Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • ESG Investing | Industry Brief
    • Innovation in ESG Investing
    • 2023 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • The Plan Sponsor's Guide to Retirement Income
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2023 Defined Contribution East Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Research Center
    • The P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2023 Canadian Pension Risk Strategies
    • 2023 Retirement Income
Breadcrumb
  1. Home
  2. ALTERNATIVES
December 28, 2015 12:00 AM

Hedge fund managers looking forward to better opportunities in 2016

Many expect to take advantage of widened return dispersions

Christine Williamson
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Spike Liseiko
    Sir Michael Hintze believes tightened lending restrictions will offer several chances for profit.

    The prospect of continuing increases in U.S. interest rates, credit defaults and volatility has raised the hopes of hedge fund managers for a happier new year than the last.

    Pensions & Investments' interviews with hedge fund chief investment officers, strategists and allocators in the last weeks of 2015 found that most expect to see wider return dispersion between different strategies and managers in 2016, after several years of return compression caused by macro factors such as zero interest rates, central bank intervention and regulation.

    Likely sources of investment opportunity in the year to come, these sources said, will be differences in the pace of economic recovery between developed and emerging markets countries; high, erratic volatility; solid shorting possibilities in many securities, countries and sectors; and high-yield bond and credit distress.

    There was some difference of opinion about the hedge fund strategies most likely to do well in 2016, but those cited most often by P&I sources were global macro, long/short equity, event-driven, relative value and European long/short credit.

    One factor in favor of hedge fund success in 2016 is that rising interest rates have proven to be very good for hedge fund returns over the past 25 years, said Kenneth J. Heinz, president of industry tracker Hedge Fund Research Inc., Chicago.

    “Depending on the level of negative correlation between equity and fixed-income returns, an increase in interest rates can be strongly positive for hedge funds,” Mr. Heinz said.

    However, 2016 will start off with more of a whimper than a bang, with equity returns in the red, traditional fixed income returning 1% at best, extremely high volatility, worsening commodity prices and distress signals flaring up from high-yield bonds and other credit instruments, said Afsaneh M. Beschloss, president and CEO of hedge funds-of-funds manager The Rock Creek Group LP, Washington.

    Rock Creek Group manages $10.5 billion in commingled, separate account and customized hedge fund-of-funds portfolios.

    It is this gnarly combination of market snags that HFR's Mr. Heinz said will push investors, especially institutions, to “transition away from the mantra of the last five years — invest in low-risk, low-volatility, ultra-liquid, large hedge funds. A change is coming because tactical liquidity and more aggressive exposures will be needed to generate returns. Institutional investors are showing willingness to invest in riskier hedge fund strategies.”

    Managers like Sir Michael Hintze, CEO and senior investment officer at CQS (UK) LLP, London, are looking closely at the possible effects of “a secular change and a structural (investment) opportunity due to the combined effects of regulation and central bank intervention,” particularly in the U.S. and Europe.

    Less liquid investment opportunities will arise as banks on both sides of the Atlantic continue to withdraw from lending, and “dislocations and distortions will provide a rich opportunity set,” Mr. Hintze said in his 2016 outlook report.

    CQS manages $12.5 billion in hedge fund and long-only strategies.

    In 2016, the more advanced pace of economic growth in developed countries will be in even sharper contrast to woes being suffered by emerging markets nations, especially those dependent on commodity exports, said Dominic Wilson, managing director and head of strategy and research for credit hedge fund manager MKP Capital Management LLC, New York.

    “The currency markets are the most natural place for hedge fund managers to express this dichotomy,” Mr. Wilson said, noting that foreign exchange will be “a core weighting for global macro strategies” that likely will find long and short opportunities between the strong U.S. dollar and the euro as well as in currencies reliant on commodities.

    Global market swings

    Geopolitical tensions will continue to take a toll in 2016 “as global markets swing back and forth between confidence in economic recovery and worry about problems in some areas of the world,” Mr. Wilson added, predicting that resulting “spikes of episodic volatility may intensify and become more regular,” interspersed with “patches of relief.”

    MKP Capital Management runs $8.3 billion.

    Rather than fear extreme spikes, many hedge fund managers have evolved to trade the “new” volatility, said Mark Connors, director and global head of portfolio and risk advisory, who is based in the New York office of Credit Suisse AG.

    In particular, quantitatively managed equity hedge funds employing a style-factor-based approach likely will thrive in 2016 because they are “feeding into (the) global macro factors” still driving global markets.

    Executives agreed that high-yield and credit markets show significant weakness, but they differ on when assets will hit rock bottom and pricing will drop to an irresistible level.

    UBS Asset Management is going into 2016 “defensive, diversified and leveraged,” said William Ferri, group managing director and head of global products who is based in the firm's New York office. “We know what we don't like: corporate credit. There's not a liquidity premium worth the risk right now.”

    UBS manages $34.5 billion in hedge funds of funds.

    Although distressed specialist Solus Alternative Asset Management LP, New York, is entering 2016 with short bets on energy, minerals and mining companies, “we do think there will be opportunity in these sectors,” said Christopher Pucillo, CEO and chief investment officer.

    “There will be huge opportunities for energy in 2016, but it will be critical to pick the right companies,” Mr. Pucillo said. “It really feels like we are going into a stock picker's market, unlike the last two or three years where there wasn't much price differential between companies.”

    When it comes to credit, alternative investment specialist Och-Ziff Capital Management Group LLC has sold more securities than it bought over the last six months.

    In the energy credit sector, while “things are getting to the point where prices are beginning to look better,” they haven't adjusted to the price levels of underlying commodities, said Daniel S. Och, CEO and executive managing director.

    Given the likelihood that “a lot of (energy) firms will be experiencing distress” sooner rather than later, Och-Ziff hedge fund and private equity energy analysts have begun to collaborate on targets, he said.

    Och-Ziff has $44.6 billion in hedge funds and long-only real estate, private equity and credit strategies.

    Related Articles
    Interest rates, GDP, China make 2016 uncertain year
    After years of waiting, fiduciary rule could finally become reality
    Defense will be key to successful year for most investors
    As sun sets on investment cycle, some wonder what to do next
    After delays are cleared, new rules will lead to big changes
    2016 could be good for the dollar but only average for equity, bonds
    Rising rates, political tensions among key challenges for year
    Firms eye allocation changes in anticipation of Solvency II
    Financial wellness to play larger role
    Technology increasing dealflow, not helpful in closing deals
    Low returns, bonuses means greater chance to recruit experienced analysts
    New approach to work changing real estate investments
    Headwinds remain for emerging markets, but bright spots on the horizon
    Asian markets may recover in 2016
    Interest rates, GDP, China make 2016 uncertain year
    After years of waiting, fiduciary rule could finally become reality
    Defense will be key to successful year for most investors
    As sun sets on investment cycle, some wonder what to do next
    After delays are cleared, new rules will lead to big changes
    2016 could be good for the dollar but only average for equity, bonds
    Rising rates, political tensions among key challenges for year
    Firms eye allocation changes in anticipation of Solvency II
    Financial wellness to play larger role
    A crystal ball is sometimes cloudy
    Hedge fund managers seeing increased costs under Basel III — survey
    Institutional investors turning to alts, active management in 2016 — survey
    Liquidity crunch endangers strategies focused on credit
    CQS parts ways with 12 traders, managers
    MKP Capital Management names new CEO; founder to focus on CIO duties
    Face to Face with Rock Creek Group's Afsaneh Beschloss
    Recommended for You
    Takayuki_Yasuda_MUFG_i.jpg
    MUFG seeks to buy alternative asset firms to match client flows
    ONLINE_190139956_AR_0_FOZILYOWVKXN.jpg
    Blackstone assets rise 1.7% for quarter, 8.3% for year partly due to inflows
    Employees_Silhouettes_i.jpg
    Venture capital firms are a bit more diverse, but progress is slow
    EDHEC Climate and Finance Special
    Sponsored Content: EDHEC Climate and Finance Special

    Reader Poll

    April 26, 2023
     
    SEE MORE POLLS >
    Sponsored
    White Papers
    2023 Global Climate Survey - Are investors moving from aspiration to implementa…
    The Value of Value is Still Compelling
    Valuing Banks: Hidden Losses Versus Assets
    Research for Institutional Money Management
    Targeting Impact with Indexes
    Global Fixed Income: Volatility and Uncertainty Here to Stay
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    December 12, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • ESG Investing | Industry Brief
      • Innovation in ESG Investing
      • 2023 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • The Plan Sponsor's Guide to Retirement Income
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2023 Defined Contribution East Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Research Center
      • The P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2023 Canadian Pension Risk Strategies
      • 2023 Retirement Income