The hedge fund industry just can’t seem to catch a break this year. Performance is abysmal and in today’s world of low-cost ETFs and tracker funds, the hedge fund industry’s antiquated 2/20 fee structure is attracting plenty of negative publicity.
The combination of high costs and low returns isn’t doing the sector’s reputation any good and investors are withdrawing their cash from funds in droves. Indeed, Tony James, president of private-equity giant Blackstone, told Bloomberg this week that he expects one-quarter of all current assets in hedge funds to be yanked out in the next year.
However, there’s one section of the hedge fund world that seems to be doing better than others.
After years of haemorrhaging clients and cash, commodities hedge funds now appear to be back in vogue.
According to Bloomberg, around $5 billion has flowed into commodities hedge funds so far this year. In fact, the first quarter of 2016 saw the biggest inflows into commodity-focused funds since 2009.
Figures from eVestment show that 290 commodities-focused hedge funds managed $70.5 billion at the end of March, up from a near six-year low of $65.4 billion at the end of last year but still far below the industry’s five-year peak of $85 billion in AUM printed at the end of 2012. Average returns were 6% in the first four months of the year, after a loss of 10.4% last year.
It seems that the recent gains in oil are behind this sudden spark in commodity fund interest.
Commodities hedge funds: New breed
Commodity money managers suffered outflows totalling $6.2 billion from 2012 through 2014, and these outflows forced many commodities hedge funds to close their doors for good. But now a number of new commodities hedge funds are looking for investors. Bloomberg gives the example of former Brevan Howard and Moore Capital money manager Luke Sadrian, who is preparing to open a commodities fund in London in the second half of 2016.
Meanwhile, Schroders started a fund with its own cash last month to bet on the energy, agriculture and metal sectors. And the firm is currently raising capital from investors to complement its existing offering.
These new entrants to the commodities hedge funds space may find it hard to succeed than anticipated. Indeed, there are now many funds operating in this asset class and most of them are extremely volatile.
The collapse in commodity prices last year caught even the most experienced investors off guard with legendary oil trader Andy Hall’s commodities-focused hedge fund suffering a 35% loss in 2015. A quote published in Bloomberg’s weekly hedge fund brief from Michele Gesualdi, the London-based chief investment officer for hedge-fund investing at Kairos Partners, who oversees $2.5 billion and has just started reinvesting in commodity funds, sums up the sector’s cutthroat nature nicely:
“Funds that survived a significant fall in the oil price and in most commodities are clearly real hedge funds.”
SOURCE: Value Walk
