Tuesday, January 31, 2023

Schonfeld, D.E. Shaw and Sachem Head on hedge fund performance

The losses of tech-focused long/short equity and “crossover” funds dominated the main hedge fund panel at SALT this year.

Leading investment professionals from D.E. Shaw, Schonfeld and Sachem Head were joined by Ilana D. Weinstein, who said losses in long/short had reshaped the picture in hedge fund recruitment.

Impact on hiring
“For an industry full of such smart people, it’s amazing how blindsided these guys were,” she said. “I think we are in the early innings of an industry correction and consolidation.”

She predicted a lot of the long/short equity firms which had lost money on tech and growth stocks would either go out of business or become family offices.

“From a talent perspective as we get to Q1 2023, compensation will be disappointing for sure. Talent needs to ask itself: is my fund positioned well to succeed in the future?”

D.E. Shaw’s take
“For levered long-equity funds [the market environment] has been very negative, especially those focused on tech and growth, but it hasn’t been as bad for more market-neutral funds,” said Edwin Jager, managing director and head of fundamental equities at D.E. Shaw, a $70bn multi-strategy firm.

It has been good investing in other asset classes like rates, FX and energy, he added.

“There are a lot of really interesting anomalies taking place in markets right now” because of the high volatility, said Jager.

“It is harder with the number of macroeconomic variables moving around predicting what will happen in the world and economy a year from now.”

Some trades picking up smaller spreads over a shorter period of time have also got harder because of the high volatility, he said.

Schonfeld on rise of multi-strat
“Having different risk-takers who cover different asset classes who trade different sectors has never been as advantageous as it is today,” said Ryan Tolkin (pictured), CEO and CIO at Schonfeld Strategic Advisors, a $14bn multi-strategy firm investing across macro fixed-income, equity long/short, quant and event-driven.

Ryan Tolkin

“Insights and analytics we are able to share on how long/short sectors compare and how the long/short space compares to [other strategies] have never been higher.

“The flow and the valuable information we can discern from understanding which stocks are being deleted, upgraded or downgraded from certain indices and how that may impact price action has been incredibly valuable… a huge source of alpha.”

Sachem Head view
Multi-manager platforms have been positive this year, but Sachem Head founder Scott Ferguson offered a contrarian view on tech saying it was worth “hanging in there.”

Though Sachem Head is activist event-driven and without much exposure to tech, he had advice for LPs unhappy at the performance in tech. “When it feels the worst is probably when’s it going to be the best coming out the other side.”

You will still see hedge fund participation in tech stocks and capturing alpha in the long-term, added Jager — but in the meantime a lot of tourists will be removed from the industry.

“I am shocked at the lack of risk management that sits at many of these Tiger cubs,” added Weinstein.

The panel was moderated by iConnections founder Ron Biscardi.