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Morning Brief: Hedge Fund Assets Surge to Record High

The industry now manages a record $3.21 trillion, according to new data.

  • By Stephen Taub

Hedge funds enjoyed a resurgence last year amid the stock market’s strong gains. Investors pumped $6.9 billion into hedge funds in the fourth quarter and a total of $9.8 billion for the year, according to a new report from data tracker HFR. This was the largest quarterly inflow since the second quarter of 2015.

Combined with performance gains, hedge funds managed a record $3.21 trillion at year-end, according to HFR. Event-driven strategies led fourth-quarter inflows. There is now $831.6 billion invested in the strategy altogether. The HFRI Fund Weighted Composite Index gained 8.7 percent in 2017, the best year since 2013. The HFRI Equity Hedge (Total) Index led all main strategies, gaining 13.5 percent in 2017.

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Bad news for David Einhorn’s Greenlight Capital. Shares of Caterpillar rose 1.4 percent, to close at $170.41, after Credit Suisse raised its price target on the heavy equipment maker from $155 to $192 and raised its estimates. In a report to clients, the investment bank points out that 90 percent of Caterpillar dealers finished 2017 ahead of expectations, helped by a very strong fourth quarter. It also points out that customer backlogs are building. Credit Suisse also notes that several foreign markets are particularly strong, such as China and Indonesia.

“Obviously the potential for an infrastructure bill is an incremental positive,” it adds. Greenlight has been shorting the stock for more than a year. In its recently published fourth-quarter letter to clients, the hedge fund firm said it remained short the stock, even though the bet was one of its biggest losers last year. “CAT did reduce its cost structure and benefitted from a modest improvement in demand, which led to a series of quarters that exceeded expectations,” the letter stated. “However, CAT’s current stock price projects a rebound in sales and earnings that is unlikely to occur given the end-market conditions in mining and energy.”

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Shares of Bill Ackman activist target Chipotle Mexican Grill rose 1.9 percent, to close at $343.89, after at least two investment banks raised their rating on the casual dining company, according to Marketbeat.com. Citigroup raised its rating to “market perform,” citing valuation, while Raymond James Financial raising its rating from “underperform” to “market perform.” In December 2016 Chipotle agreed to add four board members as part of a compromise settlement with Ackman’s Pershing Square Capital Management. At the end of the third quarter Pershing Square remained the largest shareholder. In November 2017 Chipotle founder Steve Ells resigned as chief executive. Shares of Chipotle are now up about 19 percent this year alone.

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