Despite a bullish approach to the year, with consensus that 2011 was going to be a strong year across the hedge fund board as corporate strength continued, balance sheets were added to and the global economic recovery continued.
However, Botteron says that performances from hedge funds to the mid-point of the year have been disappointing and below his initial expectations.
After interviews with hedge fund managers across the industry, he is clear on his outlook for the rest of the year:
Event driven:
“The flexibility of event driven funds to engage in M&A arbitrage, credit and special situations make them ideally suited to embrace a capital markets environment defined as being on pace to achieve record activity in IPOs, M&A, and debt issuance. Corporate balance sheets are rich with cash which will, very likely, be used for strategic accretive acquisitions. Furthermore, we look for those managers that have an additional expertise in distressed investing and restructuring that will allow them to take advantage of the impact of Basel III and the corporate refinancing necessary in the US.”
Macro:
“The perennial case for macro hedge fund strategies relates to the fact that they have historically been able to take advantage of periods of dislocation and the transition to high risk premium environments. The strategic case for macro strategies becomes even more important with the variables of QE2 ending and the target compliance date of Basel III approaching.”
Long/short equity:
“Our case for long/short equity relates to the fact that we see general dispersion continuing. Stock pickers that can identify value and competitive persistence while navigating and managing their systematic risk should continue to render alpha from the market.”
Botteron believes we are now at a turning point “where we will start the see a series of macro-events favourable to hedge fund managers especially in the event driven, macro and long/short equity spaces.
