HFs Rebound in US Fixed-Income Trading | Chief Investment Officer

Hedge fund managers, which now account for one-fifth of all trading volume in the US Treasury bond market, are refocusing their attention on more liquid products, a new study by Greenwich Associates confirms.

(August 13. 2010) — Hedge fund managers are rebounding in US fixed-income markets, Greenwich Associates reports.

The study shows that hedge fund trading volume in US government bonds has boomed in the past year. The results show an estimated 36% increase in trading volume in US fixed-income markets between April 30, 2009, and April 30, 2010.

Over the last year, hedge funds have been focusing their attention on more liquid products, highlighting a change in investment strategy. According to Greenwich Associates, the most obvious example of this shift is in US Treasuries — hedge fund trading volume in government bonds increased by approximately 73% from 2009 to 2010. While hedge funds generated about 3% of trading in this market in 2009, that share jumped to roughly 20% in 2010, Greenwich Associates said.

The growth illustrates that hedge funds remain key players in US fixed-income markets despite the fact they are far from the dominant force they were in 2006–2007, the survey stated. At their pre-crisis peak in April 30, 2007, hedge funds generated 29% of US fixed-income trading volume, a percentage that dropped to 12% by April 30, 2009, rebounding to 19% by April 30, 2010. The financial crisis has motivated investors to push to be allowed to withdraw money more easily during periods of market stress. Consequently, funds may have to keep more securities that can be sold quickly, with Treasurys and agencies being among the most liquid.

For more stories like this, sign up for the CIO Alert newsletter. 

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

The Government Pension Fund Global returned -5.4% (-155 billion kroner) in the second quarter of 2010, weighted down by a decline in global equity markets.

(August 13, 2010) — Norway’s oil fund dropped $25 billion in the second quarter, pummeled by the European debt crisis and BP’s downturn after the Gulf of Mexico spill.

The Government Pension Fund Global, Norway’s sovereign wealth fund commonly known as the “oil fund”, lost 155 billion kroner ($25 billion) or 5.4% in the second quarter, representing the first drop since the start of 2009.

The single worst-performing investment for the world’s second largest SWF: oil producer BP. The company’s oil spill in the Gulf of Mexico in April, the largest spill in US history, slashed BP’s share price in half during the period. Following the oil disaster, the fund said oil majors have the potential to improve environmental safety standards, indicating that it was seeking a greater effort by the oil industry. “This is an industry-wide issue and the industry needs the larger players with the best resources (to achieve this),” said Yngve Slyngstad, chief executive officer of Norges Bank Investment Management (NBIM), which manages the fund, in a Reuters interview.

“The spill put the spotlight on safety standards in the oil industry,” says Slyngstad. “NBIM supports the board of BP’s commitment to ensure that safe and reliable operations top the company’s set of priorities. We also seek a wider industry effort that should be led by the largest companies to improve safety and environmental standards.”

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

Additionally, Norges Bank said Friday that the fund’s equity investments returned -9.2%, while fixed-income investments returned 1%. The fund’s investments consisted of 59.6% equities and 40.4% fixed-income securities at the end of the quarter.

Despite the loss, the fund grew year-on-year to 2.8 trillion kroner ($455 billion), from 2.4 trillion kroner, central bank data showed.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742