The Morning Brief: Emerging Markets Funds Experience Outflows

Here are more signs of cracks in hedge fund sentiment. Total capital invested in emerging markets funds declined to $185.1 billion at the end of the first quarter, from $191.3 billion at year-end, despite the funds’ posting only a slight loss in the period, according to the latest report from data tracker HFR. Assets are also down from a record of $198.2 billion in the second quarter of 2015. Meanwhile, capital invested in Latin American-focused hedge funds fell to $5.4 billion, while assets invested in Russia-focused hedge funds fell to $25.6 billion despite very strong quarterly performance in both regions during the period.

In the first quarter, the HFRI Emerging Markets (Total) Index fell by 0.26 percent. It is up 1.74 percent for the year after experiencing a very strong April. The HFRI EM: Latin America Index was up 9.8 percent in the first quarter and up 15.3 percent through April. However, investors are probably still irked that the index fell 20.9 percent in 2015 and has declined in four of the past five calendar years. The HFRI EM: Russia/E. Europe Index rose 6.9 percent in the first quarter and 12.2 percent through April. The index was up 5.5 percent in 2015 and has been profitable in five of the prior seven calendar years.

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Shares of Herbalife surged more than 4 percent on Tuesday after the New York Post reported that the controversial multi-level marketer of nutrition supplements has reached a preliminary settlement with the Federal Trade Commission over whether it is a pyramid scheme. The newspaper said terms were not disclosed but it could involve “a sizable financial penalty.” However, a source close to the matter told the paper: “I do not believe the FTC is requiring a substantial change in the business model.” This would be a huge blow to William Ackman’s Pershing Square Capital Management, which famously shorted the stock, asserting that the company is a pyramid scheme and that its stock would eventually be worthless.

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Investors apparently liked what they heard at Xilinx’s analyst day, held late Monday afternoon. Shares of the chip maker surged nearly 6 percent on Tuesday and are now up nearly 11 percent since Cliff Robbins of Blue Harbour Group talked up the stock at the SALT Conference in Las Vegas on May 12. In a note on Tuesday, Barclays told clients Xilinx outlined a five-year growth plan, but lamented, “This comes at a price as the near-term profitability is impacted by increased investments.”

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The Hedge Fund Standards Board named Clint Carlson, founder of Carlson Capital, to its board. The HFSB calls itself the global standard-setting body for the hedge fund industry and the custodian of hedge fund standards. The group says it received five new U.S. signatories in 2016: Dallas-based Carlson Capital; Chicago-based Alyeska Investment Group; Stamford, Connecticut-based BCK Capital; New York-based MKP Capital Management and Newport Beach, California-based ROW Asset Management.

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