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Rising US bonds ease pressure on emerging market hedge funds


Lower US bond yields and a weaker dollar are helping drive a recovery in emerging markets-focused hedge funds, after some managers struggled, including $12 billion in assets, following a tough start to the year.

Emerging market funds gained 1.9 percent last month, according to data group Eurekahedge, before gains of 1.1 percent among hedge funds more broadly. That puts them up 5.4 percent this year, still lagging behind the average hedge fund’s gains of about 8 percent.

Emerging market managers benefited from the recent drop in US Treasury yields, which rose earlier this year, as the easing of coronavirus lockdown restrictions raised investor expectations of a strong US economic recovery and rising inflation.

The 10-year Treasury yield rose from 0.9 per cent at the start of the year to more than 1.7 per cent at the end of March as prices fell. However, it has since fallen below 1.5 percent, driven in part by Tensions escalate between the United States and China.

Investors often withdraw from emerging markets when US growth picks up and Treasury yields become more attractive, but they tend to Pour money back في When US bond yields fall. The dollar’s weakness over the past two months has also helped lower debt service costs in emerging markets, as much of their debt is denominated in dollars.

London-based Pharo, headed by former Merrill Lynch banker Guillaume Funkenell and one of the world’s largest emerging market hedge funds, was hit hard in the first quarter.

Gaia’s $5.6 billion and $5.3 billion funds, which have made profits in each of the past five years, fell nearly 9 percent and 7 percent respectively at the end of March, according to figures sent to investors, in While its circulation, the fund fell by about 11.5 percent. A person familiar with its site said the company was bullish on emerging markets and on some longer-dated emerging market bonds.

However, it trimmed some of its losses over the past two months, taking advantage of conditions more favorable to emerging markets. Gaia’s fund is now down 6.3 percent this year through the end of May, according to people who have seen the numbers. Its Macro Fund fell 4.7 percent, and its smaller trading fund lost 7 percent, People said.

“The past year has been tough for fund managers” in emerging markets, said Peter Slip, senior portfolio manager at Seven Investment Management.

Farrow declined to comment on what prompted the performance.

Other recent gains include London-based Capital Haters, which rose 2.7 percent in its hedge fund and 4.5 percent in its long fund last month, according to figures sent to investors. The hedge fund gained 2.1 percent for the year, while the long-term fund gained 9.6 percent.

Ali Akay, chief investment officer at Carrhae and a former partner at hedge fund SAC, said rising US bond yields pushed emerging market investors from developing stocks to value stocks, which benefited from some of their positions.

laurence.fletcher@ft.com



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