Preqin Quarterly Update: Hedge Funds, Q2 2015

The Q2 2015

Preqin Quarterly Update Hedge Funds Insight on the quarter from the leading provider of alternative assets data

Content includes... Performance Update Disappointing performance from CTAs during the quarter.

Hedge Fund Launches Proportion of funds launched by Europe-based managers increases.

Fund Manager League Tables A look at the most notable hedge fund managers around the world.

Investor Mandates Long/short equity the most sought-after strategy among investors. alternative assets. intelligent data.

The Preqin Quarterly Update: Hedge Funds, Q2 2015

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Foreword - Amy Bensted, Preqin In May 2015, the Preqin All-Strategies Hedge Fund benchmark made a gain of 0.85% taking the year-to-date (YTD) return to above the return achieved across the whole of 2014 (5.44% versus 4.60%). However, June brought the first negative return for the Preqin All-Strategies Hedge Fund benchmark in 2015, which meant Q2 ended just 10 basis points short of the entire return of 2014. Despite hedge funds showing some return to form in 2015, the strong start to the year shown by CTAs has been almost entirely wiped out by a second quarter which included a June Preqin All-CTAs benchmark return of -2.50%, the worst monthly return for the benchmark since July 2008. This takes the YTD return for CTAs to 0.20%. Even though the performance of CTAs in 2015 has proven choppy, investor sentiment remains strong; 20% of all fund searches initiated over the quarter included CTAs as part of the mandate. In comparison, just 10% of all searches initiated in Q2 2014 included a CTA component. Two major events in Q2 2015 divided the attention of financial observers: the ongoing developments within Greece and Europe regarding the former’s debt and future as part of the single currency, and the sell-off in Chinese markets which led to Chinese share prices losing nearly 30% of their value from their June peak. Hedge funds in Europe and Asia were not unaffected by these events in their respective regions; Europe-focused hedge funds made a loss of 1.00% in June, the height of the Greek crisis, and similarly, Asia-Pacific-focused funds lost 1.66% in the same month. With Greece accepting new austerity measures in July and the Chinese government intervening to protect its markets, industry participants in these sectors will be hoping the increased stability will lead to opportunities for hedge funds to deliver better returns in Q3. Despite the uncertainty within Europe, Preqin noted an increased proportion of funds being launched from within the region over Q2 2015 (page 7) as compared to the first quarter of the year. Preqin’s Hedge Fund Online is an indispensable tool for all firms looking to market funds, develop new business or find new partners in the coming months. Behind every data point in this report is a wealth of individual firm- and fund-level data available on Hedge Fund Online. We hope you find this report useful, and welcome any feedback you may have. For more information, please visit www.preqin.com or contact [email protected].

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Contents Performance Update: Q2 2015

3

Performance Benchmarks: Q2 2015

4

Hedge Fund Launches in Q2 2015

5

Largest Hedge Fund and Fund of Hedge Funds Managers by AUM

6

Fund Searches Initiated in Q2 2015

7

All rights reserved. The entire contents of Preqin Quarterly Update: Hedge Funds, Q2 2015 are the Copyright of Preqin Ltd. No part of this publication or any information contained in it may be copied, transmitted by any electronic means, or stored in any electronic or other data storage medium, or printed or published in any document, report or publication, without the express prior written approval of Preqin Ltd. The information presented in Preqin Quarterly Update: Hedge Funds, Q2 2015 is for information purposes only and does not constitute and should not be construed as a solicitation or other offer, or recommendation to acquire or dispose of any investment or to engage in any other transaction, or as advice of any nature whatsoever. If the reader seeks advice rather than information then he should seek an independent financial advisor and hereby agrees that he will not hold Preqin Ltd. responsible in law or equity for any decisions of whatever nature the reader makes or refrains from making following its use of Preqin Quarterly Update: Hedge Funds, Q2 2015. While reasonable efforts have been made to obtain information from sources that are believed to be accurate, and to confirm the accuracy of such information wherever possible, Preqin Ltd. does not make any representation or warranty that the information or opinions contained in Preqin Quarterly Update: Hedge Funds, Q2 2015 are accurate, reliable, up-to-date or complete. Although every reasonable effort has been made to ensure the accuracy of this publication Preqin Ltd. does not accept any responsibility for any errors or omissions within Preqin Quarterly Update: Hedge Funds, Q2 2015 or for any expense or other loss alleged to have arisen in any way with a reader’s use of this publication.

2

© 2015 Preqin Ltd. / www.preqin.com



Performance Update: Q2 2015 Q2 2015 was a volatile quarter for hedge funds but still broadly positive with hedge funds (+1.45%) outperforming the S&P 500 (-0.03%) for the second consecutive quarter. CTAs, however, had a difficult quarter, returning -3.92% for Q2 2015 as many trends reversed during the quarter along with the ongoing negotiations regarding Greek debt and extraordinary volatility in the Chinese public markets, leading to many CTAs giving back much of their strong performance generated through Q1 2015. Equity strategies produced the highest returns of Q2 2015 (+2.27%) despite being in the red during June (-0.90%) with the quarterly returns being driven largely by returns generated during April (+2.10%) and May (+1.06%). Funds employing a relative value strategy were the only fund strategy generating positive average returns during June returning 0.17% for the month and 1.88% for the quarter. Fig. 1: Net Returns of Hedge Funds by Structure, Q2 2015* 2%

Fig. 3 shows that funds focused on the Asia-Pacific region have generated the highest returns through the quarter returning 5.14%. The first two months of the quarter, saw hedge funds focusing on the region capitalize on the surge in Chinese equity markets following the ongoing financial reforms implemented by the Chinese government. After a peak in mid-June, Chinese equities experienced large falls, with Asia-Pacific-focused hedge funds experiencing a correspondingly difficult month returning -1.82%. However, with the Shanghai stock index falling over 16% and the Hang-Seng Index falling almost 5% during June, hedge fund managers in the region were able to limit the losses to their investors during the final month of the quarter.

Fig. 2: Net Returns of Single-Manager Hedge Funds by Strategy* Apr-15 Equity Strategies 2.10%

1.45%

1%

Net Returns

0%

Multi-Strategy 1.09%

-0.08% -0.55%

-1%

Relative Value 0.85%

-2%

May-15 Equity Strategies 1.06% Relative Value 0.83%

Jun-15 Relative Value 0.17% Credit Strategies -0.22%

Q2 2015 Equity Strategies 2.27% Relative Value 1.88%

Event Driven 0.82%

Event Driven -0.45%

Event Driven 1.12%

Equity Strategies -0.90% Macro Strategies -1.06%

Credit Strategies 1.04%

Event Driven Multi-Strategy 0.75% 0.58%

-3% -4%

-3.92%

-5% Hedge Funds

Funds of Hedge Funds

UCITS Hedge Funds

CTAs

Source: Preqin Hedge Fund Analyst

Credit Strategies 0.70% Macro Strategies -0.15%

Credit Strategies 0.56% Macro Strategies 0.49%

CTAs -1.42%

CTAs 0.03%

Q1 2015 CTAs 4.41% Multi-Strategy 3.31% Equity Strategies 3.27% Macro Strategies 3.07%

Multi-Strategy Event Driven 0.00% 2.26%

Multi-Strategy -1.64%

Macro Strategies -0.72%

CTAs -2.58%

CTAs -3.92%

Relative Value 2.11% Credit Strategies 1.98%


Fig. 3: Cumulative Net Returns of Hedge Funds by Geographic Focus, Q2 2015

Fig. 4: Performance of Hedge Funds vs. S&P 500

8%

16%

7%

14% 12%

May-15

North America Developed Markets

Europe Emerging Markets

Asia-Pacific


0%

0.62% 0.23%

1.45% 0.42% -0.03%

-0.19% -2%

5-Year Annualized

Apr-15 -1%

2%

S&P 500

3-Year Annualized

0%

Hedge Funds

2.88%

2-Year Annualized

1%

1.18% 0.77% -0.09% Jun-15

5.34% 4.82%

4.39%

4%

1-Year

1.96%

6%

Q2 2015

2%

8.41%

8%

Q1 2015

3%

8.25%

Q4 2014

4%

9.29%

10%

Q3 2014

5.18%

5%

Net Returns

6%

Net Returns

14.91% 14.92% 13.31%


*Please note, all performance information includes preliminary data for June 2015 based upon returns reported to Preqin in early July 2015. Although stated trends and comparisons are not expected to alter significantly, final benchmark values are subject to change.


3



Performance Benchmarks: Q2 2015 Fig. 1: Summary of Preliminary June 2015 Performance Benchmarks (Net Return, %)* Benchmark Name Hedge Funds

Apr-15

May-15

Jun-15

Q2 2015

Annualized 3 Years

1.35

0.85

-0.75

1.45

9.29

HF - Equity Strategies

2.10

1.06

-0.90

2.27

10.96

HF - Event Driven Strategies

0.75

0.82

-0.45

1.12

9.83

HF - Relative Value

0.85

0.83

0.17

1.88

7.11

HF - Macro Strategies

-0.15

0.49

-1.06

-0.72

5.24

HF - Multi-Strategy

1.09

0.58

-1.64

0.00

7.47

HF - Credit Strategies

0.70

0.56

-0.22

1.04

9.12

Activist

3.60

1.66

-1.39

3.85

13.10

Volatility

0.63

0.58

0.56

1.78

6.15

Discretionary

1.30

0.92

-0.38

1.84

11.90

Systematic

0.54

1.12

-0.18

1.47

7.41

HF - North America

0.29

0.99

-0.10

1.19

11.31

HF - Europe

0.18

0.79

-1.06

-0.11

8.89

HF - Asia-Pacific

5.22

1.78

-1.82

5.14

13.88

HF - Developed Markets

-0.24

0.82

0.19

0.77

9.43

HF - Emerging Markets

3.15

-0.04

-1.15

1.92

7.93

HF - USD

1.64

0.81

-0.83

1.62

9.38

HF - EUR

0.32

0.66

-0.83

0.14

5.71

HF - GBP

0.60

0.55

-1.03

0.10

3.24

HF - JPY

1.31

1.81

0.09

3.23

15.91

HF - BRL

1.56

0.41

1.41

3.43

8.08

0.25

0.90

-1.22

-0.08

6.39

Funds of Hedge Funds FOHF - Equity Strategies

0.97

1.28

-1.38

0.85

8.36

FOHF - Macro Strategies

-0.81

0.38

-1.54

-0.99

4.77

FOHF - Multi-Strategy

0.02

0.90

-0.80

0.11

6.30

Funds of CTAs

-3.90

-0.84

-6.95

-11.32

0.32

FOHF - USD

0.41

1.03

-1.08

0.35

6.18

0.20

0.93

-1.45

-0.34

4.96

Alternative Mutual Funds

FOHF - EUR

-0.23

0.65

-1.40

-1.00

6.00

UCITS

0.81

0.41

-1.75

-0.55

5.05

1.54

0.82

-2.03

0.28

8.23

UCITS - Equity Strategies UCITS - Relative Value

0.53

0.17

-0.42

0.28

2.77

UCITS - Macro Strategies

-0.28

-0.06

-2.04

-2.36

1.88

UCITS - USD

1.66

0.31

-1.93

-0.01

4.74

UCITS - EUR

0.41

0.54

-1.74

-0.80

5.14

CTAs

-1.42

0.03

-2.58

-3.92

4.38

Discretionary

-0.50

0.35

-0.53

-0.68

3.56

Systematic

-1.86

-0.37

-3.56

-5.70

4.26

CTA - USD

-1.63

0.10

-2.51

-4.00

4.22

CTA - EUR

-1.67

-0.60

-3.66

-5.83

2.94

Source: Preqin Hedge Fund Analyst *Please note, all performance information includes preliminary data for June 2015 based upon returns reported to Preqin in early July 2015. Although stated trends and comparisons are not expected to alter significantly, final benchmark values are subject to change.

4




Hedge Fund Launches in Q2 2015 Single-manager hedge funds dominated launch activity over the quarter, accounting for 79% of the 116 hedge fund launches added to Preqin’s Hedge Fund Analyst in Q2 2015 (Fig. 1). Alternative mutual fund structures saw a decline in terms of their prominence in fund launches, from representing 13% of fund launches in Q1 2015 to just 3% of hedge fund launches in Q2 2015.

59% of all fund launches in the second quarter (Fig. 3). The second quarter witnessed smaller proportions of funds launched with a focus on North America and emerging markets than the previous quarter, representing 17% and 5% of fund launches respectively.

Global-focused funds have recovered from their low level of fund launches, relative to previous quarters, in Q1 2015 to represent

Fig. 4 shows a larger proportion of relative value strategies launches (12%) in the second quarter compared to Q1 (5%). This represents the highest level of relative value strategies fund launches, as a proportion of all fund launches, since Q4 2010. The strategy has had a strong 18-month performance record with only two down months in the period according to the Preqin All-Relative Value Strategies Hedge Fund benchmark. Equity and credit strategies funds have seen the largest decrease in activity in Q2 2015 (39% and 9% of hedge fund launches respectively), as macro and event driven strategies bounced back from a slow start to the year to represent 27% and 6% of fund launches in the second quarter this year respectively.

Fig. 1: Breakdown of Hedge Fund Launches in Q2 2015 by Structure

Fig. 2: Breakdown of Hedge Fund Launches in Q2 2015 by Manager Location

Hedge fund managers based in Europe have had an active quarter, experiencing an increase of six percentage points in the proportion of funds launched compared with Q1 2015, when European managers represented 16% of all hedge fund launches (Fig. 2). Launch activity by Asia-Pacific-based managers also increased in Q2 2015, accounting for four percentage points more than the previous quarter (9% vs. 5%).

6%

3% 3%

9%

2%

Hedge Fund

9%

North America

UCITS 22%

Europe

CTA

Asia-Pacific

Alternative Mutual Fund

Rest of World

67%

Fund of Hedge Funds 79%


Fig. 3: Breakdown of Hedge Fund Launches by Geographic Focus, Q3 2014 - Q2 2015


Fig. 4: Breakdown of Hedge Fund Launches by Core Strategy, Q3 2014 - Q2 2015 100%

100%

80%

17% 5% 8%

70% 60%

9%

9%

10%

10%

9%

5%

6%

7%

10%

90%

Asia-Pacific 18%

20%

24%

17% Emerging Markets

50%

Europe

40%

North America

30% 50%

58%

51%

59%

Global

20% 10%

Proportion of Funds Launched

Proportion of Funds Launched

90%

80% 70% 60%

2% 12% 6% 8% 5% 23%

1% 5% 10%

1% 7% 5%

6% 3%

17% 3%

7% 12% 9% 6%

28% 22% 27%

50% 40%

46%

47%

46%

Relative Value Strategies Credit Strategies

Macro Strategies 39% Equity Strategies

10%

0%

Multi-Strategy

Event Driven Strategies

30% 20%

Niche Strategies

0%

Q3 2014

Q4 2014

Q1 2015

Q2 2015



Q3 2014

Q4 2014

Q1 2015

Q2 2015


5



Largest Hedge Fund and Fund of Hedge Funds Managers by Assets under Management Fig. 1: Top 20 Hedge Fund Managers by Assets under Management Manager

Location

Year Established

Assets under Management

Bridgewater Associates

US

1975

$169.5bn as at 31 March 2015

AQR Capital Management

US

1998

$64.9bn as at 31 December 2014

Man Investments

UK

1983

$50.0bn as at 31 March 2015

Och-Ziff Capital Management

US

1994

$47.3bn as at 1 April 2015

Standard Life Investments

UK

2006


Viking Global Investors

US

1999


BlackRock Alternative Investors

US

2005


Winton Capital Management

UK

1997


Lone Pine Capital

US

1997


Baupost Group

US

1982


Millennium Management

US

1989


Adage Capital Management

US

2001


US

1982


Jersey

2002


Renaissance Technologies Brevan Howard Capital Management D.E. Shaw & Co.

US

1988


Davidson Kempner Capital Management

US

1990


Elliott Management

US

1977


Citadel Advisors

US

1990


GAM

UK

1983


King Street Capital Management

US

1995

$21.5bn as at 01 January 2015 Source: Preqin Hedge Fund Analyst

Fig. 2: Top 20 Fund of Hedge Fund Managers by Assets under Management Manager

Location

Year Established

Assets under Management

Blackstone Alternative Asset Management

US

1990


A&Q Hedge Fund Solutions (UBS)

US

2000


Goldman Sachs Asset Management

US

1997


Grosvenor Capital Management

US

1971


HSBC Alternative Investments

UK

1994


Morgan Stanley Alternative Investment Partners

US

2000


BlackRock Alternative Advisors

US

1995


Permal Group

US

1971


Mesirow Advanced Strategies

US

1983


SkyBridge Capital

US

2005


J.P. Morgan Alternative Asset Management

US

1995


EnTrust Capital

US

1997


Arden Asset Management

US

1993


Rock Creek Group

US

2001


KKR Prisma

US

2004


Financial Risk Management (FRM)

UK

1991


K2 Advisors

US

1994


Aetos Capital UBP Alternative Investments Credit Suisse Alternative Funds Solutions

US

2001


Switzerland

1969


US

n/a

$9.4bn as at 31 March 2015 Source: Preqin Hedge Fund Analyst

6




Fund Searches Initiated in Q2 2015 similar to that of Q1 2015, there has been a smaller proportion of searches issued by fund of hedge funds managers themselves in Q2 than in Q1 2015. Approximately 44% of searches initiated this quarter originate from these investors, compared with 51% of searches in Q1 (Fig. 4). In contrast, Q2 has witnessed greater proportions of searches issued by asset managers (8%), insurance companies (8%), private sector pension funds (7%) and endowment plans (6%) compared to mandates issued by these same investor types in Q1 2015.

Direct investments were once again the most commonly sought investment approach for institutions that initiated hedge fund searches in Q2 (Fig. 3). Approximately 80% of investors searching for direct investments are looking for commingled structures, while 18% have earmarked the enhanced liquid and transparent nature of managed accounts as another route to direct investment over the next 12 months.

Data Source: The Future Fund Searches and Mandates feature on Preqin’s Hedge Fund Investor Profiles is the perfect tool to pinpoint those institutions that are seeking new hedge funds for investment now. For more information, please visit: www.preqin.com/hfip

Although the proportion (15%) of Q2 searches seeking investment in commingled fund of hedge funds structures remains fairly

28% 20%

20%

10%

9%

8%

8%

Special Situations

30%

20%

5%

32%

Equity Market Neutral

0% Long/Short Equity

Rest of World

30%

30%

Relative Value Arbitrage

Asia-Pacific

40%

Distressed

43%

50%

Long/Short Credit

Europe

61%

Managed Futures/CTA

North America

60%

Multi-Strategy

21%

70%

Macro

3%

Fig 2: Hedge Fund Strategies Sought by Investors over the Next 12 Months, Searches Issued in Q2 2015 Proportion of Fund Searches

Fig. 1: Breakdown of Hedge Fund Searches Issued in Q2 2015 by Investor Location

Event Driven

In Q2 2015, 90 new fund searches were added to Preqin’s Future Fund Searches and Mandates module. As shown in Fig. 2, the largest proportion (61%) of investors that issued searches over Q2 are searching for long/short equity strategies funds over the next 12 months. Event driven and macro funds are the next most commonly sought strategies, each featuring in 30% of Q2 fund searches. This represents a significant increase in interest in event driven strategies compared with Q1, when 17% of searches issued included a preference for event driven investments.

Strategy Source: Preqin Hedge Fund Investor Profiles

90% 80%

Fig. 4: Breakdown of Fund Searches Initiated by Investor Type, Q3 2014 - Q2 2015 100%

80%

90%

60% 50% 40% 30% 16%

15%

10%

5% Managed Account - FoHF

Commingled FoHF

UCITS

Managed Account - Direct

0%

1% Alternative Mutual Fund

18%

20%

Structure Source: Preqin Hedge Fund Investor Profiles


Proportion of Fund Searches

70%

Commingled Direct

Proportion of Fund Searches

Fig. 3: Hedge Fund Structures Sought by Investors over the Next 12 Months, Searches Issued in Q2 2015

Source: Preqin Hedge Fund Investor Profiles

80%

7% 1% 10% 1% 2%

70%

5% 3% 11% 6% 4%

8% 3%

6% 2% 8%

12%

7%

3% 3%

8%

Wealth Managers Public Pension Funds Private Sector Pension Funds Insurance Companies

60% 50%

Other

59%

40%

52%

51%

1%

4% 9% 2% 5%

44%

Fund of Hedge Funds Managers Foundations

3% 9%

Family Offices

30% 20% 10% 0%

2% 8% 4% 6%

13% 1% 3%

6% 8%

Endowment Plans Asset Managers

Q3 2014 Q4 2014 Q1 2015 Q2 2015

Source: Preqin Hedge Fund Investor Profiles

7

The Q2 2015 Preqin Quarterly Update: Hedge Funds

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