After market storm, hedge funds launch to catch the recovery waveApril 25, 2020
At least eight European hedge funds are launching portfolios betting on a recovery in corporate debt and emerging markets after the coronavirus pandemic triggered the biggest market rout in a generation.
The fund managers are hoping to replicate the success of firms that cashed in when markets rebounded after the financial crisis, a rally that cemented the reputations of major investors such as Brevan Howard, Bridgewater and John Paulson.
“We are seeing a lot of interest in new fund launches, either because of opportunistic managers or those who have a strategy that suits the current environment,” said Sean Scott, a lawyer at MJ Hudson, which advises fund managers.
Fund managers and service providers said that seven hedge funds focused on credit and equities have either launched or plan to launch portfolios since the start of March while another credit fund got under way in the past few weeks.
With eight launches since the start of the pandemic and more funds pressing ahead with plans already in place, the industry is on track to at least match the number of credit and fixed income fund launches of recent years.
According to data provider HFM, only 15 were launched in the first half of 2018, though that picked up to 21 in the same period of 2019.
“I’ve had more enquiries over the last two to three weeks than typical,” said one hedge fund lawyer.
As the coronavirus spread and brought economies to a halt, investors sold off riskier assets and piled into cash.
In the last week of March, investors pulled a record $109 billion out of bond funds followed by data provider Emerging Portfolio Fund Research. During the month, distressed debt and emerging markets strategies lost 13% and 9.6% respectively, according to data provider Eurekahedge.
Now, firms are betting conditions are ripe for a rebound and are seeking assets left undervalued following the market rout.
“People are willing to take advantage of the fact that things are in a highly dislocated fashion in the States,” said Sebastien Galy, senior macro strategist at Nordea Asset Management.
Nordea launched its Flexible Credit Fund on March 18 specifically to focus on price discrepancies in U.S. credit markets and raised 15 million euros ($16 million) in days.
Other funds that had planned to launch before the pandemic said they were still in full steam ahead, such as a London-based long-short hedge fund focused on emerging markets which aims to launch before the end of April.
“We think it’s a great opportunity to launch now,” said the firm’s founder, who declined to be named. “What you saw over the last couple years is that bad or good opportunities were up, up, up. What we hope now is there will be a little more dispersion and opportunity within emerging markets.”
A partner at a technology firm that works for hedge funds said he had two clients looking to launch: a $150 million credit hedge fund and a long-short equities strategy.
Even firms that aren’t launching products have managed to raise more capital.
Bellecapital’s $30 million Eiger Fund, which focuses on small- and mid-cap European firms, said it took in $13 million in April, saying opportunities created by the coronavirus pandemic were part of the reason for the inflow.
PineBridge Investments’ credit and fixed income funds, meanwhile, have received, or are in the process of receiving, new investment capital in excess of $1 billion, said Steven Oh, its global head of credit and fixed income.
“I think credit is still on the cheap side,” he said.