Finding the hedge fund sweet spot

Successful hedge fund selection can be an uphill task. Overall, smaller funds tend to outperform larger funds, but often come with a higher level of business or operational risk. At the opposite end of the spectrum, larger funds that have done well in the past may close their funds to new capital to preserve trading flexibility or, worse, may fall victim to their own success as their focus shifts from generating performance towards preserving management fees off the larger asset base. Either way, the universe of attractive, larger funds can be limited.

Investors worried about the wide dispersion of hedge fund returns do have options, however. One solution has been to invest in funds that take a multi-manager approach. By doing so, investors can avoid putting all their eggs in one basket and may get access to hedge funds across the size spectrum and across a diverse array of investment styles. Further, these funds are typically overseen by an experienced allocation manager, who is responsible for manager selection, risk management and ongoing allocations within the portfolio.

Jeff Brozek – EACM, A BNY Mellon company

Successful hedge fund selection can be an uphill task. Overall, smaller funds tend to outperform larger funds, but often come with a higher level of business or operational risk. At the opposite end of the spectrum, larger funds that have done well in the past may close their funds to new capital to preserve trading flexibility or, worse, may fall … read more

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US rates – raise, hold or bust?

Recent volatility has been driven by Greece-related events, but we expect the focus will soon shift towards expectations related to the US Federal Reserve (Fed) and whether they will begin their interest rate hiking cycle in September.

We note US economic data is continuing to strengthen as we head into Q3, with jobs, wages and inflation all showing positive signs. Based on the strength of the labour market and our expectation of rising core inflation in the second half of the year, we believe the Federal Reserve will hike short-term interest rates by 25-50 basis points between its September and December 2015 meetings. At present, the Fed funds futures market is pricing in less than a 50% probability of a September rate hike and about a 38% probability of two rate hikes in 2015.

In the short-term we expect this to create some volatility and distortions in asset classes such as credit and emerging markets debt and we look to maintain headroom to take advantage of opportunities in this space.

Raman Srivastava – Standish, a BNY Mellon company

Recent volatility has been driven by Greece-related events, but we expect the focus will soon shift towards expectations related to the US Federal Reserve (Fed) and whether they will begin their interest rate hiking cycle in September. We note US economic data is continuing to strengthen as we head into Q3, with jobs, wages and inflation all showing positive signs. … read more

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On course for a quieter Heathrow expansion

Recent reports show planes are already around 50% quieter today than they were 10 years ago and 75% quieter than the first generation of jet aircraft. Latest engine models from companies such as Pratt & Whitney, for example, reportedly produce a 50-75% reduction in engine noise compared to current models and an expected 16-20% better fuel burn. This has clear implications for noise pollution and property prices in densely populated metropolitan areas, including most of West London under Heathrow’s flight path. The reduced sound from such engines could also have significant consequences on airport capacity. For instance, planes could potentially fly in and out through the night (some noisier planes are restricted in their flight times), which in turn could result in more available flights.

Jeremy Stuber – Newton, a BNY Mellon company 

Recent reports show planes are already around 50% quieter today than they were 10 years ago and 75% quieter than the first generation of jet aircraft. Latest engine models from companies such as Pratt & Whitney, for example, reportedly produce a 50-75% reduction in engine noise compared to current models and an expected 16-20% better fuel burn. This has clear implications … read more

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The real cost of the Greek crisis

Recent headlines, which pointed to Greece being the first ‘developed world’ economy to default on a payment to the International Monetary Fund, illustrate why the country’s plight matters. The concern is that it might indicate where other first world economies with large welfare states, huge debts and a dependency on imports might be going: headlong towards a process of deleveraging that becomes contagious. In Europe, this is the case even for signatories of the Stability and Growth Pact, the legal framework established in 1997 as a prelude to introduction of the single currency to ensure fiscal responsibility in the European Union [1] . For this reason, markets, which seem almost dangerously complacent, may well be right to expect a last-minute fudge on Greece. The risks of a financial accident are rising, however, as the stalemate continues.

Greece’s debt has been unsupportable but it may not be the only economy in such shape. At current growth rates, the debt loads of most western economies (broadly the highest ever seen in peace time) are similarly unsustainable, just less extreme.

Iain Stewart – Newton, a BNY Mellon company

[1] The pact was intended to limit public debt to 60% of GDP and government deficits to 3% of GDP.

Recent headlines, which pointed to Greece being the first ‘developed world’ economy to default on a payment to the International Monetary Fund, illustrate why the country’s plight matters. The concern is that it might indicate where other first world economies with large welfare states, huge debts and a dependency on imports might be going: headlong towards a process of deleveraging … read more

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Could the UK meet its EU Waterloo?

The European Union is by far and away the UK’s dominant trading partner. In 2014 the EU accounted for 44.6% of UK exports of goods and services and 53.2% of UK imports of goods and services.[1] EU member states account for four of the top-five export destinations of the UK and three of the top five import origins.

These figures sound impressive but we have never seen a good argument either way with definitive data that would give a clear indication of the economic pros and cons of the UK leaving the EU. Our hope is the upcoming referendum will concentrate minds and allow that debate to take place.

Our belief is it will be shown that the UK is better off in the EU. That said, if the UK did exit the EU we don’t necessarily think that would be calamitous, as we are not economically over-reliant on Europe. Either way, we are not too worried about the upcoming referendum. Our position is to wait and see.

James Harries – Newton, A BNY Mellon company

[1] London School of Economics, Should the UK stay or go? The economic consequences of Britain leaving the EU, 24 May 2015

The European Union is by far and away the UK’s dominant trading partner. In 2014 the EU accounted for 44.6% of UK exports of goods and services and 53.2% of UK imports of goods and services.[1] EU member states account for four of the top-five export destinations of the UK and three of the top five import origins. These figures … read more

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No siesta in sight for global bond markets

In recent weeks we’ve had yet another bond market tantrum; these seem to be becoming a regular occurrence these days. Just over the last month we’ve seen volatility in yields for both Bunds and US Treasuries.

May and June tends to be a period when risk assets are a lot more volatile, and, because we’ve seen significant pick-up in volatility in both currencies and in the core bond markets, we wouldn’t be surprised to see some volatility coming through in risk assets as well. So we think it’s a prudent idea to reduce some exposure high-yield markets, which have held up very well during this volatility and have placed it back into the core bond markets.

Paul Brain – Newton, A BNY Mellon company 

In recent weeks we’ve had yet another bond market tantrum; these seem to be becoming a regular occurrence these days. Just over the last month we’ve seen volatility in yields for both Bunds and US Treasuries. May and June tends to be a period when risk assets are a lot more volatile, and, because we’ve seen significant pick-up in volatility … read more

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