- March’s hellacious month for hedge funds can be seen through the stark redemption numbers: more than $85 billion was pulled out in a single month, most since the last financial crisis.
- BarclayHedge also reports that there was nearly $230 billion in trading losses in March.
- Nearly every hedge fund subsector was affected, but the industry — and the markets — have since recovered on the backs of stimulus packages and Fed programs.
- Visit Business Insider’s homepage for more stories.
In a single month, hedge funds’ total assets dropped more than $300 billion — roughly a tenth of the industry’s total assets.
According to a recent report from BarclayHedge, there were more than $85 billion in redemptions in a disastrous March, when hedge funds also suffered trading losses of $229.1 billion. The average fund lost more than 7% in March, according to eVestment. Nearly every subsector of the industry was slammed.
Quants suffered losses that several felt was worse than 2007’s infamous “Quant Quake” as their models struggled to keep up with the unprecedented volatility. Credit funds faced aggressive margin calls from lenders at the same time loans went unpaid. Relative value losses stung the funds of billionaires like Michael Platt. Vaunted Tiger Cubs lost a tenth of their assets.
Funds closed, and potential launches put their plans on ice for the time being.
“As the global scale of the novel coronavirus outbreak became clear in January and February, the economic fallout took hold with soaring unemployment, equity market sell-offs, and plummeting oil prices. That volatility and uncertainty left many investors with shrinking risk appetites, causing hedge fund redemptions to hit their highest levels since the 2008-09 financial crisis,” the BarclayHedge report.
The crushing month came after a year when tens of billions fled the industry. According to BarclayHedge, nearly $160 billion has been redeemed from hedge funds in the 12-month period between March 31, 2019, and March 31 of this year. And redemptions are expected to continue, despite hedge funds’ bounceback performance in April: With the global economy paused, many of hedge funds’ investors — like college endowments, large foundations, and underfunded pensions — will be in a liquidity crunch as tuition, donations, and tax revenue all drop due to the pandemic.
For a select group of hedge funds, March wasn’t terrible. Macro managers, volatility trackers, and commodity traders all made out ok, and distress debt funds have readied themselves for an inevitable wave of bankruptcies and fallen angels.
But that distress smorgasbord so many were expecting has been partially paused.
Daniel Ades, the founder and CIO of $1.5 billion Kawa Fund in Miami, told Business Insider in an interview that “people are underestimating what the new normal is going to look like” and predicts that businesses will re-open in a “nasty, old-world recession.”
But the injection of liquidity in the markets has propped them up, he said, as the playbook from 2008’s crisis has been sped up.
“When March came about, we thought it was going to be a repeat of 2008-2009,” he said, and his fund planned to make money by buying highly-rated bonds that funds were forced to “throw out the window.” While his fund bought a lot of stuff in March, they’ve nearly sold all of it, as prices rebounded at a much faster rate thanks to the Fed’s quicker response. His fund lost less than 3% in March, he said and has mostly made that back since.
“In a month, all the programs were rolled out,” he said. “There’s just mountains and mountains and mountains of liquidity going into the markets with nowhere to go.”
Now, Kawa is waiting for “the weaker guys to default” — highly leveraged industries that were struggling to begin with, like energy, retail, airlines, and more.
“I’m not 100% sure there are opportunities right now,” he said. “Things are expensive right now because of all the liquidity. You’re not seeing real distress yet.”
Leave a Reply
Leave a Reply
This site uses Akismet to reduce spam. Learn how your comment data is processed.
