Investment

Analysis Shows Hedge Fund Industry is Booming

Published

2 years ago

March 22, 2022

Investors King Contributor

Highlights

67% of all hedge funds globally and 70% of all new fund launches are US-based
Crypto hedge funds appear for the first time in the top 10 of hedge fund strategies
22% of hedge funds apply a purely quantitative investment process and ca. 2% use artificial intelligence

An in-depth analysis compiled by quant technologies provider SigTech, reports that after continued expansion in 2021, there are currently 27,255 active hedge funds globally.

Geographical breakdown

The hedge fund industry remains dominated by the US market, which is home to 67% of all hedge funds globally, followed by 9% in the UK, 4% in China, and ca. 2% each in Brazil, Canada and Switzerland.

When it comes to the cities that have the largest concentration of hedge funds, unsurprisingly New York is the clear leader with nearly 7,000 funds (25.0% of total), followed by London with over 2,000 (8.2%), and Hong Kong with nearly 1,000 (3.6%).

Top 10 cities No. of hedge funds % of total hedge funds

New York 6,801 25.0%

London 2,230 8.2%

Hong Kong 978 3.6%

Boston 931 3.4%

Chicago 786 2.9%

Greenwich (USA) 682 2.5%

San Francisco 677 2.5%

Los Angeles 482 1.8%

São Paulo 448 1.6%

Toronto 395 1.4%

Daniel Leveau, VP Investor Solutions at SigTech, comments: “Our analysis reveals a strong and vibrant global hedge fund industry. Despite a healthy growth in emerging hedge fund centers, US-based managers continued to dominate the industry, both in absolute numbers and in terms of new fund launches.

Strategy breakdown

The most popular hedge fund strategy is Equity Long/Short, followed by Multi Strategy, Equities others (e.g., long bias, short bias), Fixed Income Credit and Event Driven. The fast-growing sub-strategy Crypto now makes up ca. 3% of all hedge funds. Also noteworthy is that 22% of the world’s hedge funds apply a purely quantitative investment process and ca. 2% claim to use artificial intelligence.

Top 10 hedge fund strategies No. of hedge funds % of total hedge fund strategies

Equity Long/Short 6,925 26.0%

Multi Strategy 4,899 18.4%

Equities others 3,120 11.7%

Fixed Income Credit 3,004 11.3%

Event Driven 2,004 7.5%

Managed Futures 1,780 6.7%

Macro 1,450 5.4%

Relative Value 1,377 5.2%

Alternative Risk Premia 997 3.7%

Crypto 774 2.9%

New hedge fund launches

On the backdrop of a strong performing hedge fund sector, new fund launches remain strong, with nearly 2,000 new launches per year on average since 2019. Of the 5,500 new hedge funds launched since 2019, 70.2% are based in the US, 9.3% in the UK and 5.2% in China.

Top 5 countries for hedge fund

launches since 2019 No. of hedge fund launches % of total

USA 3,859 70.2%

UK 512 9.3%

China 287 5.2%

Brazil 127 2.3%

Canada 101 1.8%

The most popular strategy for these new funds is Equity Long/Short, followed by Fixed Income Credit, Equity others (e.g. long bias, short bias) and Multi Strategy.

Top 10 hedge fund strategies No. of hedge funds % of total

among fund launches

Equity Long/Short 1,059 19.3%

Fixed Income Credit 515 9.4%

Equity others 394 7.2%

Multi Strategy 348 6.3%

Crypto 310 5.6%

Event Driven 244 4.4%

Relative Value 241 4.4%

Macro 238 4.3%

Managed Futures 133 2.4%

Alternative Risk Premia 38 0.7%

Leveau adds: “The robust level of new hedge fund launches reflects a sustained strong demand from investors for innovative and uncorrelated investment strategies to meet return expectations in an increasingly challenging market environment. Hedge fund growth shows no signs of abating, fuelled by the ever-increasing investment opportunities in the market, and the growth of new data and tools available to these funds.”

Crypto hedge funds on the rise

In 2021, a record number of 171 crypto hedge funds were launched. In total, there are now 774 hedge funds focused on crypto, with the US again being the driver of innovation with 80% of these funds domiciled in the US.

Daniel Leveau says, “We are investing heavily in our quant technology platform to satisfy the strong demand from hedge funds looking to accelerate their data-driven investment processes.

Alongside the growing hedge-fund community, SigTech enjoyed strong growth in 2021. Clients with a combined AUM of over $5 trillion are now using our platform, including some of the world’s leading hedge funds, as well as recently launched start-up systematic funds.”

About SigTech

SigTech offers a future-proof quant trading platform to global investors. Cloud-hosted and Python-based, the platform integrates a next-gen back test engine and analytics with curated datasets covering equity, rates, FX, commodity, and volatility. SigTech eliminates the expensive upfront costs of infrastructure build-out, giving clients an edge in alpha generation from day one.

The SigTech platform was originally built over seven years to manage systematic investments at Brevan Howard, which remains a SigTech client today. After the spinoff into an independent company in 2019, the team has grown substantially and established SigTech as the leading provider of quant technologies.

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Treasury Bills

Nigerian Treasury Bills Yields Fall as Investors Bet on Inflation Drop

Published

4 weeks ago

August 13, 2024

Samed Olukoya

The Nigerian Treasury bills market witnessed a significant shift on Monday, with the average yield on T-bills dropping to 25.6% in the secondary market.

This decline, driven by increased buying interest, reflects investor optimism that upcoming inflation data may show a decrease, marking the first such decline in a considerable period.

The market’s bullish turn follows last week’s Central Bank of Nigeria (CBN) primary market auction, where spot rates were cut, further fueling investor confidence.

The anticipation of a potential decline in inflation has spurred demand for Treasury bills, as investors seek to lock in returns ahead of what they believe could be a pivotal moment for the Nigerian economy.

Analysts from Broadstreet and Cordros Capital have noted that the average yield on T-bills fell by 17 basis points to 25.6% across the curve.

This decline was most pronounced in the long-term segment, with yields on 192-day to maturity bills dropping by 201 basis points.

The short- and mid-term segments also saw yield reductions of 4 and 5 basis points, respectively, as demand surged for bills with 87- and 150-day maturities.

The buying spree is largely attributed to market expectations that inflation, which has been persistently high, might finally ease due to base effects starting from July’s Consumer Price Index (CPI) reading.

This potential moderation in inflation is seen as a critical factor that could influence monetary policy and, consequently, market yields.

Despite the optimism in the T-bills market, the Open Market Operations (OMO) bills segment saw a contrasting trend.

Here, the average yield increased by 4 basis points to 26.2%, reflecting different investor sentiments in the short-term liquidity market.

Market participants are keenly awaiting the official inflation data, which will provide a clearer picture of the economic landscape.

A drop in inflation could validate the current bullish sentiment and lead to further yield contractions in the T-bills market. Conversely, if inflation remains stubbornly high, the recent rally could be short-lived, and yields might rebound.

As the week progresses, all eyes will be on the inflation report, which could set the tone for the fixed income market in the coming months.

The interplay between inflation expectations and investor behavior will be crucial in determining the direction of Treasury bills yields, as market participants navigate the evolving economic conditions.

Investment

Over $10 Billion Poured into New Nigerian Ports Despite Declining Import Volumes

Published

1 month ago

August 7, 2024

Samed Olukoya

State governments and private sector investors are injecting over $10 billion into the construction of new deep and river seaports across Nigeria.

The investments, aimed at boosting Nigeria’s maritime infrastructure, include several high-profile projects.

Among them are the Benin River Port, promoted by the Edo State government, the $4.2 billion Ibom Deep Seaport and Free Trade Zone, and the $462 million Bonny Deep Seaport.

Other significant projects include the $1.5 billion Ondo Port and Industrial City, the $2.59 billion Badagry Deep Seaport, and the $974 million Snake Island Port in Lagos.

The proposed Escravos Seaport Industrial Complex in Delta State also forms part of this ambitious expansion.

However, these projects are unfolding against a backdrop of economic headwinds that have led to a reduction in port business.

Factors such as a weaker naira, foreign exchange instability, and volatile exchange rates for clearing goods have contributed to a significant drop in import volumes.

Data from Nigeria’s budget performance report shows a worrying trend. In 2023, a total of 1,566,162 twenty-foot equivalent units (TEUs) of containers were brought into Nigerian seaports, marking a 6.8 percent decline compared to the 1.68 million TEUs recorded in 2022.

Also, ship traffic into Nigerian ports dropped by 4.5 percent to 3,778 vessels from 3,957 vessels in the previous year.

The first half of 2024 also saw an 8.7 percent decline in ship arrivals compared to the same period in 2023.

Maritime experts express concerns about the sustainability of these new port projects. Tony Anakebe, a noted maritime expert, highlighted that existing ports such as those in Rivers, Warri, and Calabar are already underutilized due to low patronage by shippers.

He emphasized the need for the government to revive these ports and make them competitive before embarking on new projects.

Similarly, Bolaji Akinola, CEO of Ships and Ports Communication Company, argued that building new seaports might be an overkill.

He suggested that instead of investing billions in new ports, efforts should be directed towards addressing the shortcomings of existing facilities like the Calabar Port, which suffers from issues like shallow draft.

Despite these challenges, state governments and private investors remain committed to the development of new ports.

Governor Babajide Sanwo-Olu of Lagos State emphasized the strategic importance of these investments, noting that Lagos hosts many of the country’s factories and markets, making it a critical component of the business ecosystem.

Governor Hope Uzodinma of Imo State also expressed optimism, stating that the new port projects could drive industrialization and job creation in Nigeria.

He noted that the Southeastern region would fully support efforts to revamp the cotton and textile sector, further boosting the region’s economic prospects.

The investments in new ports are seen as a long-term strategy to enhance Nigeria’s maritime infrastructure and position the country as a key player in global trade.

However, the success of these projects hinges on several factors, including improvements in the country’s economic stability, enhanced security measures, and strategic policies to attract and retain business.

Treasury Bills

CBN Set to Auction N166.1 Billion in Treasury Bills Amid Economic Data Releases

Published

2 months ago

July 9, 2024

Samed Olukoya

The Central Bank of Nigeria (CBN) has announced plans to auction N166.1 billion in Treasury bills.

This auction comes amidst a flurry of economic data releases and amidst concerns over the nation’s fiscal health.

Scheduled for the upcoming week, the auction will include N27.11 billion for the 91-day tenor, N1.49 billion for the 182-day tenor, and N137.50 billion for the 364-day tenor.

This strategic allocation shows the CBN’s efforts to manage liquidity and control inflationary pressures during global economic uncertainties.

The decision aligns with broader fiscal strategies as the United States and India prepare to release crucial consumer price index reports, expected to influence global market sentiment.

Concurrently, the Organisation of the Petroleum Exporting Countries (OPEC) is set to unveil its monthly oil market report, detailing shifts in global oil supply and demand dynamics.

Nigeria’s economic landscape has recently faced challenges, with May witnessing a dip in oil production to 1.25 million barrels per day, down from 1.28 million in April.

This decline has been attributed to various factors, including oil theft in the Niger Delta and aging infrastructure—a setback impacting national revenue streams.

The Treasury bill auction is a cornerstone of the CBN’s monetary policy toolkit, aiming not only to fund government operations but also to influence short-term interest rates and manage inflation expectations.

Analysts anticipate keen interest from both domestic and international investors, gauging Nigeria’s commitment to fiscal discipline amid fluctuating oil prices and global economic shifts.

Moreover, the stability of Nigeria’s foreign exchange market, marked by the recent convergence of the naira/dollar rate at N1,520 across official and parallel markets, is expected to complement the CBN’s monetary actions.

This convergence signifies progress in the CBN’s efforts to stabilize the currency amidst external economic pressures.

Looking ahead, the outcome of the Treasury bill auction will likely set the tone for Nigeria’s financial markets, providing insights into investor confidence and the government’s ability to manage fiscal challenges.

As stakeholders await the results, the economic landscape remains poised for further developments, influenced by both local policy measures and global economic indicators.