06 March 2008
The S&P rated fund-of-hedge-fund managers are selectively optimistic on the outlook for 2008," said S&P Fund Services lead analyst Randal Goldsmith.
"Many funds-of-hedge-funds currently see the chance of making good returns from commodity trends, particularly in the agricultural sector," said Goldsmith, "They believe that CTAs (commodity trading advisers) and global macro funds are the best way to play this."
Last year's upheaval in the financial markets has created some significant opportunities in relative value strategies - perhaps the best for over three years, according to fund-of-hedge fund managers interviewed for a sector update by Standard & Poor's Fund Services, published at www.standardandpoors.com.
He explained that the volatility in financial markets, increased credit spreads and the prospect of rising default rates had led fund managers such as RMF, Deka and Sail to increase allocations to convertible and volatility arbitrage funds. Hedge funds specializing in distressed strategies are expected to benefit increasingly over the coming year as the credit crunch and weakening economic growth lead to rising defaults. Absolute and Ermitage felt the prospects for distressed specialists were good and the S&P AA rated Antarctica Market Neutral Fund had recently increased its allocation to distressed specialists from 20% to 25%.
"Fund-of-hedge-fund managers have become more cautious on equity related strategies and have been reducing exposure," said Randal Goldsmith, citing the example of the S&P A rated Sail Flagship Fund, which had reduced long-short equity exposure from 33% in the middle of last year to 13% by February 2008. Another fund moving in a similar direction was Jupiter Merlin Absolute Return Portfolio, where the underlying net long position had fallen from 44% at the beginning of 2007 to 27% by year end, primarily through action taken by the underlying managers.
Looking back at 2007, Goldsmith said S&P rated funds-of-hedge-funds had generally proved their ability to make money in difficult and changing market conditions, with returns averaging around 11%. Among the specialist long-short European equities funds, two rated managers showed minor losses, while a rated Japan fund also had a small negative return. "Nobody made money on Japanese hedge funds last year," he commented, pointing out that the three small losses were more than made up for by strong performances from specialist funds-of-hedge-funds focused on emerging markets. S&P AA rated GAM Multi Emerging Markets Fund returned 23.2% and S&P AA rated Permal Emerging Markets Holdings Fund returned 23.5%. There were also some very good rated multi-strategy funds.
"Thames River's Warrior I and II funds, both S&P AA rated opportunistic multi-strategy funds, surprised consistently on the upside last year," said Goldsmith, noting that Warrior I had been the best performing S&P rated fund-of-hedge fund, returning 27%. This was driven to a large extent by big positions in the Paulson Advantage Plus and Paulson Credit Opportunities funds, which had short credit exposure and benefited in particular from the deteriorating US sub-prime sector. The more recently launched Warrior II had less in Paulson but still returned over 20%.
The S&P rated fund-of-hedge-fund managers are selectively optimistic on the outlook for 2008," said S&P Fund Services lead analyst Randal Goldsmith.
"Many funds-of-hedge-funds currently see the chance of making good returns from commodity trends, particularly in the agricultural sector," said Goldsmith, "They believe that CTAs (commodity trading advisers) and global macro funds are the best way to play this."
Last year's upheaval in the financial markets has created some significant opportunities in relative value strategies - perhaps the best for over three years, according to fund-of-hedge fund managers interviewed for a sector update by Standard & Poor's Fund Services, published at www.standardandpoors.com.
He explained that the volatility in financial markets, increased credit spreads and the prospect of rising default rates had led fund managers such as RMF, Deka and Sail to increase allocations to convertible and volatility arbitrage funds. Hedge funds specializing in distressed strategies are expected to benefit increasingly over the coming year as the credit crunch and weakening economic growth lead to rising defaults. Absolute and Ermitage felt the prospects for distressed specialists were good and the S&P AA rated Antarctica Market Neutral Fund had recently increased its allocation to distressed specialists from 20% to 25%.
"Fund-of-hedge-fund managers have become more cautious on equity related strategies and have been reducing exposure," said Randal Goldsmith, citing the example of the S&P A rated Sail Flagship Fund, which had reduced long-short equity exposure from 33% in the middle of last year to 13% by February 2008. Another fund moving in a similar direction was Jupiter Merlin Absolute Return Portfolio, where the underlying net long position had fallen from 44% at the beginning of 2007 to 27% by year end, primarily through action taken by the underlying managers.
Looking back at 2007, Goldsmith said S&P rated funds-of-hedge-funds had generally proved their ability to make money in difficult and changing market conditions, with returns averaging around 11%. Among the specialist long-short European equities funds, two rated managers showed minor losses, while a rated Japan fund also had a small negative return. "Nobody made money on Japanese hedge funds last year," he commented, pointing out that the three small losses were more than made up for by strong performances from specialist funds-of-hedge-funds focused on emerging markets. S&P AA rated GAM Multi Emerging Markets Fund returned 23.2% and S&P AA rated Permal Emerging Markets Holdings Fund returned 23.5%. There were also some very good rated multi-strategy funds.
"Thames River's Warrior I and II funds, both S&P AA rated opportunistic multi-strategy funds, surprised consistently on the upside last year," said Goldsmith, noting that Warrior I had been the best performing S&P rated fund-of-hedge fund, returning 27%. This was driven to a large extent by big positions in the Paulson Advantage Plus and Paulson Credit Opportunities funds, which had short credit exposure and benefited in particular from the deteriorating US sub-prime sector. The more recently launched Warrior II had less in Paulson but still returned over 20%.
© Bahrain Tribune 2008
