Strategy Rotation
According to Eurekahedge, the only two strategies that are in the green for the first five months of the year were CTA/ managed futures, which was up 0.95%, and macro, which was up 0.12%. All other hedge fund strategies were down, with event-driven funds taking the biggest hit, followed by distressed debt.
May did bring a turnaround for the hedge fund industry, which recorded $9.3 billion in investor inflows and $7.4 billion in performance-driven gains. Year to date through the end of May, hedge funds are still down 2.53%.
Fee pressure and investor redemptions
As many hedge fund managers have struggled this year, especially in the March selloff, there is likely to be additional pressure on fees. The traditional 2% management fee and 20% performance fee structure is all but a thing of the past, as most funds are no longer able to command fees that high.
Estimates suggest only about 25% of hedge funds are still charging 2 and 20, with most fund managers lowering their fees after the 2008 financial crisis. The COVID-19 pandemic has been the worst economic downturn since the financial crisis, so it stands to reason that fund managers will face additional pressure on the fees they charge.
More opportunities
Many hedge fund managers have been hoping for an increase in volatility for a while, and this year, their wish was granted. Unfortunately, that has meant bad things for fund managers who haven't been able to take advantage of the increased volatility.
The markets have mostly recovered since then, but there are still some opportunities for hedge fund managers who know where to look.
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