Hedge funds that trade on corporate dealmaking and agitate for change in boardrooms have been the winners in the first half of the year as managers that try to anticipate wider economic trends have suffered.
So-called event driven hedge funds, which broadly try to profit by making trades based on company specific deals such as takeovers and refinancing, returned 4.3 per cent in the first half, according to data compiled by HFR, outpacing overall returns of 3.2 per cent across all hedge fund strategies after fees.
The HFR data showed that the average manager failed to beat both US equities, as measured by the S&P 500 index, or the low fee Vanguard Total Bond Fund over the period.
Critics have long argued that hedge fund managers charge high fees to investors for low or inconsistent returns. The industry’s defenders have countered by arguing hedge funds provide returns that are not closely correlated with other assets, such as stocks or bonds.
In a generally mediocre year for many of the best known managers, the stand out performance in the first half came from activist investor Bill Ackman, whose Pershing Square fund has attracted attention for its aggressive short selling against US company Herbalife.
Pershing Square, which manages about $15bn of assets, returned 25 per cent up to the end of June, making it the world’s best performing large hedge fund in the first half.
Mr Ackman, whose attack against Herbalife placed him at odds with rival investors, most notably veteran activist Carl Icahn, was helped by his large stake in the pharmaceuticals company Allergan, which is subject to a hostile takeover offer by Valeant.
The “Offshore Fund” of Dan Loeb’s Third Point, which has also made headlines for its activist campaign against auction house Sotheby’s, was up by 6 per cent to the end of June, according to a letter to its investors.
The comparatively strong showing of event driven funds however was less than the 6.2 per cent return of the US S&P 500 index over the period, and down from a 5.6 per cent gain during the first half of last year.
While event driven and activist funds benefited from robust equity markets, hedge fund strategies linked to broader based bets on the global economy, known as global macro, have struggled.
The main fund of Brevan Howard is on course to post its first calendar year loss in its 10 year history, with its $26bn “Master Fund” off by 4 per cent at the start of June. Other well known macro managers such as Louis Bacon and Paul Tudor Jones have also struggled.
According to the HFR data, macro funds returned 1.1 per cent for the first half, up from an 0.94 per cent decline in the same period last year.
The data tracks a diverse number of hedge funds by size and strategy, meaning that funds that are not easily comparable, such as those focused on equities and those focused on commodities, are included in the overall performance numbers.