AIMA, Preqin: Hedge funds surpass bonds, stocks in risk-adjusted returns | Mnuchin: IRS to prevent hedge fund avoidance of carried-interest taxes | Survey: Investors' hopes for hedge fund returns hold steady in 2018
February 15, 2018
News for the global alternative investment industry
AIMA and Preqin research examining Sharpe ratio data found that hedge funds have stronger risk-adjusted returns on a short-term and long-term basis than equities and bonds do, with hedge funds achieving about $250 billion in gains during 2017. "This new research makes an important contribution to the debate about hedge fund performance over the long term since it shows that hedge funds have produced consistent and competitive returns for the last 10 years," said AIMA CEO Jack Inglis.
The IRS will no longer allow hedge fund managers to reduce taxes by getting around limits on carried interest, US Treasury Secretary Steven Mnuchin said. "That's something that we believe we have the authority to do under the existing code that left to certain discretion to me as secretary and the IRS," Mnuchin told the Senate Finance Committee on Wednesday.
Deutsche Bank's 2018 Alternative Investment Survey found that hedge fund investors expect returns of 8.2%, holding steady with their expectations in 2017. The survey also found that demand is likely to rise further for event-driven funds, which had inflows of $6.9 billion in the fourth quarter of 2017.
Eurekahedge's Hedge Fund Index shows an increase of 2.26% in returns in January, with the CTA/Managed Futures Hedge Funds Index having the strongest gains, at 3.84%. The turbulence that hit markets this month, however, could cause losses for short-volatility strategies.
The Trump administration has proposed levying fees on participants in the derivatives market to increase the Commodity Futures Trading Commission's budget. However, the industry and CFTC leaders oppose the idea.
The Financial Industry Regulatory Authority is investigating whether traders have manipulated the Cboe Volatility Index to influence prices of VIX-based derivatives, sources say. FINRA would refer questionable trading patterns to Cboe Global Markets, which would notify the Securities and Exchange Commission if necessary.
A report from the UK Financial Conduct Authority says high-frequency traders are applying insufficient protections to curb excessively sharp market movements, and it also says some firms couldn't show their systems have been adequately tested as required by the EU's revised Markets in Financial Instruments Directive. AIMA said it plans to study the report before commenting on it.
Cryptocurrencies should be more tightly regulated internationally to curb possible money laundering and financing of terrorist activities, Sigal Mandelker, undersecretary for the Treasury Department's Office of Terrorism and Financial Intelligence, said at SIFMA's Anti-Money Laundering & Financial Crimes Conference. Mandelker stressed "the importance of the international community coming together to combat bad actors and protect financial systems, markets, and institutions from abuse."
China's establishment of the Financial Stability and Development Committee, which oversees and aims to unify the four major regulators, appears to be improving cooperation, with all four agencies agreeing to adopt a set of rules on bonds. However, while some market participants hail improvement in the regulatory apparatus, others expect challenges in detailed implementation of rules.
AIMA has published a GDPR Implementation Guide to help members understand and comply with new EU-wide rules that come into effect on May 25. The General Data Protection Regulation replaces the EU Data Protection Directive and represents the biggest change in EU data privacy law in a generation, and because of the GDPR's extraterritorial scope, AIMA's guide is relevant to alternative investment managers whether they are based in the EU or elsewhere. Read more.
The Alternative Credit Council, the private credit affiliate of AIMA, has stepped up its activities in Asia-Pacific for members operating private credit strategies in the region. As part of the expanded activity, a new APAC Committee of the ACC has been formed. Read more.