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Analysis Shows Hedge Fund Industry is Booming

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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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Investment

Yield-starved Investors Should be Exploring Less Traditional Opportunities

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Now is the time for investors to consider diversifying into less traditional asset classes, affirms the CEO and founder of one of the world’s largest independent financial advisory, asset management and fintech organisations.

The assessment from deVere Group’s Nigel Green comes as global stocks continue to experience turbulence.

He says: “The three major equity indexes on Wall Street are experiencing their worst stretch of losses in decades, and this is being echoed globally.

“It comes amid investors’ concerns over inflation, which is forcing central banks to slam the breaks on their economies, the ongoing war in Ukraine, Covid lockdowns in China’s manufacturing heartlands known as the ‘factory of the world’, and some household name companies posting weak results.

“This backdrop is creating a yield-starved environment for investors.”

He continues: “As such, for those looking for both capital appreciation and capital preservation, now is the time to consider diversifying into less traditional, return-enhancing asset classes.

“These could include venture capital, structured products, cryptocurrencies, high dividend stock, hedge funds, managed futures, and direct real estate, amongst others.”

“Such investments could also be useful tools to improve the risk-return characteristics of your investment portfolio. This is because they increase diversification and reduce volatility, due to their low correlations to more traditional investments such as stocks and bonds; and they can hedge some portfolio exposures.”

However, says the deVere CEO, considering that these investments are often more complex than their traditional counterparts, working alongside a good fund manager will likely be critical to ensuring return-boosting results.

He goes on to say that whilst less conventional asset classes should also be considered, investors should remain invested in the traditional markets too “because financial history teaches us that stock markets go up over time.”

Nigel Green concludes: “Yield-starved investors should explore less traditional opportunities, not only for potentially higher returns, but also as they provide diversification and downside protection for their portfolios.”

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Private Sector to Invest N169.72bn Tax Credit in Four Roads Construction

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lekki

The Federal Government of Nigeria, through its Executive Council, on Wednesday, approved N169.7bn private sector investments for at least four road infrastructures under the government’s Tax Credit Scheme.

Minister of Works and Housing, Babatunde Fashola, made this known to the State House correspondents after the council meeting. At the meeting presided over by President Muhammadu Buhari, Fashola disclosed that the scheme was initiated in 2019 through Executive Order 7 signed by the President, and that the arrangement allowed private sector players to finance public infrastructure instead of paying taxes and then offset it over time using tax credits. 

In the statement made available to Investors King, the four roads include a 234 kilometre stretch from Bali to Sheti through Gashaka to Gembu in Taraba State at the sum of N95,232,474,010.72 and the second road, which is also a tax credit scheme, is made up of three roads worth N74,486,577,050.

For the 234-kilometre road in Taraba costing N95.23bn, Fashola noted that N20bn under the NNPC Tax Credit Scheme would be disbursed to begin the project soonest.

“The two main memoranda relate to the uptake by the private sector in response to the tax credit programme, which we initiated in 2019, by Mr. President signing of Executive Order 7 to allow private sector finance public infrastructure in lieu of tax and then to offset it over time using tax credits.

“So the first road that was awarded today on that policy initiative is the rule road from Bali to Sheti through Gashaka to Gembu in Taraba State. A total of 234 kilometres reconstruction of that road in the sum of N95,232,474,010.62.

“The existing road, for those who are familiar with it, has no concrete stone base. It is just laterite on the asphalt so it doesn’t last and it’s breaking up and leading to potholes.

“So we’ve rewarded this now for reconstruction under the tax credit scheme, there’s a N20bn provision under the NNPC tax credit scheme that will be used to kickstart this immediately,” he said. 

Fashola added that “the second road which is also the tax credit scheme, which was approved by the Council is actually three roads. The applicant, in this case, is Mainstream Energy Solutions, a major energy player in the country and is now seeking to also participate in this policy by investing a total of N74,486,577, 050.”

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72% of North American Quant Fund Managers Struggle to Access High Quality Data

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Stocks - Investors King

New research with fund managers in North America who collectively manage around $600 billion, reveals they are placing a growing emphasis on both the quality of the data used in their investment processes and on having access to the technological capabilities to efficiently process data (please see the attached press release). Six out of ten (60%) believe this is crucial to achieving above-average returns in the future.

The study, which was commissioned by quant technologies provider SigTech, found that 94% of fund managers find the process of evaluating data, ensuring it meets quality standards and negotiating with data vendors challenging. 72% say it is difficult to source data that is cleaned, validated and ready to use from vendors.

When it comes to onboarding new data sets, nearly six out of ten North American fund managers say they encounter problems, with 56% saying it takes between 1 and 6 months to have new data fully operational internally.

As a result of the many challenges North American fund managers encounter when sourcing and managing data, 64% expect to increase their budget in this area over the next few years.

When asked to pick the two asset classes where they encounter the greatest difficulty in accessing high quality data, 62% of North American fund managers cited fixed income, followed by 54% who selected commodities. In terms of the two financial instruments where they have the greatest difficulty in securing high quality data, 66% cited forwards, followed by cash/spot (58%) and then futures (40%)

In terms of outsourcing of data services, the study found that 64% of fund managers have increased their level of outsourcing over the last two years. Going forward, 77% plan to outsource more between now and 2024, with none seeing a decrease. When asked which factors are fuelling the growing trend towards data services outsourcing, a shortage of qualified in-house subject matter experts and resources was cited as the biggest driver.

Half of those surveyed (50%) found negotiating with data vendors the most frustrating part of the data onboarding process, and 60% say that evaluating the different vendors is challenging.

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