese tech giants including Xiaomi and Baidu, drawn by AI advancements despite the looming threat of stricter US export controls on advanced chips, according to a Reuters report.

Chinese tech stocks in general have lagged behind their US counterparts during this year’s AI-driven tech-sector boom prompting caution among many global investors. Hedge fund managers though are more bullish, encouraged by attractive valuations and the growing adoption of AI by China’s 1.4 billion people.

Monolith, which oversees $300m in assets, has focused on Xiaomi for its innovative HyperOS platform and expanding AI-driven ecosystem, including IoT devices and vehicles.

The report quotes Timothy Wang Monolioth’s Chief Investment Officer as saying: “Xiaomi’s AI-driven ecosystem offers a larger scope compared to many Western peers.”

Similarly, GenInnov Funds is increasing its exposure to Chinese tech, especially Baidu, which has rolled out AI tools like a text-to-image generator for advertisers and plans to launch AI glasses and expand its robotaxi services beyond mainland China.

“We’re optimistic about the commercialisation of large language models and China’s supply chain strengths,” said Wang. “For hedge funds, the coming year could unlock significant value in Chinese tech.”

Citadel has hired a second London-based Portfolio Manager from rival Elliott Investment Management, signalling its potential shift towards adopting activist strategies, according to a report by the Financial Times.

Pawel Serej, who left Elliott in the summer, is set to join Citadel’s London team as an Event-Driven Portfolio Manager, with a focus on risk arbitrage, a strategy that involves betting on the successful completion of mergers and acquisitions.

Citadel declined to comment on the hire.

According to the report, this move follows news that Nabeel Bhanji, a senior portfolio manager and equity partner at Elliott, was appointed to a global leadership and investment role at Citadel last month.

Despite their shared background, Serej’s departure from Elliott occurred months before Bhanji’s, and the hires are unrelated, according to sources familiar with the matter. Serej is expected to begin at Citadel in mid-2025 after serving a 12-month gardening leave.

While Citadel has not traditionally been recognised for engaging in activist investing, the report says the addition of Bhanji and Serej hints that it may be looking to integrate activist strategies into its approach. The two had collaborated closely on several of Elliott’s high-profile activist campaigns, including those involving SoftBank, Swedish Match, and Toshiba. Other Elliot campaigns include major US companies such as Honeywell, Starbucks, and Southwest Airlines.

Citadel, founded in 1990, is now the most profitable hedge fund in the $4.5tn industry, with its flagship Wellington fund posting a 13.2% gain between January and November, according to investors. The firm manages $65bn in assets across various strategies, including commodities, credit, equities, and quantitative trading.

Elliott, based in Florida with a significant London office led by Gordon Singer, the son of founder Paul Singer, manages $70bn in assets. Bhanji and Serej are among several senior departures from Elliott’s London office in recent years.

The University of Connecticut’s (UConn) endowment is moving away from hedge funds in favour of a more cost-efficient strategy involving buffer ETFs to manage risk in its $634m portfolio, according to a recent report by BNN Bloomberg.

The report, citing David Ford, chairman of UConn’s investment committee, notes that the university sold off nearly all its hedge fund investments during the most recent fiscal year and shifted to buffer ETFs, which have attracted over $58bn in assets in just three years.

Ford describes buffer ETFs as a simpler, less expensive alternative to traditional hedge funds, offering the added advantage of greater liquidity.

While hedge funds traditionally charge fees of 2% of assets and 20% of profits, buffer ETFs average a fee of just 0.8%, the report says. Many of these ETFs track major stock indexes, such as the S&P 500, providing downside protection while capping gains over set periods, typically one or two years.

Despite scaling back its hedge fund exposure, UConn retains investments with two long-only equity managers. In the fiscal year ending 30 June, UConn’s endowment posted a 12.1% return, slightly underperforming the 13.5% gain achieved by Innovator’s largest buffer ETF, the US Equity Power Buffer ETF.

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.