Hedge funds posted their best returns in a decade in 2020 to end the year 11.6% ahead, the latest Hedge Fund Research Index Fund Weighted Composite index data show. The figure compares to 10.5% in 2019 and represents a turnaround from Q1 this year when the industry gauge was 11.6% down.
Researchers note hedge funds are becoming wary of a successful economic recovery in the US. Funds are switching to stay-at-home trades, such as online firms that benefit from coronavirus lockdowns, from travel, leisure and retail stocks.
Hedge funds bets on higher US borrowing costs under a Biden presidency are paying off with 10-year yields currently running at 1.076% in expectation of rising inflation and growth following the Georgia senate run-off. But while the development of new vaccines against COVID-19 has driven sentiment, the risk remains that the expected economic rebound will fall flat.
Investors are calling on alternative investment managers to engage more fully with environmental, social and corporate governance issues such as racial inclusion, a new survey of the secondary market finds. Some 63% of institutional investors said they expect private equity firms to engage on diversity within both their own firms and their portfolio companies, while 37% noted the slow pace of change.
Interest from institutional investors drove uptake of crypto derivatives in 2020, with further growth expected in 2021. Macroeconomic factors, such as governments' responses to the coronavirus crisis, also drove demand as cryptocurrencies became increasingly used to hedge inflation.
Strategic climate investment opportunity? With stronger government policies and improvements in low-carbon technologies in place, large-scale change is likely in several business sectors. This may create compelling opportunities for investors to pursue more climate-aligned portfolios.
The European Securities and Markets Authority says that due to the close of the Brexit transition period, it has withdrawn the registration of four UK trade repositories. ESMA says that EU derivatives and securities financing transactions subject to the European Market Infrastructure Regulation must now be reported to trade repositories in the EU.
As the European Commission prepares to review the revised Markets in Financial Instruments Directive, Hugo Bromley contends several questions will arise and the reaction of the UK Financial Conduct Authority could be crucial but is yet unknown. "It is likely that there will be a detailed examination of Mifid II's requirements in the new year, but the FCA are keeping their cards much closer to their chest than their European counterparts," he writes.
The UK's departure from the EU is an event as momentous for London as the "Big Bang" stock market deregulation in 1986, writes Elisa Martinuzzi. More than €6 billion of share trading moved smoothly from London to EU venues on the first day of post-Brexit trading Monday, which suggests London's lucrative role as a market maker and derivatives hub could be next to come under threat.