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European Hedge Funds Fall Behind U.S. Peers
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Loading...The Continent’s $545 billion industry, the bulk of which resides in London’s expensive Mayfair district, is finding it tough to make money in lackluster stock markets and against the backdrop of central-bank stimulus.
Some of its biggest names, such as Lansdowne Partners (UK) LLP and Winton Capital Management Ltd., are in the red since the start of last year.
Many funds are badly lagging behind their U.S. peers, which have broadly profited from a surge in stocks and bond yields following the election of President Donald Trump.
“European trade ideas have not been doing so well,” said Pablo Urreta, head of research at Sussex Partners, which advises institutional clients on hedge-fund investments.
While managers don’t always invest in their home market, many U.S.-based traders have benefited from a 16.7% total return from the S&P 500 since the start of last year, compared with a 4.3% gain from the Stoxx Europe 600 in local-currency terms.
Mr. Urreta pointed to “challenging markets and a challenging environment for these managers to execute trades and take on risk” in Europe.
North America-based managers produced a return of 6.9% in 2016, according to figures produced by Chicago-based data group HFR for The Wall Street Journal.
That compares with a 1.2% return for managers based in the U.K.—the center of the European industry—and a 1.3% gain from managers based across Europe as a whole.
Last month, European managers made back some ground, chalking up a 1.2% gain compared with a 1.1% gain from North American managers.
The figures nevertheless point to the struggles of some of Europe’s biggest stars.
Among high-profile names in the red are Lansdowne Partners, which manages around $19 billion and is based close to London’s expensive Berkeley Square. Its Developed Markets fund, run by Peter Davies and Jonathon Regis, lost 15.2% last year and a further 2.9% in January, according to numbers sent to investors, after wrong-way bets on commodity stocks and telecom companies.
“Returns have been very disappointing after a strong few years meaning we must begin by apologizing to our clients for the strain this has caused,” wrote Messrs. Davies and Regis in their latest letter to clients, reviewed by the Journal. A spokesman for Lansdowne declined to comment.
Winton Capital, one of the world’s biggest computer-driven traders, which runs more than $30 billion in assets, lost 3% last year, and was up 1.2% this year to Feb. 14.
Brevan Howard, headed by Switzerland-based billionaire Alan Howard, gained 3% last year after two years of losses. It lost 1.5% last month, according to a letter to investors. A spokesman declined to comment.
Hedge funds globally have suffered in recent years as trillions of dollars of central-bank stimulus has pushed many assets in the same direction. That makes it hard for managers who try to discern cheap securities from expensive ones.
U.S. hedge funds have been starting to benefit as U.S. stocks begin to move in different directions. The election of Mr. Trump has pushed an index of Economic Policy Uncertainty compiled by Goldman Sachs Group Inc. up sharply to 142, well above the long-run average of 97, according to a research note this month. Dispersion among S&P 500 stocks—which funds like to trade—tends to rise with greater uncertainty over policy, the bank said.
Because of greater dispersion in stock prices, “the U.S. might have slightly better opportunities than Europe” for equity long-short funds, said Karim Leguel, EMEA head of hedge-fund solutions at J.P. Morgan Alternative Asset Management.
Hedge funds have historically been expected to make money based on skill, regardless of market moves. But they tend to do well when stocks and other asset prices rise, highlighting how dependent many are on bull markets.
The U.S. also tends to have more funds specializing in sectors that have performed well, such as technology, said Akshay Krishnan, head of macro and trading strategies at Stenham Advisors, which invests in hedge funds.
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