Investment trust insider on hedge funds – James Carthew: Hedge funds proved their worth last year if you can stomach the fees
A few of the listed hedge funds have published results recently. Pershing Square (PSH) and the two Brevan Howard funds – BH Global (BHGG) and BH Macro (BHMG) – had bumper years, largely on the back of the returns they made in last March’s market turmoil. Third Point Investors (TPOU) had a great 2020 too. Returns for Boussard & Gavaudan (BGHS) were more modest, but positive nonetheless.
Pershing Square’s blockbuster derivatives trade a year ago pushed it to the top of the pile in terms of net asset value (NAV) returns with an impressive 70% total return on the underlying portfolio last year. For most of these funds recent NAV returns have been less exciting, however. A weak dollar may be crimping gains to some extent but many of these have the ability to profit from currency moves, so perhaps this is not a good excuse.
In the wake of the gains that they made last Spring, the Brevan Howard funds moved to trade ahead of NAV, particularly BH Macro which stood on a premium of nearly 10%. The rationale for this is hard to fathom – investors piling into the trusts just because they had gone up, perhaps. That party came to an abrupt end earlier this year, when the fund manager demanded a more than doubling in its annual fee.
The boards of the two investment companies handled the situation pretty well I thought. Both put the fee increase to a vote and the push back from investors was less than I had anticipated. BH Macro investors backed the proposal by 82.5% to 17.5%. In BH Global’s case, the dissenting vote was a bit bigger – 66% in favour to 34% against.
I was keen to see that investors unhappy with the hike in fees should be offered an exit at a price close to NAV. It was great then that the fund manager agreed to 40% tender offers for both companies at 98% of NAV. These will happen before July, when…. read more here