Changes in the Macroeconomic Environment & the Opportunity for Hedge Funds
After a number of tough years, recent hedge fund performance has picked up. The Preqin All-Strategies Hedge Fund benchmark shows that the industry posted returns of 11.41% in 2017.
Rises in interest rates and increases in volatility have started to create new opportunities for hedge funds.
“Over the last few years, an environment of quantitative easing, where all boats were lifted by stimulus from central banks, it was more difficult for hedge funds to perform,” said Darren Lauber, Head of Fund Investments at Talisman Global Asset Management.
However, he added that “The macro environment over last 6-12 months has actually been improving with regards hedge fund strategies.”
Andrew McCaffery, Global Head of Strategic Client Investments, Aberdeen Standard Investments also sees changes in the macro picture as creating opportunities for hedge funds to take advantage of. “We have come through such a long period where volatility has been subdued and pushed down by authorities’ actions in such a low-interest rate environment. As that starts to move to a more normalised environment for the whole of the financial market place, we will see that new opportunities will start to appear”
Geopolitical changes are also playing a part in the volatility currently impacting global markets. “The world is changing in 2018, we are being confronted with geopolitical uncertainty. Trump’s trade policy has absolutely changed the world order” said Robert Savage, CEO, CCTrack.
Hedge funds thrive in periods of volatility. “We will see more uncertainty, more volatility and more dispersion and these factors are making hedge fund investing a more attractive proposition,” added Lauber.
McCaffery agrees that there will be a favourable environment for managers to take advantage of. “The increase in volatility can provide opportunities for many managers to extract returns from. The overall environment heading higher will provide a backdrop which will be different, challenging, but something the hedge fund industry can take advantage of.”