If the high-powered hedge fund world is anything to go by, the worst appears to be over for the beleaguered investment industry.
Despite the fact that hedge funds were not to blame for the spectacular implosion of the global financial system, the sector copped more than its share of the fallout, with poor performance, widespread redemptions, gating, suspensions and Madoff combining to make a veritable toxic cocktail.
But the toxins seem to be finally leeching out of the sector’s system. Performance has improved this year (admittedly not too difficult a task), investors are starting to sniff around again and there is even talk of some high-flying managers once again slamming their doors shut to new money.
Perhaps the most transparent measure of sentiment may lie in the discounts to net asset value that listed hedge funds trade at. My good friends at Numis Securities (they kindly referred to your correspondent’s reporting as “sensationalist” earlier this year) have been hard at work with their abaci on this very subject.
They report that London-listed funds of hedge funds, which spiked to an average discount to net asset value of nigh on 35 per cent at the turn of the year, are now back to 20 per cent. Single manager funds are now almost back in single figures, from a nadir greater than 15 per cent.
But the sober sorts at Numis are keen to burst any overly inflated bubble of optimism. They point out that this improvement is largely a result of corporate action, rather than a burning desire on the behalf of investors to re-board the listed funds rollercoaster.
So far this year, almost £1.3bn has been returned to shareholders via tender offers, redemptions and share buybacks, Numis calculates, almost 20 per cent of market cap as of the start of the year.
And while bargain-hunting “value players” have also played their part, the understated Numis team remains glum on the subject of a sustainable pick-up in demand, suggesting “several” private client groups remain net sellers (albeit not until discounts narrow further) and that value players are unlikely to chase prices higher from here.
It adds gravely “there is unlikely to be a significant recovery in sentiment from fundamental investors until at least 2010″.
Permission is granted to feel gloomy again.
