Two hedge funds tell the up and down story for the industry in 2017.
Equity fund Coatue Qualified Partners soared 24 percent on its tech bets while the Caxton Global macro fund dropped 13.4 percent, according to an investor document and people familiar with the matter. The equity and macro strategies served as bookends for the industry, which delivered a lukewarm overall performance for the year.
Hedge funds last year returned 6.5 percent on average on an asset-weighted basis, the best annual performance since 2013, according to a Hedge Fund Research report Monday. That good news has been overshadowed by the broader stock market rally and flood of money into passive products by investors no longer willing to pay high hedge fund fees.
“At this point, it’s basically a marathon and they’re pretty tired,” said Joe Marenda, a hedge fund specialist at Cambridge Associates. “It was a year of fairly steady Eddie gains — brick by brick, building their track record for the year.”
Equity strategies outran all others, jumping 12 percent last year as they rode the wave of the rising stock market. Renaissance Technologies’ Institutional Equities Fund gained 15.2 percent in 2017, despite its 2.3 percent dip in December, according to investor documents.
While funds with equity strategies served as a bright spot, many of them trailed the markets in which they traded. The S&P 500 Index rocketed almost 22 percent last year, supported by steady economic growth and optimism for President Donald Trump’s tax overhaul.
Macro managers had little to be optimistic about. Low global interest rates and volatility lashed their funds, which rose 4 percent on average last year, the worst-performing strategy. The muted market environment took a toll on some macro titans: Paul Tudor Jones closed his Discretionary Macro Fund and John Burbank shut his flagship macro fund.
Hedge funds may not fare any better this year, said Marenda, who doesn’t expect big changes in the market environment. Investors will continue to compete for a relatively small number of publicly-traded companies as some firms choose to stay private. Higher interest rates may offer the clearest opportunity for portfolio managers, but that doesn’t mean that macro funds will bounce back.
“In discretionary macro, I would expect the large funds to continue to have a difficult time,” he said.