Household hedge fund names such as Bill Ackman’s Pershing Square ’s Bill Ackman, Daniel Loeb’s Third Point Capital and David Einhorn’s Greenlight Capital are nowhere to be found in the Barron’s 2016 List of Best 100 hedge funds. Instead, these firms which bet heavily, and incorrectly, on a handful of investments, have been replaced by a variety of newer, smaller, nimbler, and in the case of the top fund for 2016, algo-driven, hedge funds.
As Barron’s notes, even on Wall Street, “the name of the Barron’s Penta No. 1 hedge fund this year is one that many serious investors wouldn’t recognize. Parametrica Management, a small Hong Kong–based firm, posted a three-year compound annualized return of nearly 30% by the end of 2015, about double the return of the Standard & Poor’s 500 index. A remarkable gain of 45% in 2015’s occasionally frightening market helped the stock-focused quants at Parametrica’s Global Master fund leap 58 spots from its previous ranking.”
Appropriate for the times, Parametrica ignores fundamental analysis entirely and instead specializes in stat arbitrage, a strategy that relies on quantitative analysis to identify instantaneously mispriced asset classes anywhere in the world – think Jim Simmons flagship Renaissance Medallion fund. These market-neutral funds feed on the kind of instability and dispersion in prices that overtook markets for much of 2015 in the U.S., Europe, and especially emerging markets.
Some more details on this year’s winner.
The hedge fund was founded in 2009 by Xiongwei Ju. After earning a Ph.D. in finance from The University of Illinois at Urbana-Champaign, he worked briefly at hedge fund Deephaven Capital. He then joined Nomura Securities International in its proprietary equity-trading unit and eventually became a managing director and senior portfolio manager at Israel Englander’s $34 billion Millennium International Management (ranked No. 92), which spreads its money over a variety of strategies, including statistical arbitrage. Parametrica, which reportedly has an Asia-focused fund in the works, is said to run some Millennium money.
Parametrica’s rise to the top in a world in which little financial logic makes sense, is not unexpected: “last year’s substantial volatility fueled the return of the quants as leading performers,” says Eric Siegel, head of hedge fund research and management at Citi Private Bank in New York. Even the same asset classes offered disparate outcomes. For instance, bond rates mostly fell, but oil-related junk bonds got creamed. This helped make distressed securities, off more than 10%, the worst-performing hedge fund strategy last year, according to BarclayHedge research.
Another finding: about a third of this year’s Top 100 firms are based outside of the U.S., compared with a quarter a year ago and just 19 in 2013. Ten Europe-focused firms made the list, two in the top seven. Jonathan Herbert’s $455 million Camox fund, which specializes in small- and mid-cap European shares, came in second. And BlackRock’s European Hedge fund, run by Alister Hibbert, with $1.7 billion in assets, finished seventh while generating the second-largest 2015 gain, over 36%.
But in addition to worrying about algo funds and offshore competition, veterans in the hedge fund industry, which had total AUM of $2.9 trillion asof the end of 2015, also have skittish LPs to worry about. As Bloomberg reports, for the second quarter in a row, more hedge funds liquidated than opened in Q1, based on data from Hedge Fund Research. Some good news: the number of liquidations in Q1 declined modestly from 305 in Q4 to 291 in Q1. The Q4 total was the highest going back all the way to Q1 2009. Still, in the past 12 months, 910 hedge funds were launched, less than the 1,053 liquidated.
So with that out of the way, here is the table of the Top 100 best performing hedge funds of 2016 ranked by their 3-year compound return, with an average return of 16.98% (ranging from 30% to 12%), outperforming the S&P’s 3 year return of 15.13%.
via http://ift.tt/28S3FuW Tyler Durden