US Hedge Funds Dominating and Outpacing Peers

Preqin found American hedge funds are recovering and growing faster than their global counterparts, managing 65% of the industry’s global capital.

(September 23, 2013) — US-based hedge funds have outperformed the global benchmark so far this year, seeing an increase in assets of over $150 billion, according to Preqin.

European funds, on the other hand, experienced a rise of only $33 billion in assets in 2013.

The research found that US hedge funds recovered faster and grew stronger than other regions, managing over $508 billion in assets, or 65% of capital handled by hedge funds globally.

Examining data from more than 2,700 US institutional investors and more than 3,200 fund managers, Preqin concluded that US hedge funds produced a net return of 13.54%, much higher than the global average return of 11.09%.

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Amy Bensted, head of hedge fund products for Preqin, said the US has significantly grown as the center of the hedge fund industry, thanks to American institutional investors, despite the funds struggling across the board.

“US-based institutional investors represent a vital source of capital for hedge fund managers,” she said. “These investors recognize the value that hedge funds can add to their portfolio, and have begun to allocate significant sums to hedge funds to complement their traditional equity and fixed income portfolios.”

The data supported Bensted’s theory. Some 73%, or $1.74 trillion, of total hedge fund industry assets under management was attributable to US investors.

Also, the study found that US hedge funds had fared better than global funds on a three and five-year annualized basis, contributing to the consistent and growing presence in the industry.

Preqin stated that 95% of all US hedge funds were based in 10 states: New York, California, Connecticut, Massachusetts, Illinois, Texas, New jersey, Minnesota, Pennsylvania, and Florida.

With $838 billion in assets under management, or 40% of total US funds, New York was clearly the largest “leading center” for hedge funds, research found. New York-based hedge funds produced a 7.56% net return in 2013 so far.

The full report can be found here.

(September 23, 2013) — A publically listed company with a huge pension deficit should be avoided by investors at all costs, right? Not always, analysts at Goldman Sachs Asset Management have said.

The bank-backed asset management firm tracks a basket of Europe-listed companies with the largest pension deficits and reported that—in July at least—they had been outperforming their peers with relatively healthy funding levels.

The performance of these 50 companies in the STOXX Europe 600 has closely followed the rise in German bond yields, which had been rising steadily since May. GSAM said it expected these companies to continue to rise on this basis, should the German 10-year bund take the same line.

The theory is that as bond yields begin to rise, and with the eventual loosening of quantitative easing around the world this is likely to occur, liabilities will be reeled in. This should mean deficits are also lessened and corporates should see smaller pension black holes on their balance sheets.

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GSAM said the impact of these deficits on the companies—or rather their duty to pour in cash should they get any worse—had already been adjusted in the pricing of these stocks, meaning they were cheaper than their peers in the same business. This affect had lessened in the recent past, GSAM said, but the analysts stuck to the basic premise, using the 12 month price-to-earnings forecast to show these companies were still set to trade at a discount.

The asset manager advised investors that many of the stocks in the basket were classed as “cyclical” and they were dominated by UK companies, due to the nature of the country’s benefit system.

Use ticker GSSTPENS to track the basket on Bloomberg.