Rising U.S. Treasuries ease pressure on emerging market hedge funds


Falling U.S. bond yields and a weaker U.S. dollar are helping to promote the recovery of emerging market-focused hedge funds. Previously, some managers, including Pharo Management, with assets of $12 billion, got into trouble after a difficult start this year.

According to data from data group Eurekahedge, emerging market funds rose 1.9% last month, ahead of broader hedge funds that rose 1.1%. This has caused them to rise by 5.4% this year, still lagging behind the average hedge fund return of nearly 8%.

Emerging market managers have been benefiting from the recent decline in U.S. Treasury yields. As the easing of the coronavirus lockdown has increased investors’ expectations for a strong recovery in the U.S. economy and rising inflation, U.S. Treasury yields soared earlier this year.

As prices fell, the 10-year US Treasury bond yield soared from 0.9% at the beginning of the year to more than 1.7% at the end of March.However, it has since fallen below 1.5%, partly because Escalation of tensions between China and the United States.

When U.S. economic growth rebounds and U.S. Treasury yields become more attractive, investors usually exit emerging markets, but they tend to Pour the money back When U.S. bond yields fall. The weakening of the U.S. dollar in the past two months has also helped reduce debt service costs in emerging markets, as their debts are mostly denominated in U.S. dollars.

Pharo, headquartered in London, led by former Merrill Lynch banker Guillaume Fonkenell, is one of the world’s largest emerging market hedge funds and suffered a heavy blow in the first quarter.

According to data sent to investors, its US$5.6 billion Gaia Fund and US$5.3 billion Macro Fund have both achieved profits in the past five years, but have fallen by nearly 9% and 7% respectively as of the end of March, while its Trading Fund has fallen About 11.5%. A person familiar with its positioning said that the company has always been optimistic about emerging markets and some longer-term emerging market bonds.

However, it has recovered some of its losses in the past two months, benefiting from more favorable conditions in emerging markets. According to people familiar with the matter, as of the end of May, its Gaia fund has fallen 6.3% this year. People familiar with the matter said its macro funds fell 4.7%, while smaller trading funds fell 7%.

Peter Sleep, senior portfolio manager at Seven Investment Management, said, “Last year was a difficult year for fund managers in emerging markets.”

Farrow declined to comment on what drove the performance.

Other funds that have risen recently include London-based Carrrhae Capital. According to data sent to investors, the fund’s hedge funds and long funds rose 2.7% and 4.5%, respectively, last month. Hedge funds are up 2.1% this year, while long funds are up 9.6%.

Ali Akay, Carrrhae’s chief investment officer and former partner of SAC, a hedge fund, said that rising U.S. bond yields have pushed emerging market investors from growth stocks to value stocks, which has benefited some of their positions.



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