Simone, Bloomberg, Rob Christian discussed on Fox News Sunday
Cates. This is Bloomberg finance John Tucker Peggy column on Bloomberg radio. I'm John Tucker along with Shimon Foxman who is in for Peggy Collins this week after shock tuber, investors and asset managers need some wisdom, some advice, and maybe even some hand holding Simone well for hand holding. We have rob Christian head of research at Kay two. Advisers, maybe we have to hold his hand. Perhaps perhaps he's joining us Ketu advisors manages eleven point four billion as of October first, thanks for joining us. Robyn, thank you for having me as we said, I've Tober was the worst month for hedge funds in years, the Asia, far I composite index fell more than three percent. What went wrong? Well, you're right. It was the worst month in the last ten years going back to fourth quarter of oh, eight hedge ones seem to get lumped together the bulk of assets, and the number of managers sits in the equity long short space, which there with most managers there is a bias somewhat of a bias depending on the manager to the direction of the market. But what we do is. There's many different types of hedge funds we work with clients and try to educate them on that. But you're right overall, the industry was it was a very disappointing month, and the way we see it. The it was it was a liquidation of long's. We have these shocks every ten to twelve months that should happen once every ten or twelve years, but it's kind of the nature of the country in the markets. But this previous shocks have been led by volatility. Spikes, volatility would spike and then following the volatility spike would be a correlation spike, and then that's usually close to the bottom of the spike. And then things begin a slow process of of normalizing. A hedge fund is supposed to specialize in times. Like, these this is suppose, they are right. This. Everything's going wacky. But we're going. Okay. And then now we had the weather October going into urine. Yeah. So the disappointment is investors look to hedge funds as a diversification as well as some type of return and they did not receive October. Why is that have hedge funds in general gotten away from their mission? No, I think for us. It's one month. We have tried to take a long term perspective, which we courage clients. But it it was a combination of crowding usually when volatility spikes people can adjust very quickly. But would we see is the correlations spiked first and that really wreaked havoc with people? So they started adding risk on the downturn. And then they ended up just having to reduce risk. And then it became a kind of snowfall. Was there anything that surprised you from what you saw from different different kinds of managers? We were surprised so in the equity look the quantitatively driven. Model risk people dramatically underperformed our expectations. We were surprised to the speed of the liquidation in dramatic underperformance. We were surprised also how well the credit markets held up in enhance the credit managers in October. Now, you've seen a reverse in November where the equity focused managers have fared fairly. Well, you're not gonna see huge positive numbers. But kind of mix on the month will the will the credit markets have come under pressure and some of the some of the long bias credit. Credit managers are having a rough November. Okay. So where do we go from here? We think you're probably almost close to the end of this liquidation in and you should see a slow normalization. So so timing hedge funds is almost impossible to do. But what we do. We look at many different fundamental factors and just try to try to look at the conditions in the regime that we're in so usually coming out of this type of regime, so volatility spy correlation, spike selloff leverage and long positions being reduced very dramatically. The next six to twelve months tend to be a very good period for hedge funds. So we're we're we're encouraging clients seduced look look past the last two months in hopefully hedge funds will deliver in the next twelve months. I like percentages, and I'm gonna put you on spot. Where can we some some guesstimate as to what kind of returns, we might see my my compliance people? Wake up Saturday morning lawyers gonna call you later, we would expect to see above average returns on a go forward basis based on historical modeling and data. Now, I know that you have recently been of both mines about equity long short about whether or not. That's where where we can expect returns. No first off do you see equity long short managers, the big names? Steve Cohen, David Einhorn going back to the the above average returns mean returns. Like we had in the early two thousands, or what are you expecting kind of going forward? Yeah. Well, we'll overall we think we've we've talked about this in publicized. So so alpha we think is captured there's many different forms of of alpha. A lot of people just talk about alpha and beta for our audience, you're going to back up and explain alpha. Let's go with alpha. I so so alpha is the the added value of of a manager by using active management, and there's a couple of hours, they can go active managers can go long short and or use leverage. So is that outperformance or sometimes underperformance as you saw in October the difference between their exposures markets giving them in. There's there's many different ways to to generate that excess return one is is stock selection. One is country selection. One is. Sector selection. One is the ability to trade either providing liquidity to the market or being a liquidity taker in more of a disruptive type of trading and Simone, and I have by the way been waiting for the rebirth of active management. We have we had do you see equity long short as being a valuable strategy to be in going forward. We do. So at the end of the we put out a quarterly hedge fund strategy outlook at the end of September into the third quarter. We we'd been very favorable and equity long short all year. And we we reduce that because we saw numerous factors starting to change very quickly in the market. And we're only two thirds of the way through this quarter the fourth quarter, but a lot of those factors are showing signs of normalizing. And so we're we've been advising clients lately. We should start thinking about shifting back into equities. For. Where else are you seeing a lot of opportunity? There's lots of opportunity lots of volatility, obviously it hasn't played out on a returns basis going backwards. But going forward, we think it will. So. If you take a very long term perspective we've had a ten year global liquidity infusion from every central Bank. And now the central banks led by the US fetter trying to unwind that. And we we think you'll start to see a big disparity between central Bank action the cost of money and eventually global tightening. We would argue that we're just now starting to see the monetary conditions on a global basis starting to tighten. But that that should be a very favourable environment for for global macro managers in particularly global. Macro. We like discretionary global macro, I hate to namedrop, but I actually had the pleasure of walking John Claude Trichet out of the building and putting him in his in his car on Lexington avenue after he was a guest. He he sit on the conversation to be that. He's very worried that the ultra accommodate policies, especially in Europe. We're not going to go back to normal policy before the next recession hits. Does that model? Is that in any of your forecast models? We subscribed to that thinking that the future will kind of rhyme with the history of not play out exactly like with history. So that's why we have a strong preference of discretionary macro managers over say quantitative systematic macro managers because they were relying more on the his history in the back testing. But we think it's a time when you need to use judgment on central Bank policy. How it's not central Bank policies one thing. But then it's housing market position. How are they going to react to news, and discretionary managers? We think have a better ability took to find asymmetrical traits. Okay. I'm always fascinated a small to help people get into this business finance because this is never it's always a securities route. Well, what's your background? He will you actually went to. Stanford. We're studying amoeba and stuff like that. I did. But I got into it just had an interest in forecasting in started out forecasting, marine plankton and then. Found the markets more. In the lower casting, marine plankton. Yeah. Biotech was dead. When I was coming out of college. But but the biotech building essentially models the same thing you're doing today in a way in a way. Yes. Yeah. Okay. Yeah. Is there anything that? You said you found markets more interesting. Was there anything that has really surprised you over the course of your career that he you? You're like, wow. That was really adolescent field. I've gone back and forth. And I was very strict disciplined systematic Marla than I move more to the discretionary side. And I think what's interesting about the Marcus versus some of the other disciplines is that it's it's an it's an open system. So there's there's constantly changing. And you need to take that into account going forward to that. That's what makes it so interesting to me. Well, thank you so much for offering your insight. That's rob Christian from K to advisors. Thank you for having me. And that's this week's edition of Bloomberg financial tune it again next week at the same time when we get together for looking to hedge funds and asset management for Simone.