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Hedge Funds Regain Popularity

It seems that hedge funds are finally looking like a good bet again these days.  They are regaining popularity with investors with demand significantly increasing.    According to a recent Credit Suisse Group AG survey, net demand for hedge fund allocation is the highest it has been in three years.  Last year it was 12 percent and the number for 2018 stands at 28 percent.

According to Credit Suisse Capital Services Strategic Advisory and Content Head, Joseph Gasparro:

“As investors start to look at hedge funds in terms of their broader portfolio, they’re using or employing more-customized solutions via managed accounts and nontraditional structures where they’re assessing hedge funds in numerous ways to fulfill their needs and objectives… Volatility has returned after years of benign, very calm markets. At the same time, investors in hedge funds are finding a middle ground in terms of fees and terms. It feels a lot more constructive.”

In addition, hedge fund fees are diminishing which also adds to their increased popularity.

Hedge Fund Management over the Years

In this video put out by the Milken Institute earlier this month, Bloomberg TV’s Editor-at-Large Erik Schatzker opens a discussion on hedge fund strategies and other issues looking to the future of the industry. On these topics he sits with the following individuals:

• Dmitry Balyasny – Managing Partner and Chief Investment Officer of Balyasny Asset Management;
• Andrew Feldstein – CEO and CIO at Blue Mountain Capital Management
• Dawn Fitzpatrick – CIO at Soros Fund Management
• Ricky Sandler – Founder, CEO and CIO at Eminence Capital

Crypto Hedge Funds?

There has been quite a lot of volatility with crypto hedge funds over the last few months.  But does this mean that they should be completely discounted?  Should we take a break for a while, or make that long term? Adding to this issue is Americans lack of understanding of its regulatory status.

Still, having said all that, a recent  CryptoGlobe report suggests quite the opposite, and that investing in hedge funds has actually increased in 2018.    Crypto Fund Research data found statistics from last month as being: 216 investments in these funds (216 investments for the entire 2017 year).  So it’s not so surprising that there is an escalation in popularity of the cryptocurrency hedge fund space.

Looking at crypto-related Venture Capital we also see an upswing this year, with Digital Currency Group leading the blockchain VC funds having made 58 investments (worth $78 million). According to Josh Gnaizda, CEO of Crypto Fund Research:

“the four criteria we used [reflect] not only total investment but also how long they’ve been investing in blockchain and how active they are today, not just a year or three ago … the industry is changing rapidly. So what’s most accurate today won’t be as correct next month.”

In conclusion, even though right now crypto markets are somewhat ‘volatile,’ according to Henri Aslanian of PwC, “the long-term positive impact of the number of institutional players entering cryptocurrency investment is more important than short-term price fluctuations.”

Hedge Fund Investments: Good or Bad Idea?

While managers are doing well, are hedge funds all that?  Yes and no.  hedge fund portfolios have, traditionally actually performed well but this success can be substantially diluted due to service provider fees. It has been said that it is the hedge fund investors who suffer these fees ultimately.  But we’re not convinced that’s true.  It was pointed out in a recent article that:

“The annual Institutional Investor magazine survey of their earnings shows that the 25 highest earners took home an average of US$615 million last year, making a collective total of US$15.4 billion, up from US$11 billion in 2016. Top of the list for the third straight year is James Simons, of Renaissance Technologies, with total earnings of US$1.7 billion in 2017.”

Furthermore, the Japanese seem to feel that hedge funds make a good investment.  Given their economic environment, spurred by political uncertainty resulting in “low rates and market turmoil,” hedge fund investments are becoming more popular and vigilant.

One example is Taiyo Life Insurance Co. which is planning on investing almost $400 million into hedge funds. Indeed:

“Hedge funds, after significantly underperforming the U.S. and Japanese stock markets last year, have returned an average 0.2% so far this year through April, according to eVestment. That compared with the S&P 500’s decline of 1% and Nikkei Stock Average’s drop of 1.3% during the same period.”

 

 

Nigeria and Capital Markets

For the economy in Nigeria to grow and flourish, capital markets are “critical.”  According to Nigerian Stock Exchange CEO Oscar Onyema – in his recent address to the 5th Lagos and London Capital Markets in Partnership Conference – for growth to really happen, Nigeria needs a “solid and vibrant capital market ecosystem that will attract investment and unlock the potential that exists in the economy.”

Apparently though, Nigeria is already becoming an attractive option for international investors.  Being Africa’s “largest economy” according to Iheanyi Nwachukwu “has the potential for a larger capital market that offers better returns for any prospective investor now and in future.”  This sentiment was supported by Head of Primary Markets, Middle East, Africa and India, Gokul Mani who pointed out that:

“Nigeria still offers huge opportunities for investors. Africa and indeed Nigeria are very high focus regions for London Stock Exchange Group (LSEG),”

The NSE and LSE Dual Listing Conference – held earlier this month – was organized in an attempt to enhance and advance relations between the UK and Nigeria.  As the situation currently stands, Britain – according to Laure Beaufils, British Deputy High Commissioner, British High Commission – is 100% in favor of supporting “investment, finance, and inclusive growth in Nigeria. One out of every five companies listed on FTSE 100 Index has business presence in Nigeria.”

 

 

M&A News

The acquisition by Principal Financial Group of RobustWealth is happening.  With both corporations working together on the deal for nearly a year, the details are that in the deal, RobustWealth will “retain its open architecture philosophy and operate independently under a management committee within Principal [and] will continue to sell their platform to firms outside Principal as part of their growth strategy.”  According to CIO of Principal Financial Group Tim Dunbar, the deal will “accelerate [Principal’s] broader digital efforts.  We really think it’ll help advisors to get closer to their clients, provide customized solutions, and help the advisors to grow. We have to acknowledge people’s needs and wants: there is an unprecedented need for financial advice. And, in today’s fast-paced, always on, digital world, people have a strong desire for personalization, convenience and 24/7 access to their money.”

Viking Global Investors recently acquired a majority stake in Birchbox beauty startup. Investing approximately $15 million into the business, this will render the company’s other investors somewhat obsolete.  VC firms like Accel Partners and First Round Capital will likely walk away with nothing from the firm now valued at $500 million. Co-founder and CEO Katia Beauchamp will remain at the head of the company and there have been promises that there will not be job cuts connected to the deal.

Kohlberg Kravis Roberts (KKR) is purchasing BMC, a software company.  At the date of this publication, the price has yet to be revealed.

Hedge Fund Agents: The New Player

In this video, Professor John C Coffee, Adolf A. Berle Professor of Law, Columbia University, discusses his winning paper in the ECGI Law Series in 2017. It examines the “new world of hedge fund activism.” New agent –which aggregates the support of many institutional investors and brings pressure to bear on the board for issues that it believes will be value maximizing.” That’s basically good, Coffee says, but warns that “new agents always involve new agency costs.”