Hedge Funds, with Tepid Start to 2018, Get Bump in May

After a so-so start to 2018, hedge funds began to pick up in May, bringing the industry to a 0.84% gain for the year through last month, according to Evestment research. That compares to a 2.02% increase for the all-stock S&P 500.

In May, though, hedge funds climbed 0.65%, accounting for more than two-thirds of the industry’s advance.

During 2017, the US stock market was roaring and so were most other nations’ markets. So for the first months of last year, hedge funds in general were up 3.2%. They finished 2017 at 8.93%.

Markets, both for stocks and bonds, have been iffy in the beginning of 2018. The S&P 500, after suffering a 10% correction this winter, has recovered somewhat and now is ahead 3.64% for the year. Bonds, which face challenges from rising interest rates and inflation, are in the red, down 2.36% in 2018, as measured by the Bloomberg Barclays US Aggregate bond index.

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The tepid recovery of stocks boosted the performance of long-short hedge funds, which focus on equities. After losses in March and April, marking the category’s first consecutive monthly decline since January and February 2016, long-short rose 2.05% in May. That makes the long-short strategy the leader thus far this year, ahead by 2.22%.

The biggest loser for the current year is the managed futures segment, down 2.79% through May. At the heart of this strategy are commodities and currencies, which have had a wild ride in 2018. Managed futures hedge funds seek to profit by finding mispricing or from going long or short, according to their trading programs. And while commodities have rebounded somewhat this spring, managed futures have not. With hedge funds dedicated to managed futures sliding 2.79% in 2018 overall, just one-third have been in the black this year.

Tags: Bonds, China, Emerging Markets, Hedge Funds

Republican Kentucky Governor Matt Bevin is trying to toss out the judge hearing a lawsuit challenging his pension overhaul legislation, on the grounds that the Democratic jurist is prejudiced against him.

The governor has asked Kentucky’s chief justice to disqualify Judge Phillip Shepherd from overseeing the lawsuit filed by Attorney General Andy Beshear, a Democrat.

The new pension law looks to shore up the public pension plan, which is struggling with a $40 billion shortfall, by cutting teacher benefits and shifting new hires into a 401(k)-style fund. Kentucky’s plan is 31% funded.

Beshear says the new pension law is illegal as it violates the state constitution, which he touts as protecting the plan’s beneficiaries and because their pensions are an inviolable contract. He also objects to the way the pension change was passed: The governor inserted the measure into a sewage bill late in the 2018 legislative session. The bill was then passed the next day without legislative review or public comment.

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The governor’s lawyers called on Chief Justice John Minton for Judge Shepherd’s removal in a filing. Governor Bevin requested a special judge replace Shepherd on the grounds that the judge is part of the state’s defined benefit pension.

Stephen Pitt, Bevin’s general counsel, argued that only a judge not covered by the DB plan replace Shepherd. That means someone who joined the bench after January 1, 2014, when new Kentucky judges were put into a 401(k)-style plan, replacing the old DB set-up. Shepherd became a judge in 2006.

Bevin’s animosity toward Shepherd has some history, and he has criticized the judge since at least 2016. He called the judge an “incompetent hack” in an interview with 55KRC Radio last month.

“This guy’s a former Democrat operative. He used to be in a previous Democrat administration as an appointee. Now he happens to be a – quote, unquote – judge,” the Republican governor said on the air, claiming Shepherd does not “take the law seriously.”

In 2016, Bevin and other Republicans accused the judge of siding with the Democrats when Shepherd ruled against the governor’s reorganization of the University of Louisville’s board of trustees.

The picture is more nuanced, however, as Shepherd has sided with Republicans twice as much as he has with Democrats in the past decade, the Courier Journal reports.

Democrat Beshear called Bevin’s move “shameful” in a Facebook post that also accused the governor of preventing a hearing on the bill, which Bevin’s filing denies.

In opposing the call for his removal from the case, the judge last week said that stepping down would “stretch the concept of conflict of interest beyond any reasonable recognition.”

Shepherd’s arguments are scheduled for Thursday, but the hearing is delayed unless the chief justice rules on Bevin’s request before then.

Update: Late Wednesday, Minton overruled the governor’s proposal. The chief justice issued an order that said Bevin “failed to demonstrate any disqualifying circumstance that would require the appointment of a special judge.”

Tags: Andy Beshear, Judge Phillip Shepherd, Kentucky, Matt Bevin, Pension