French asset manager Lyxor expects 2017 to provide a rich
but volatile set of opportunities to hedge funds after
disappointing returns in recent years.
Analysts at the firm, a subsidiary of Societe Generale,
predict less monetary accommodation, more fiscal push and
policy ruptures to support an inflection in rates and inflation
- boosting alternative managers.
At the same time, Lyxor's experts have identified a higher
risk from policy disappointment and trade conflicts.
High profile investors have voiced concerns about
disappointing performance and high fees from hedge funds in
In 2015, hedge funds returned just +2%, the worst result
Average performance in 2016 is expected to be around the +5%
mark, according to November data from HFRI and Preqin.
"2016 was a difficult year for hedge funds, which ended
better than it started," said Jean-Baptiste Berthon, a senior
strategist at Lyxor.
"They navigated a V-shaped selloff until February, a
monetary turn and a surprise Brexit by the summer, a regime
shift unleashed by the Trump election."
Berthon expects global macro funds, US equity long/short,
small cap managers and merger funds to perform well in
However, the analyst warned that certain strategies will
remain constrained by elevated political uncertainty, which is
replacing monetary uncertainty
"Managers would either endure higher return volatility or
miss rallies due to low or hedged exposures," Berthon
In a recent market outlook, Ulrich Keller, alternative funds
solutions, Credit Suisse, said hedge funds overall disappointed
However, he added that the underperformance masks the fact
that some strategies have done relatively well, such as
relative value and tactical strategies.
"In 2017, we expect hedge funds to produce modest
single-digit returns, supported by an environment of benign
volatility and moderate but robust growth," Keller wrote in a
note to clients.
"Moreover, events such as a shift in monetary policy or the
Brexit negotiations are likely to provide opportunities for