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The Morning Brief: Hedge Fund Closures to Climb, Says Barclays

Hedge fund liquidations will rise to 12 percent in 2016 from a recent historical average of 10 percent, predicts the Barclays Capital Solutions Group in a new report, citing “the performance challenges of 2015 and early 2016.” What’s more, the report warns that if 2016 performance continues at, or falls below, the recent annualized levels, the hedge fund industry may face a decline in assets under management.

The Barclays group bases its assertions in part from a survey, conducted in the second quarter of this year, of 340 investors who cumulatively have invested $900 billion in hedge funds, or 30 percent of the industry total. Barclays also looked at other hedge fund data to draw its conclusions. The report points out that more than half of the investors surveyed felt hedge funds did not meet their expectations over the last couple of years.

“However, despite recent press to the contrary, the vast majority of investors we surveyed indicated that they are not pulling back wholesale from their HF allocations,” Barclays stresses. It says this commitment in part reflects the positive attribution hedge funds have offered after combining risk-adjusted returns with their low correlation to indices. The report also indicated that investors “appear keen on” boosting allocations to small and new managers, figuring they offer better returns and more flexibility on fees and terms.

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James Simons’ Renaissance Technologies is enjoying a very strong year at its two largest funds that are open to outside investors. The East Setauket, New York firm’s Renaissance Institutional Equities Fund (RIEF) gained 3 percent in July, boosting its gain for the year to 16.8 percent. The Renaissance Institutional Diversified Alpha Fund (RIDA) rose about 1.1 percent in July and is up 12.4 percent for the year. Earlier this year the firm raised $1.5 billion for the Renaissance Institutional Diversified Global Equities (RIDGE) fund. It began trading on April 1. RIDGE is a market-neutral fund, designed to have a low correlation to the global equities market. It is not clear how it has fared so far.

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Leon Cooperman’s Omega Advisors seemed to enjoy a much-needed rebound in July. Assets under management climbed more than 6 percent in July, to $5.2 billion, from $4.9 billion. It is not clear how much of this gain is due to performance or new money that came into the embattled New York manager’s funds. However, given the recent rash of redemptions, the increase is probably mostly due to performance. Omega Overseas Partners had lost 5.3 percent in June, extending its loss for the first half to 7.15 percent, according to HSBC, which tracks hedge fund performance.

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