Sunday, January 21, 2018

Hedge Funds Are Making Money From Bets on "Exotic" Markets

These boys don't know the meaning of the word. Some slow news day remind me to regale wary yet intrigued reader with a couple tales of the truly exotic.

From Bloomberg, Jan. 14:
  • AHL Evolution, Systematica’s fund beat other trend followers
  • Florin Court up after switching focus; Aspect, GAM join fray
Cheese, sunflower seeds and rough rice sounds like an unappetizing mix -- unless you happen to be a hedge-fund manager.

A handful of computer-driven funds had a bumper 2017 by betting on the future price of such “exotic” assets. The success of this type of managed futures strategy, the industry’s term for trend-following, is now drawing new entrants despite the risks created by the low levels of liquidity.
Hedge funds returns have been battered by central bank monetary policies that have made it more difficult for them to outperform the market in everything from bonds to equity futures. That’s prompting some trend followers to move into less crowded markets such as over-the-counter securities, electricity and coal.

Man Group Plc’s AHL Evolution fund, one of the first to enter this niche market, had a return of 18 percent last year. The Systematica Alternative Markets fund run by Leda Braga fared even better, posting gains of 24 percent, according to a person with knowledge of the matter. By contrast, funds that speculated on more mainstream assets and indexes had average returns of just 1.9 percent.

“Exotic markets provide an opportunity to take bets away from the usual macro risk factors," said Douglas Greenig, the founder of Florin Court Capital and a former chief risk officer of Man Group’s AHL unit. “Sharpening our focus to exotics just made sense."

Quick Turnaround
In April, Florin Court switched its fund’s strategy to focus entirely on exotic assets. That enabled the London-based hedge fund to turn a first-quarter loss of 9 percent into a full-year gain of 7.6 percent, according to a person with knowledge of the matter....MORE