Hedge Funds struggle in wake of banking crisis and bond market volatility | Paragon Alpha

Hedge Funds struggle in wake of banking crisis and bond market volatility

By Matea Gucec

The first quarter saw mixed results for hedge funds operating in London, with larger firms struggling more so in the wake of the banking crisis and erratic bond markets.

After placing bad bets on US government bonds, Chris Rokos' £15.5 billion macro hedge fund lost more than 11% of its value through March 24, according to Financial News.

City hedge fund Marshall Wace, which oversees $61 billion in assets, saw its flagship Eureka fund lose about 1% until the end of March.

Following a global banking crisis that resulted in the failure of Silicon Valley Bank, Signature Bank, and Credit Suisse, the company established a sizable short position on NatWest last month.

According to a source who spoke to FN, Brevan Howard Alpha Strategies, a $12 billion fund, had lost 1.1% of its value as of March 17. According to Bloomberg, the hedge firm grounded at least three traders last month after they suffered losses in the bond markets.

However, small businesses discovered possibilities in the equities and cryptocurrency markets to outperform more established competitors, while big city hedge funds were trapped in the banking crisis and bond rout. The crypto market has increased by 60% so far in 2023, which may be an indication that the market for digital assets is beginning to gradually defrost.

Bitcoin, now worth $29,870, reached $28,400 on March 31. This is a surge of more than 70% year-to-date as investors fled to cryptocurrencies in the wake of Silicon Valley Bank and Credit Suisse's failure.

Through the end of March, Carrhae Capital, which oversees approximately $850 million in assets, had its long-only fund increase by 9.29%. The long-short fund of the hedge fund increased by 3% at that time, a source informed FN.

The DeFi Liquid Venture firm of city-based cryptocurrency hedge firm Nickel Digital Asset Management gained 62% as of March 31. The Nickel Diversified Alpha non-directional fund of the company increased by 4.6%.

The company oversees several investment solutions totaling about $200 million.

The worldwide hedge fund business was anticipating a change in fortune in Q1 2023 after having a challenging year in 2022. Hedge fund returns were lower due to the banking crisis, high inflation, and bond market uncertainty, with tiny companies outperforming their larger competitors and masking their losses.

According to hedge fund research company HFR, global hedge funds had an average return of 1.18% from January through March. While macro funds on average lost 2.95%, equity hedge funds saw returns of 3.38%.




Ref: (2023. April 20) Financial News.



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