Steve Cohen was among the few winners in 2019 with his flagship fund, Point 72 Asset Management raked in13 percent returns as of the end of November, last year.
The average hedge fund last year made an 8.5 percent return on capital invested, which represented a significant improvement from the average 6.7 percent loss clocked in 2018. Nevertheless, despite the average hedge fund turning a profit, it was still not enough to justify the hedge fund management fees, bearing in mind that the S&P 500 index was up almost 30 percent last year.
“Steve Cohen was among the few winners in 2019 with his flagship fund, Point 72 Asset Management raked in13 percent returns as of the end of November, last year”
While Steve Cohen was among the few winners among the hedge fund world with Point 72 Asset Management outperforming his pears with a 13 percent return last year, that still under performed the index by a wide margin
In a world of unprecedented central bank monetary easing smart money, money bet or invested by people with expert knowledge has no premium.
Steve Cohen was among the few winners in 2019 but with the S&P 500 index almost doubling his fund’s return in 2019 investors could start questioning smart money management fees, bearing in mind that better returns can be sought in an index fund.
Steve Cohen was among the few winners, in a world of so-called smart money but he too struggled to achieve alpha returns on investment in 2019
Alpha is defined as being able to outperform the index, which thereby justifies the fund’s management fees.
“Alpha is defined as being able to outperform the index, which thereby justifies the fund’s management fees”
So the hedge fund industry is struggling to stay relevant in an endless monetary easing world where dumb money wins, where bad news is good news because it means more central bank liquidity into the market, which makes risk assets rise.
Steve Cohen was among the few winners because rational, logical sound money management strategies don’t produce alpha in a post quantitative easing QE world
QE is where central banks purchase assets when buyers are absent from the market.
For the past decade following the 2008 financial crisis applying the warped formula was a winning strategy. Negative market news means more of the central bank’s QE, which keep risk assets prices pumped higher. Good news means markets go higher too, based on the fundamentals. In short, over the last decade, the central bank has converted the stock market into its trillion-dollar perpetual motion machine, it has been rigged to the upside whatever happens. Economic fundamentals don’t matter anymore. So remaining invested in an index fund irrespective of the deteriorating fundamentals has been a winning formula.
So in a post QE world, the hedge fund bloodbath continued in 2019 with more hedge funds shutting down than launching for the fifth year in a row.
“It’s not an easy business and with the increase in compliance and cost … for many people it just isn’t worth it today” – Thomas Thornton
Steve Cohen was among the few winners in 2019, but with a below alpha performance he too might not be immune to the trend of hedge funds shutting up shop
The industry is dwindling in size as the endless stock market rally makes it unjustifiable for investors to allocate capital to funds and pay the smart money fees. Put simply, 540 hedge funds had liquidated by the end of October 2019. Moreover, the number of funds to have opened in 2018 fell short of 500, which is the fewest new funds since 2000, according to HFR data.
The business environment is downbeat enough for some in the industry to publicly express their concern about the future.
“It’s not an easy business and with the increase in compliance and cost … for many people it just isn’t worth it today” Thomas Thornton, president of Greenwich-based research firm Hedge Fund Telemetry, said in a note published recently.
Even macro-trading legend, Billionaire Louis Bacon decided to throw the towel in when he announced in November that his $8.9 billion Moore Capital would return investors’ money in 2020.
Louis Bacon, 63, made the announcement following several decades of consistently high returns.
Activist investor, dubbed the wunderkind Mick McGuire closed his macro fund in 2018. Returns had plummeted 90 percent since 2015 on several failed investments.
Even Bridgewater’s Ray Dalio dubbed the hedge fund king struggled to make a profit last year.
Ray Dalio’s Pure Alpha, has slumped even as stock markets soared in 2019. The fund lost 6% last year through August 23, Bloomberg reported, driven by bearish bets on global interest rates.
“I also believe this business is not dead, it just sucks right now” – Thomas Thornton
With Steve Cohen among the few winners in 2019 and still unable to beat the Index is the industry dead?
Thomas Thornton thinks the industry is transitioning a difficult period and will ultimately survive, albeit with a slimmed down number of operators.
“I also believe this business is not dead, it just sucks right now” Thomas Thornton said in his note.
So Steve Cohen was among the few winners in the hedge fund industry last year.
However, Steve Cohen’s Point 72 Asset Management had its ebbs and flows in 2019. Indeed, Steve Cohen’s wins were overshadowed as the billionaire was nearing an agreement to become the majority owner of the Mets, a losing team. Steve Cohen was aiming to inject fresh management and capital with the hope of turning the business around. But to date that has yet to be realized by the billionaire investor businessman.
Steve Cohen was among the few winners in 2019 and he shared that spot with Bill Ackman’s Pershing Square Capital, which soared more than 50 percent for the year, according to sources. Bill Ackman Pershing Square Capital made a significant comeback following five disappointing years where he lost a small fortune making a disastrous bet against the nutrition company Herbalife. Bill Ackman credited his fund’s come back to his new wife, MIT professor Neri Oxman, whom he married in January.
Steve Cohen was among the few winners last year but the fund will need to produce alpha soon before redemption request batter the billionaire investor
Steve Cohen’s challenge is the industry’s challenge in a world of endless central bank money creation that defies investment logic. But could 2020 be different with central banks taking a back seat and letting price discovery come back in vogue?