This content is from: Portfolio

The Morning Brief: Hedge Funds Go Long on Hillary Clinton

It’s official: Hedge funds and private equity firms have given far more money to Democratic presidential nominee Hillary Clinton than they have to her Republican rival, Donald Trump. Hedge funds and private equity firms have given a combined $94 million during the 2016 campaign season through mid-September to all federal campaigns and outside groups, according to a Pensions & Investments report citing a Center for Responsive Politics analysis of Federal Election Commission data. While 56.2 percent of total assets raised went to Republicans, when it comes to the money going directly to the presidential candidates, Clinton has trounced Trump, taking in $41 million to his paltry $205,360.00.

Both candidates have raised $1.1 billion so far this election. More broadly, Clinton’s committee had raised $373 million through September 12, compared with $166 million by Trump. The totals rise to $698 million and $432 million, respectively, when taking into account additional money from the two national parties and political action committees.

Each of the top five individual contributors to political campaigns for this election cycle are current or former hedge fund managers, according to the report. No. 1 is Farallon Capital Management founder and former co-managing partner Thomas Steyer and his wife, Kathryn Taylor, who have ponied up a cool $39 million to Democrats and left-leaning causes. Next is Robert Mercer, co-CEO of Renaissance Technologies, who along with his wife Diana donated $21.7 million to conservative causes. S. Donald Sussman of Paloma Partners gave $21.7 million to Democrats, Elliot Management Corp. founder Paul Singer gave $18 million to Republicans, and Soros Fund Management founder George Soros handed out $17.4 million to Democrats.

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Analysts at Paris-based asset manager Lyxor say hedge funds are facing tougher market conditions heading into the fourth quarter, according to the firm’s most recent weekly research report on hedge funds. The U.S. presidential election and the Italian referendum, fresh questions about the stability of some European banks and the probable U.S. rate hike in December could add to market uncertainty — at a time when valuations are already high, the researchers said. They have accordingly turned more defensive on long-short equity strategies, though they like market-neutral long-short funds, because they tend to do better in this type of environment. Lyxor’s long-short equity broad index is down 2.9 percent this year.

The analysts like merger arbitrage, saying several high-profile deals in September gave it a boost, M&A activity is still strong and the risks are manageable. But they think special situations funds are sensitive to market downturns and also increased political risks, given that both U.S. presidential candidates have said they want to cut drug prices, and the pharmaceutical sector is important to this strategy. Lyxor’s broad event-driven index is up 1.9 percent for the year through September, making it the best-performing hedge fund strategy Lyxor tracks. The worst-performing strategy by far is global macro, with Lyxor’s macro index down by 6.8 percent through September.

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Meanwhile, Credit Suisse’s hedge fund analysts say they expect there will be high dispersion of hedge fund returns in the final quarter of the year. Long-short equity hedge funds pushed their net equity exposure to historic highs in the third quarter, up to 24.9 percent, while macro and CTA funds started to go short U.S. equities over the past three weeks, the analysts wrote in a note to clients.

Credit Suisse says early September reports suggest that hedge funds are poised to post a second-straight month of outperformance, with equity-focused strategies reaping gains from single-stock performance and deal closures. CTAs gained 1 to 2 percentage points and look to finish the month up between 0.5 percent and 1 percent, thanks to a rebound in German bunds, Japanese government bonds and U.S. Treasuries.

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