Renaissance, Viking, Citadel Gain in July Hedge Fund Rebound

  • Hedge funds post fifth straight increase as stocks rally
  • Renaissance Institutional Equities Fund is up 17% this year

Jim Simons’s $32 billion Renaissance Technologies, Andreas Halvorsen’s Viking Global Investors and Ken Griffin’s Citadel posted gains in July as the hedge fund industry extended its rebound from the worst start to a year on record.

Renaissance’s Institutional Equities Fund, a quantitative strategy that has been among the top performers this year, rose 3.1 percent, boosting its year-to-date return to 17 percent, according to a person familiar with the matter. Viking Global, the $30 billion hedge fund that wagers on and against stocks, gained 3 percent in July, paring this year’s losses to 3.1 percent. Citadel’s flagship Wellington hedge fund advanced 2.7 percent last month, trimming 2016’s losses to 1.8 percent, according to a person with knowledge of the matter.

Hedge funds on average rose 1.7 percent last month, according to Chicago-based Hedge Fund Research Inc., the fifth straight month of gains. The post-Brexit recovery in equity and credit markets, a surge in gold, and a decline in global bond yields helped the industry bounce back from a 2.6 percent loss in the first two months of the year.

In a year that saw the nearly $3 trillion hedge fund industry initially plagued by shuttered funds, outflows and criticism from hedge fund skeptics, most managers stayed away from risk-taking in June as U.K. citizens voted to leave the European Union. As markets recovered Brexit losses, equity-focused hedge funds were the top performers in July.

The Citadel Tactical Trading fund rose 3.2 percent last month bringing this year’s decline to 2.1 percent. The firm’s Global Equities fund was up 2.1 percent in July, and is down 3.8 percent so far this year, the person said.

The main fund at David Einhorn’s Greenlight Capital rose 4.8 percent in July, bringing its 2016 return to 5.7 percent, according to an e-mail sent to investors that was obtained by Bloomberg.

Peter Schoenfeld’s $2 billion event-driven hedge fund firm returned 2.8 percent in July in its PSAM WorldArb Master Fund, and 7.4 percent so far this year.

Event-Driven Funds

After lagging behind the industry average in the past two years, event-driven hedge funds lead returns among strategies so far in 2016, with a 4.4 percent gain, according to HFR. The strategy has been bolstered as equities recovered while credit and arbitrage deal spreads tightened.

The S&P 500 Index is up almost 7 percent in 2016 and last week closed at a record for the 14th time this year. Stocks have advanced in five of the last six weeks, pushed up by better-than-forecast earnings at technology companies and the two strongest months for U.S. payroll growth of 2016. At the same time, earnings have shown few signs of reversing a string of five quarterly declines.

Hedge funds’ current positioning reflects a low conviction in the equity rally, Mark Connors, an analyst at Credit Suisse, wrote in an Aug. 3 note.

For the year, hedge funds are now up 3 percent on a fund-weighted basis, according to HFR. On an asset-weighted basis, the industry is still 0.2 percent below where it started the year.

Even as hedge funds rebound from the rough footing managers faced earlier this year, they’re not out of the woods, says Morgan Creek Capital Management’s Mark Yusko. As investors stung by underperformance move assets into low-cost index funds, the dominance of passive investing is likely to push against hedge funds and affect performance.

Passive Investing

“The same thing happens every time we get one of these big moves in passive,” Yusko, who is chief executive officer and chief investment officer at Chapel Hill, North Carolina-based Morgan Creek, said in an interview Wednesday on Bloomberg Television. “Passive used to be 10 percent of assets -- now it’s 40,” he said. “People are going to really jump on this bandwagon of hating hedge funds.”

Some of the industry’s most recognized names that bet on macroeconomic trends are still in the red. Brevan Howard Asset Management’s main hedge fund fell about 1.1 percent in July, taking losses for the year to 2.25 percent, according to a person with knowledge of the matter. Paul Tudor Jones’s flagship BVI Global Fund lost 2.5 percent this year through July 22, according to an investor report. A newer share class of that fund has declined 1.8 percent.

Impala Asset Management, which invests in commodities and resources, metals and mining, and energy and transportation, saw its $1.32 billion Impala Fund advance 6.34 percent in July, for a 15 percent advance this year.

Officials for the firms declined to comment on performance.

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