The first eight months of 2022 have been
characterized by a turbulent market
environment, with the technology stock-driven
bull market upended by central bank
tightening, an inflation crisis, supply chain
slowdowns, Russia's invasion of Ukraine and
fears for the global economy. Against this
backdrop, the average long/short equity hedge
fund declined 7.9%, widely considered a
disappointing return, but superior to the 13.3%
fall in the S&P 500 Index, which entered a bear
market for the first time since its sudden dive
in March 2020. Despite a summer rally, few are
expecting a sustained recovery in stock market
performance, amid fears of a global downturn
brought on by inflation-busting rate hikes,
providing an opportunity for long/short
managers to improve in a more subdued and
less volatile market setting
Who would have thought a year ago, in the immediate aftermath of the credit crunch, that there would now be such a large number of UCITS hedge funds, encompassing almost the full range of investment strategies. There are not only relatively simple long/short equity funds but also an increasing number of more complex macro, arbitrage and commodity vehicles.
In this article, we computed the average alpha of 651 equity long/short hedge funds. We found that, on average, the average annualised alpha per equity long/short hedge fund is 8.8% and the average annualised alternative beta premium per equity long/short hedge fund is 5.0%. This means that on average, the alpha is higher than the alternative beta, during the period 2002 to 2007.
Timing is everything when you’re taking a long/short or event-driven approach to Asia’s banking sector. Get your short timing right when the market hits a wall, and even if the authorities play the moral hazard card in order to keep the institution’s doors open, the value of stockholder equity can go to zero, and your fund emerges the winner from everyone else’s misfortune.
The Eurekahedge database has now grown to cover over 200 long-only absolute return funds (ARFs) that together represent in excess of US$27 billion in managed assets.
Long-only ARFs are a recent addition to the alternative investment landscape and have grown in both size and number only in the past few years. Their increasing popularity among institutional investors is driving more hedge funds – leveraging on their presence and experience in the equity markets – to launch long-only products. Also, over the years, huge capital inflows into hedge funds have brought on an environment of shrinking conventional opportunities, especially on the short side.
There are many ways for a successful long/short hedge fund manager to generate absolute returns. Some managers are very good stock pickers based on fundamental analysis and visiting hundreds of companies every year; some make excellent timing decisions based on technical analysis without ever visiting a single company; and others manage to combine the two successfully. While much of this depends on the talent and skills of the individual fund manager, one of the most promising ways to achieve absolute returns is to catch and ride on a so-called secular trend.
SHK Fund Management Ltd (SHKFM) manages the SHK Quant Asia Fund, a quantitative and market neutral pan-Asia equity long/short fund, with a scalable system-driven investment process. SHKFM is a subsidiary of Hong Kong Stock Exchange-listed Sun Hung Kai & Co Limited, a leading financial services and investment holding company in the Greater China region.
In contrast to how hedge funds evolved elsewhere, and in particularly in Asia, in Latin America the dominance of fixed income and debt markets explains the creation of many macro and multi-strategy funds, in detriment of other strategies, including equity long/short.
Precise Asia Pacific Fund is managed by Singapore-based Precise Asset Management. The fund adopts a long/short equities strategy driven by a quant investment model and aims to achieve consistent capital appreciation in both positive and negative markets through investing in the most liquid listed securities in Asia, including Japan, Korea, Taiwan, Hong Kong and Australia. The Precise Asia Pacific Fund will be launched in July this year.
We thought it would be interesting to compare the returns of the hedge funds in our database based on their locations. In this analysis, we examined a sample of Japanese long/short equity funds.
Analysing the returns data since 1998 shows that Japan-based long/short equity funds have been generating almost 50% more returns than its counterparts in the United States, Hong Kong, Singapore and Australia. The returns however are slightly over 3 times higher than the Japanese long/short equity funds based in the UK.
Hachiman Japan Fund is a Japan long/short equity fund that is run by Toru Ueda and Yashwant Bajaj in Tokyo. Toru, CIO, has 16 years' buy-side experience overseeing US$2 billion at Mercury (as head of institutional funds and research) from 1987 to 1997 and US$5 billion at PPM Japan from 1998 to 2001. Yashwant, CFO, has 19 years' Japanese equities sell-side experience and also has experience in equities, CB, listed and unlisted derivatives, having worked with Nikko Securities, Kleinwort Benson, Dresdner Kleinwort Benson and Lehman Brothers.
Investors tend to be bottom line-oriented; they want to know how their investment performed and tend not to be overly concerned with the details. Yet, how an investment achieves its return is one of the most important questions an investor can ask. The focus of this article is on the following question: can a long/short fund actually generate short side alpha?
The Conquest Managed Futures Select (MFS), along with other domestic and offshore funds, is managed by Conquest Capital LLC, a Commodity Trading Advisor (CTA) specialising in the trading of futures and FX markets globally. Conquest Capital LLC is a wholly owned subsidiary of the Conquest Capital Group, which also manages a multi-manager portfolio through another subsidiary – Condor Capital LLC. The management firm handles an asset base of about US$382 million, and has ten employees including five investment professionals.
David Lee runs the Ferrell Asia fund, managed by Ferrell Asset Management Pte Ltd, which was established in Singapore in 1999. David Lee is the MD and CIO. He has more than 15 years' investment experience, having previously headed Fraser Asset Management. The company has US$25m under management, all of which is managed on an absolute return basis. The Ferrell Asia Fund has US$5m of assets. The Ferrell Asia fund was 0.1% for August 2002 and is 3.4% YTD at the end of August.
Short selling on the world's equity market is under fire once more, and hedge funds have found themselves in the front line. The charges are simple: probably simplistic. Markets have taken some sudden downward lurches; shares fall when there are more buyers than sellers, so short selling must be exaggerating the size of the falls. Hedge funds are short sellers. Round up the usual suspects. The sniping has not been restricted to hedge funds, the proprietary trading desks of the big investment banks have also come under fire. Many of the attacks on equity long/short hedge funds have come from politicians whose constituents have seen their investments eroded by the falls in stock markets, and who want someone to blame.
Zaheer runs the LG Asian Plus Fund and has been with LGM since 1995. He has been involved in managing the fund since inception and has taken over full responsibility since June 2000. He is a graduate of Case Western Reserve University and has a MBA from Indiana University.