Merger Arbitrage Performance

Hedge Funds Return to Merger Arbitrage

Hedge fund merger arbitrage activity is picking up after a dry spell. Hedge funds focused on merger arbitrage gained 8%, that is below the average hedge fund gains but an improvement still. As executives are able to complete deals more confidently, arbitrage traders are expected to make more significant gains.

Times are good for arbitragers because there is less competition in the merger game. Proprietary trading desks of many brokerage firms have been shrunk or eliminated, and some multistrategy hedge funds have switched from merger investing. That is why the spread between an acquisition target’s share price and a deal price has expanded.

Today, target companies typically trade about 12% below an offer price. That is down from about 15% earlier this year, but higher than the 10% or so for most of this decade.

In past years, acquisitions were sometimes announced by parties still hoping to secure sufficient financing. Sometimes that wouldn’t materialize. Now, only those with pretty secure financing are launching offers. And fewer deals are being undertaken by private-equity firms, which have proved more likely than strategic buyers to get cold feet and walk away from a deal. Source

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Hedge Funds Strategy Performance

Hedge Funds Strategies Performance This Year

Hedge funds use many different strategies to achieve returns and some hedge funds seem to be shifting strategies to capitalize on the opportunities in the current market. To learn more about these strategies see this article. Also, you can join Hedge Fund Premium for an exclusive video to be added this quarter highlighting each of these strategies and explaining how they are utilized by hedge fund managers. Here is a list of the most popular strategies and how they have performed in the seven months to end-July.

Strategy: Long-Short Equity

• Well-known hedge funds using this strategy: Odey European, Toscafund

• Performance year-to-date: 11.45 percent

• Performance in 2008: -19.76 percent

Strategy: Managed Futures

• Well-known hedge funds using this strategy: Man Group’s AHL and Winton Futures Fund

• Performance year-to-date: -7.82 percent

• Performance in 2008: 18.33 percent

Strategy: Global Macro

• Well-known hedge funds using the strategy: George Soros’s Quantum fund, Julian Robertson’s Tiger Management, Paul Tudor Jones’s Tudor Investment Corp.

• Performance year-to-date: 5.24 percent

• Performance in 2008: -4.62 percent

Strategy: Event-Driven

• Well-known hedge funds using this strategy: TCI or Atticus

• Performance year-to-date: 9.11 percent

• Performance in 2009: -17.74 percent

Strategy: Fixed Income Arbitrage

• Performance year-to-date: 15.9 percent

• Performance in 2009: -28.82 percent

Strategy: Convertible Arbitrage

• Performance year-to-date: 31.14 percent

• Performance in 2009: -31.59 percent

Strategy: Emerging Markets

• Performance year-to-date: 17.54 percent

• Performance in 2009: -30.41 percent

Strategy: Dedicated Short Bias

• Performance year-to-date: -17.28 percent

• Performance in 2009: 14.87 percent

Strategy: Funds of hedge funds

• Performance year-to-date: 6.95 percent

• Performance in 2008: -21.37

Source

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Long Only Hedge Funds

Long Only Hedge Fund Strategies Leads Returns

In yesterday’s article, we saw the impressive returns hedge funds have generated in recent months. Average hedge fund returns are up by 12.17% for this year through July 31 and this recovery has been largely led by long only hedge fund strategies. According to Reuters, long only hedge funds posted a 4.75% return in July adding to the 14.34% gains year-to-date.

The information released ahead of Lipper’s monthly Hedge Fund Insight Report, which is due at the end of August, showed that all hedge fund strategies posted a positive performance last month, with long/short equity and multi strategies both giving returns of 0.81 percent.

Short bias strategies made a 0.40 percent return, boosted by profitable short sale strategies in the first half of the month, Lipper data showed.

Global stock markets gained 8.5 percent in July, according to the MSCI World TR Index. They continued their rally from March lows, fuelled by hopes that the worst of the financial crisis has passed.

However, stock markets remained very sensitive to macroeconomic factors, said Gentilini.

“The market is already looking for the next macro catalyst to drive market direction; there are a still a number of risks of market correction,” he said.

Among the other hedge fund strategies, options arbitrage performed strongly in July, with returns of 0.88 percent. Event-driven was the worst-performer, posting a 0.19 percent return. Source

Read about other hedge fund strategies at our Hedge Fund Strategies Guide.

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Hedge Fund Strategies During the Recession

Just came across an article which on top of the normal industry regulation and redemption talk discussed what strategies might actually do well over the next year or two. In addition to the ideas quoted below I believe that more simple, easy to understand strategies which survived both the 2001-2002 and current periods will go far with new investors.

Here is a few quotes from the article:

“Macro funds will be a big winner,” predicts Sassan Ghahramani, former chief executive Medley Global Advisers, a research firm for hedge funds and other money managers. “There is so much policy involvement that is affecting the movements of markets. And in the next two to five years, central banks will unwind their interest rate cuts, but at different speeds in different countries.” That will create trading opportunities for the macro managers.

The environment also is ripe for hedge funds that invest in distressed assets, such as real estate and securities backed by credit card and auto loans. “There is a lot of interest out there for this,” Ghahramani says. “People are trying to put together war chests.”

“Probably the best hedge-fund trade in the next year is to partner with the government in buying the securities it wants to get sold from banks,” says David Gilmore, a partner at Foreign Exchange Analytics, which advises hedge funds and others about market trends. “You get the most leverage at the lowest rates and insurance on your downside risk.” source

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Hedge Fund Losses

Hedge Fund Losses in 2008 2009

Here is a video below on hedge fund asset losses and closures. While there is a small set of institutional investors investing in a number of opportunistic hedge funds most are still loosing assets each quarter. Many firms were profitable just 2-3 years ago and now have less assets to manage and little if any performance fees to collect. If you are reading this article over email through our daily hedge fund newsletter please click here to watch the embedded video below.

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Global Macro Funds

Global Macro Hedge Funds Overview

The global macro approach to investing is one of the most popular hedge fund strategies seen today. Global macro fund managers try to make leveraged bets on aspects of the global macro economy. For example, fund managers could place these leveraged bets on currencies, commodities, interest rates, or even equities. As most investors global macro managers would like to minimize downside risk while still offering exceptional returns. Global macro hedge fund managers often have the liberty of having the choice of using any investment instrument in almost any market to produce their returns.

Global macro trades could either be directional or of relative value. In directional trades managers make bets on isolated price movements. For instance, the manager could short the Dollar, long on the Euro, or short on Brazilian Bonds. On the other hand, relative value trades are used to take advantage of assets which were not properly priced. Managers will usually couple assets on both the long and short side to expose these mis- pricings. A usual bet could be a long on US equities versus a short on emerging chinese equities.

The global macro strategy could be executed in any number of markets and because of this fund managers are not as constrained as other fund managers who could have most of their assets invested in one market. Because of this, global macro funds have been able to sometimes avoid the bear markets in one country and take advantage of bull markets in another.

Read more articles like this within my Hedge Fund Strategy Guide.

- Richard

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Hedge Fund Strategies

Hedge Fund Strategies Video

Here is a short video I just found on 3 different hedge fund strategies. This hedge fund blog is not offering this video as a form of financial training or advice of any type, but the video should help helpful in understanding hedge fund strategies on a high introductory level. Here is a direct link to the video.

If you have any additional videos on hedge funds or hedge fund strategies that I could add to the directory of videos available on this hedge fund blog please let me know and I would be happy to add them here.

- Richard

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Hedge Fund Strategies

Top 5 Hedge Fund Strategies

There are some hedge fundstrategies with over $50 or $100 billion dollars already being put to work while others are only employed by a small handful of firms. In 5-7 years there will be some new hedge fund strategies that will take hold and propel small emerging hedge fund managers into the world of $1B + hedge funds.

Here is a list of what I see as the top 5 hedge fund strategies that will explode in popularity over the next 5-7 years:

1. 130/30
2. Carbon Credit Trading
3. Socially Responsible & Green Hedge Funds
4. Litigation Funding
5. Intellectual Property (Patents, Domains and Licensing Rights)

Read dozens of more articles like this within my Hedge Fund Strategy Guide.

- Richard

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Hedge Fund Investments

Hedge Fund Investments Video

Here is a short video I found on hedge fund investments.

If you can’t view this hedge fund investments video please follow this link: http://www.youtube.com/watch?v=n6m4_UyfLDs

Read dozens of more articles like this within my Hedge Fund Strategy Guide.

- Richard

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