In the aftermath of the UK’s historic vote to leave the European Union, dubbed Brexit, HFMWeek summarises industry reaction:
- 10pm: Fort also posts good Brexit returns- up 3%
Fort, the systematic $1.8bn CTA firm led by ex-World Bank economists Yves Balcer and Sanjiv Kumar, was another managed futures firm to benefit from the Brexit fallout, according to investor documents seen by HFMWeek.
Its Global Diversified Fund was up 3% following the shock Brexit vote, and is now up 10% YTD, while its larger $1.3bn Contrarian program was also up 3% for the day and is up 3.75% YTD, according to the investor correspondence.
Winton’s Diversified Fund was up 3.1%, according to reports, while other CTA firms have had more of a mixed day, according to analysis from our managed futures brand CTA Intelligence.
- 9pm: Hedge fund trade bodies have pledged to work with authorities and regulators to try to ensure the Brexit transition period goes smoothly for managers.
The Managed Funds Association, which has worked heavily in support of the EU’s proposed Capital Markets Union, said it would work to ensure members maintained access to markets.
Richard H. Baker, president and CEO at the MFA, said: “MFA Members are active participants in global capital markets, helping pension plans, endowments and other investors diversify their investments, manage risk and deliver attractive returns over time. During the post-Brexit vote transition period, we are committed to working constructively with policymakers to ensure our Members continue to have access to European and UK markets so they can fulfill their important role in a global economy.”
Aima said it would be fully engaged with negotiations and would try to ensure the best deal possible for its members.
- 8.30pm: Brexit fall out sees Saba Capital continue strong run
CNBC is reporting that Boaz Weinstein’s Saba Capital was another fund to profit from today’s Brexit volatility.
The $1.2bn credit-focused fund was already having a strong year, up 12.8% YTD end of May, according to HSBC data.
It follows a tough period for the fund which fell -10.8% in 2014 and suffered redemptions and posted returns of 3.4% last year.
- 8pm: Jabre Capital Partners hit by ‘Remain’ Brexit exposure
Although many managers had been unwinding Brexit related positions in the run-up to yesterday’s vote a number were very confident of a Remain outcome and had positioned their portfolios accordingly.
One such firm was Jabre Capital Partners, the $1.5bn Geneva-based hedge fund founded by ex-GLG trader Philippe Jabre. In an investor letter seen by HFMWeek the fund said it had been “materially adjusting” its portfolios after positioning itself for a Remain vote.
The note did not disclose any performance swings but the firm said it was bullish on the potential for the current turmoil to create market dislocations and “significant opportunities”, despite being extremely challenging for its investment style.
- 6.50pm: Winton profits from Brexit trades
Although Winton founder David Harding was a prominent Remain campaigner, there was a silver lining in today’s Brexit clouds for him with the Winton Diversifed Fund up 3.1%, according to a report in the Wall Street Journal.
Our managed futures title CTA Intelligence has been looking at the general environment today for CTAs with trend-following firms generally down despite some big winners.
- 6.30pm: Consultant highlights “stale pricing” and higher transaction costs
Investment consultant Redington has sent clients a briefing on areas of the market to monitor, pointing out heightened transaction costs around Sterling debt and concerns about “stale pricing” in many illiquid asset classes.
On hedging….. “We believe pension funds should maintain existing hedging programs and that liability interest rate and inflation risk remain unrewarded risks. Right now, maintaining a close dialogue with LDI managers on collateral requirements – including those relating to currency hedges and synthetic equity positions – is recommended.”
Liquid and Semi-Liquid Credit……… “According to the feedback we have received so far from our market contacts, liquidity in Sterling debt has been, as might have been intuitively expected, negatively affected following the referendum result. Transaction costs are therefore likely to remain elevated for some time.”
Illiquid Credit…… “The long lead times in sourcing and pricing in illiquid assets and the volatility and poor liquidity in tradeable markets makes the calculation of illiquidity premia unusually challenging. This means there is significant risk of “stale pricing” in many illiquid asset classes. Review any uncommitted illiquid-credit-only allocations and consider mandates where managers can allocate across a wide range of liquid and illiquid credit assets.
- 6.20pm: CTFC releases Brexit statement- markets functioning normally
“Following the United Kingdom’s vote to leave the European Union, the CFTC is closely monitoring the derivatives markets and working with the exchanges and clearinghouses to ensure that they function properly and with integrity.
While there is significant volatility, the markets we oversee are currently functioning normally.”
- 5pm: London macro fund understood to have taken a pounding
We’re picking up intelligence that at least one decent-sized global macro manager based in London has been completely wrong-footed by the Brexit vote and is suffering huge losses for the day.
Many macro managers had been unwinding Brexit positions in recent days given increased volatility and lack of certainty over the result but some had been briefing investors yesterday that they were positioning themselves for a convincing Remain vote.
Industry insiders also suggest a number of commodities funds are suffering big losses today after not hedging currency risk under the assumption that the Remain vote would succeed.
- 4.53pm: Demand for hedge fund strategies with low correlations to market benchmarks is expcted to increase in the wake of the vote, according to Agecroft Partners manageing director Don Steinbrugge.
“The interest for these type of strategies began to increase after the market volatility last August and has continued through the first half of 2016,” he said.
“Some of the strategies that will see a significant increase in demand include: relative value fixed income, market neutral long/short equity, CTAs, direct lending, volatility arbitrage, reinsurance and global macro.
“These strategies will see an increase in demand for both their perceived ability to generate alpha (returns unrelated to market direction) and as a hedge against a potential market sell-off.”
- 3:46pm: Performance most ‘obvious’ concern
Prime brokers are keeping a close eye on their clients’ performance and positioning, with one senior European PB head indicating it was the most “obvious” concern. He added that while “everybody is concerned”, there hadn’t been any “particularly bad” performance from hedge fund clients so far today. “It’s probably better than expected, but hedge funds in the US and UK are definitely out performing [UK peers]”
On the impact of launches over the next six months, he noted it was difficult to predict but that the depressed start-up levels of the year so far were likely to continue. “The launch pipeline had been pretty slow anyway. As with a lot of these things it’s been priced in – launching a hedge fund with the Brexit vote on the horizon would always be difficult and that might explain why we’ve had so few start-ups this year.”
Earlier this month HFMWeek revealed global launch levels had fallen to their lowest level in 12 years, based on data prepared exclusively by Preqin.
- 2pm: Sagil Capital: EM funds face tricky time post-Brexit
Emerging markets will “suffer from increased risk-aversion following the Brexit vote”, Bradford Jones, a portfolio manager at Latam-focussed Sagil Capital, told HFMWeek. “The Mexican Peso is the most liquid emerging market currency and is often seen as a proxy of risk aversion and, true to form, is selling off by over 4% currently.”
Commodities, with the exception of gold and silver, are also selling off, piling downward pressure on commodity-dependent emerging markets such as Brazil, Russia, Mexico, Indonesia, Turkey and Saudi Arabia. However, cheaper commodity prices may yet offer a boost to the likes of India and China in the short-term. For some emerging markets-focused funds, Brexit may create opportunities, Jones added. “There are a number of stocks listed in Europe with primary emerging exposure – that may be less impacted by Brexit – which we are looking to purchase should equities in Europe continue to sell off.
- 1.34pm: Duff & Phelps: Managers will have ‘numerous’ portfolio valuation issues
“Alternative fund managers will have numerous valuation issues to contend with in reflecting the impact of the UK’s exit from the EU. Forthright and transparent communication with limited partners and other stakeholders will be key,” Duff & Phelps managing director Ryan McNelley said in a briefing note. “The intermediate and long-term outlook of private debt and private equity investments – particularly those with exposure between the UK and the EU – will need to be carefully monitored and the impact of their rapidly changing outlook should be reflected in ongoing NAV reporting.
“Investments with significant FX exposure will also need to be looked at carefully. Refinancing risks will also be a key consideration if there is a protracted disruption to the capital markets. Inevitably, any capital market dislocation will create a myriad of distressed and contrarian buying opportunities, but such investments are not without risk which will need to be measured and monitored carefully.”
- 1.30pm: Morgan Stanley denies BBC reports of Dublin/Frankfurt move
The BBC is reporting that Morgan Stanley will move about 2,000 of its London-based investment banking staff to Dublin or Frankfurt and that it has set up a taskforce to handle the move. However, Morgan Stanley is denying the report. A spokesperson for the bank told HFMWeek the report was “absolutely untrue”.
The jobs which would be moved from the UK would be in euro clearing but also other investment banking functions and senior management.
Earlier this year, Credit Suisse announced it had opened its Dublin prime brokerage base from which to operate PB, prime financing and securities lending functions, while salesforce and relationship managers remain in London.
The UK’s vote to leave the European Union is a very significant decision which will have a considerable impact, the extent of which will not be known for some time.
The bank has said it will “continue to monitor developments very closely and adapt accordingly while prioritising the interests of our clients, our shareholders and our employees.”
- 1.28pm: Point 72 will continue to expand in London
A number of US managers have been launching London operations or beefing up their teams recently, including Steve Cohen’s Point 72, which has made several senior hires.
Point72 has confirmed to HFMWeek that it will continue to hire staff in its London office and that the vote does not dampen its growth plans.“Point72 will remain unswervingly on its course to attract and retain the brightest talent in the industry in pursuit of its mission to being the premier asset management firm while adhering to the highest ethical standards,” a spokesman said.
Some London managers have been expressing unease about future hiring strategies given that a large percentage of their talent in London are EU non-UK. The Vote Leave campaign has suggested that EU staff currently working in the UK will be unaffected by any tightening of immigration restrictions but managers fear that making future hires could become harder.
- 12.26pm: Heptagon Capital warns of Brexit ‘domino effect’
Arnaud Gandon, Heptagon Capital CIO, says this morning’s decision could risk creating a domino effect across Europe and warns its impact on financial markets will be felt in portfolios “for years to come”.
“The key risk now is a domino effect, the vote opens the door to more referendums in the EU. This could mean the return of risk within peripheral government debt,” Gandon told HFMWeek.
The London-based firm said it had re-aligned equity positions in the run-up to yesterday’s vote and stressed that time is needed to examine how markets will settle over the coming days.“We had prepared for it in our managed portfolios buy reducing the equity weight quite aggressively in May and going long US Dollar in non-dollar portfolios,” Gandon added.
- 12.21pm: UK hedge fund giant BlueBay Asset Management, which manages more than $60bn in assets, has said the credit market’s reaction to Brexit has been “pretty impressive” initially, but fears its impact across the sector will only add to the downward trend in European credit over recent months. “The reaction of the market is pretty impressive at this stage… It is feeling extremely resilient,” portfolio manager Geraud Charpin told HFMWeek.
“When you look at CDS indices they opened about 30bps wider and then started to come back and now we are around 17bps wider only. We are now with what I would call a very muted down reaction in risk assets, certainly more muted than we would have expected.
“The decision creates more uncertainty on the Eurozone. It damages the growth prospects for the entire region and so is something that means you have to demand a higher premium to invest in corporate debt,” he said. “I don’t think the Brexit vote is necessarily something of sufficient impact to create a big shock in global markets but it is one more nail in the coffin.”
- 12.20pm: HFs must watch liquidity; market suspensions a ‘possibility’
Christopher Leonard, London-based financial regulatory partner at law firm Akin Gump has warned hedge fund general counsels and COOs to keep an eye on managing liquidity in their funds: “Are they able to meet all redemption requests?”
“In the immediate short term, the priority must be dealing with market volatility. There have not been any regulatory interventions in the market this morning, but managers will need to be alert to the possibility of market suspensions and short selling prohibitions being imposed. In the longer term, there will clearly be an impact on managers’ regulatory status in the UK and the EU – however, we have to be optimistic that the UK’s financial services legal and regulatory regime will be recognised as ‘equivalent’ to that in the EU and that UK firms will continue to be able to passport into the EU.”
- 12.08pm: Man Group ‘committed to UK’ post-Brexit
In a statement Manny Roman, CEO of Man Group, said: “The news overnight has come as a surprise to the markets and will inevitably lead to a period of uncertainty and transition, as the terms of Britain’s exit and its future relationship with the European Union are determined.
“Nonetheless, our industry is in the business of analysing and responding to global political and economic developments. It will take time to work out the consequences of the result, but we are committed to the UK as part of our global business and to hiring the best talent from all over the world. In the meantime, we continue to focus on performance and serving our clients through this time of change.”
- 11.30am: The three leading research agencies – Moody’s, S&P and Fitch – are set to downgrade the UK’s AAA rating on its sovereign debt following the unprecedented decision. In a press release issued this morning, Moody’s called the UK’s decision to leave the European Union a “credit negative” for the country. “The immediate financial market reaction has been pronounced, with sterling depreciating sharply and global equity markets falling,” a statement read. “Heightened uncertainty during negotiations over new arrangements between the UK and the EU will likely dent investment inflows and consumer and business confidence in the UK.”
- 11:07am: The Swizterland-domiciled International Capital Market Association has said it will review the standard market documentation and guidance on market practices it provides as the details of the UK’s withdrawal from the EU become clearer. “As the markets adapt to the UK withdrawal from the EU, ICMA will continue to work with the authorities in the UK, the EU, the euro area and elsewhere, to ensure that our members’ views in the international capital markets are well represented.”
- 10.46am: Hedge funds that do well out of today’s result will benefit from heightened, and much-needed, investor confidence, one adviser to HNWIs told HFMWeek.
“Most HFs were neutral ahead of the vote, so they should make money today. If true, when good results are public, they should stimulate confidence and demand in HFs.”
- 10.35am: The European Central Bank (ECB) said it was closely monitoring financial markets and in close contact with other central banks.
“The ECB stands ready to provide additional liquidity, if needed, in euro and foreign currencies. “The ECB has prepared for this contingency in close contact with the banks that it supervises and considers that the euro area banking system is resilient in terms of capital and liquidity. The ECB will continue to fulfil its responsibilities to ensure price stability and financial stability in the euro area.”
- 10.20am: European Commissioner for financial services Lord Hill will now be in a “tricky position”, representing the UK’s financial interests in Brussels until Article 50 negotiations close while facing sentiment from European peers to resign, according to John Rowland, executive director at Cicero, a political consultancy firm. “There is a sentiment among some in the EU that British MEPs should take observer status and the British Commissioner should resign. Hill will likely look to do business as usual until such time as the UK formally leaves. But how much political capital does have he have on behalf of a nation which has voted to leave?” While other market participants have pointed to continued EEA access as resulting in less material change for hedge funds, Rowland adds that access to the single market “will not come without a price tag”, which will likely contradict the anti-immigration platform that the UK electorate voted for. “EEA membership will require free movement of people and that is not what the electorate voted for, explicitly voting against free movement in a campaign run on immigration.”
- 10.20am: “Out of change comes opportunity,” Seonaid Mackenzie, managing partner at regulator incubator Sturgeon Ventures, said. “The talent is here in the UK, the fund domiciles are in the EU/Cayman/BVI, and they will, I am sure, sign agreements with the UK that British-managed funds can be distributed to professional investors.
“US managers and Cayman funds today are using the National Private Placement Regime – the key is how long will that remain,” she said.
- 10:15am: Crispin Odey praises ‘brave’ Brexit decision
Brexit supporter Crispin Odey said the “brave” decision to leave the EU “reflects proper disaffection in a world of low growth and almost no productivity growth which can only get worse if unanswered.
“Ordinary people have spoken and broken ranks with the experts and their political leaders. People want honest appraisals, they need structures that humanise them, leaders that they can know and communicate with, solutions that, however unpalatable are explained, communicated and preferably debated well in advance. This is a black day for those who would prefer decisions to be made in darkened rooms by experts. What a day. But it must not go to waste and we must remember how close it was but also how brave a decision it was,” he said in a statement.
Odey estimated its flagship fund could see gains of 15% or more by the end of this month, boosted by bullish gold bets and a 100% net-short position across the portfolio.
- 10.10am: One hedge fund recruiter noted that Brexit “will make most people risk-averse in the short-term” but that a flight of talent was unlikely. “Revenues are in € and USD, costs are in GDP and distribution is under the established regimes of the AIFMD and Ucits or US-focused”, he said.
- 10:00am: “Post-Brexit in which the UK is neither part of the EU nor EEA, UK managers would, in EU parlance, become “third country firms” and would cease to benefit directly from the MiFID, AIFMD and Ucits passporting regimes. However, the UK’s existing EU-based laws should arguably be equivalent to those of the EU. Therefore the UK would be well placed to take advantage of concessions available to third countries, as many non-EU countries already do,” Lucy Frew, financial regulatory partner at Kemp Little, said.
“UK hedge fund managers would be treated as ‘non-EEA AIFMs’ and would only be able to market hedge funds to EEA investors under private placement arrangements – if the member states where the investors are based permit such marketing. However, many hedge fund managers already prefer to operate on this basis,” she said, adding that UK hedge fund managers will not be impacted as much as the rest of the financial sector.
The vote is likely to create a divide between Ucits managers and AIFMs, as Ucits managers rely more heavily on the UK’s membership of the EEA, which will be a “key” outcome to be clarified.
- 09.43am: Aima to be ‘heavily involved’ in post-Brexit negotiations
“It is in the clear interests of our members in the UK to have access to EU markets and EU investors.
“The exit process is a long one and subject to extensive negotiations between the UK and the EU. AIMA will be heavily involved on behalf of our members during the negotiation process. In the immediate future our members remain subject to compliance with EU rules.” Jack Inglis, CEO, AIMA
- 09.39am: Credit Suisse, which opened a Dublin office for its prime brokerage operations earlier this year, has reassured its clients and employees that “there are no immediate legal implications” for them as a result of Brexit. “We are committed to servicing our clients and working with regulators and governments to ensure an orderly transition to any future potential UK/EU financial services market access agreement,” a spokesperson for the Swiss bank said.
- 09.38am: The Futures Industry Association (FIA) releases a memo on what Brexit means for cleared derivatives markets.
“While there is considerable uncertainty about how this decision will impact financial markets broadly and our industry specifically, FIA will support our members during what will undoubtedly be a protracted period of transition.”
- 09.15am: The European Fund and Asset Management Association (Efama) said it intends to spend time consulting with its members across Europe to gather feedback and reactions, and to determine which next steps will be needed in due course.
“The decision today means that there is now less uncertainty about the direction this issue will ultimately take. Nonetheless, the practical consequences cannot be clearly identified before a proper and longer term impact assessment has been made.”
- 09.09am: Most financial regulation is derived from EU legislation which will remain applicable until any changes are made by the UK government, the FCA said.
“Firms must continue to abide by their obligations under UK law, including those derived from EU law and continue with implementation plans for legislation that is still to come into effect,” the UK regulator said in a statement, adding that it would work closely with the government “as it confirms the arrangements for the UK’s future relationship with the EU”.
- 09.00am: London hedge fund ‘in great shape’ post-Brexit, says COO
“We’re in great shape. We paid close attention to sterling and other currency exposure, as well as UK equity exposure, allowing us to come out of the referendum fairly unscathed,” the COO at one London-based event-driven hedge fund told HFMWeek.
- 08.57 Bank of England governor Mark Carney said some market volatility can be expected following the UK’s decision to leave the EU, “but we are well prepared for this.
“The Treasury and the Bank of England have engaged in extensive contingency planning and the chancellor and I have been in close contact, including through the night and this morning.”The Bank will not hesitate to take additional measures as required as those markets adjust and the UK economy moves forward.”
Carney said it will take some time for the UK to establish new relationships with the EU and the world.
- 08.46am: “It is not all bad” – Stephen Saint-Leger, managing director of Cambridge Associates, on what it means for investors.
“UK equities should benefit from the depreciation of sterling. Global equities, on the other hand, may tumble, as investors interpret the successful populist backlash against the status quo as the thin edge of the de-globalisation wedge.
“But a prolonged downdraft in equity markets that threatens to spill over into the real economy is likely once again to trigger a response by the authorities—for example, a temporary suspension of fiscal austerity measures. This could actually provide an attractive opportunity to re-balance into equities.
“As far as fixed income is concerned, UK gilts and other European government bonds are already discounting low or no real growth—so they may continue to remain unattractive.”
- 07.53am: JP Morgan has pledged to help with market volatility in an internal memo to employees seen by HFMWeek. The bank stressed that it is not clear what the UK’s EU engagement will look like and that “for the moment, we will continue to serve our clients as usual, and our operating model in the U.K. remains the same.”
“We are hopeful that policymakers will recognize the immense value created through a continued open economic engagement between the U.K. and EU members. As negotiations offer more clarity over the coming months, we will communicate with you and with our clients regarding any relevant changes,” chairman and CEO Jamie Dimon; Daniel Pinto, head of the corporate & investment bank and Mary Erdoes, head of asset management, said in the joint statement. Earlier this month it was reported that the US bank could look to move up to 4000 jobs to another location should the UK vote to leave.
- 07: 52 Speaking from Downing Street, Prime Minister David Cameron says the country “needs fresh leadership” after the UK voted to leave the European Union.
He said a new prime minister should be in place by the start of the Conservative party conference in October.
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