December 2017 PROMOTION. FOR INVESTMENT PROFESSIONALS ONLY. NOT FOR PUBLIC DISTRIBUTION Equity Indices at all time highs - Volatility at lows Where to hide in a turning tide? The Big Short Question Challenges, Opportunities and Ethics of Shorting Stocks Hedge Fund 2.0 A daring Glimpse at the Future of the Hedge Fund Space The Many Shapes & Colours of Equity Hedge Fund Strategies www.hedgenordic.com - December 2017 www.hedgenordic.com - December 2017 PROMOTION. FOR INVESTMENT PROFESSIONALS ONLY. NOT FOR PUBLIC DISTRIBUTION Contents INTRODUCTION HedgeNordic is the leading media covering the Nordic alternati ve DECARBONISATION: A NOVEL APPROACH CONVICTION, GUTS AND HOME-BIASED AND MARKET NEUTRAL investment and hedge fund universe. STAMINA HOW SWEDISH ALLOCATORS EYE EQUITY HEDGE FUNDS The website brings daily news, research, analysis and background that is relevant to Nordic hedge fund professionals from the sell and buy side from all ti ers. HedgeNordic publishes monthly, quarterly and annual reports on recent developments in her core market as well as special, indepth reports on “hot topics”. HedgeNordic also calculates and publishes the Nordic Hedge Index (NHX) and is host to the Nordic Hedge Award and organizes round tables and seminars. 23 20 33 CAPTURING THE GLOBAL ETHICS OF SHORTING ROOTED IN ALLIANZ OPTION STRATEGIES MIFID II & LIQUIDITY: PERFECT EMERGING MARKET EQUITIES - MACRO FACTOR PREMIA CAPITALISM AND DEMOCRACY HARVESTING VOLATILITY IN A STORM OR STORM IN A TEACUP? KEEPING IT IN THE FAMILY CALM SEA. HedgeNordic Project Team: Aline Reichenberg Gustafsson, CFA, Glenn Leaper, Pirkko Juntunen, Jonathan Furelid, Magnus Kovacec, CFA, Kamran Ghalitschi, Jonas Wäingelin, Hamlin Lovell 63 37 13 48 30 Publisher: Nordic Business Media AB BOX 7285 FROM RESOLUTE ASIA PACIFIC ALTERNATIVE RISK The Editor – The green, big short MiFID II & Liquidity: Perfect SE-103 89 Stockholm, Sweden Decarbonisati on:A novel approach STOCK-PICKERS: “DÉJÀ VU IN Y2K!” PREMIA: A HEDGE FUND 04 Future of Hedge Funds 23 48 Storm or Storm in a Teacup? Corporate Number: 556838-6170 ALTERNATIVE? VAT Number: SE-556838617001 Hard Earned Fika for Low-Carbon Indices 101 Seeking alpha in a changing World 05 Nordic Equity Funds 27 51 Direct: +46 (0) 8 5333 8688 Mobile: +46 (0) 706566688 Change and Conti nuity: Emerging Market Equiti es - Alternati ve risk premia: email: [email protected] How Nordic Pension Funds 30 Keeping it in the Family 55 a hedge fund alternati ve? www.hedgenordic.com 10 Invest in Equity Home-biased and market neutral Decoding AI’s Role in 17 Allianz Opti on Strategies How Swedish allocators Financial Services Picture Index: Ase---shutt erstock.com, Francesco 33 59 Scatena---shutt erstock.com, Jirsak---shutt erstock. 13 Harvesti ng Volati lity in a Calm Sea. eye equity hedge funds com, Semisatch---shutt erstock.com, vangelis Capturing theGlobal Macro SEEKING ALPHA IN A aragiannis---shutt erstock.com, aaltair---shutt erstock. A True Long/Short Ethics of Shorti ng 63 Factor Premia CHANGING WORLD com, Giordano Aita---shutt erstock.com, Guryanov- Equity in Healthcare Rooted in Capitalism and Democracy Andrey---shutt erstock.com, Inked Pixels---shutt erstock. 15 37 com, Jirsak---shutt erstock.com, ©-fl yfi sher---Fotolia. com, LALS-STOCK---shutt erstock.com, Paolo-Bona- From Resolute Asia Pacifi c Why Underperforming Stock Pickers --shutt erstock.com, CatchaSnap---shutt erstock. Stock-Pickers: “Déjà vu in Y2K!” are Betti ng on De-Correlati on com, Olga_i---shutt erstock.com, PsychoShadow- 17 41 --shutt erstock.com, Fotolia_13078181, isak55— shutt erstock.com, Creati va---shutt erstock.com, Convicti on, Guts and Stamina What happened to the Whizz kids Lightspring---shutt erstock.com, nvelichko--- A Short Manager’s Journey aft er the global fi nancial crisis shutt erstock.com, Piotr Krzeslak---shutt erstock.com, 20 45 Michal Durinik---shutt erstock.com, Tashatuvango- PAGE 55 51 --shutt erstock.com, Tom Wang---shutt erstock. PAGE com, Zastolskiy-Victor---shutt erstock.com, Durch 1 Alansti x64---shutt erstock.com 2 www.hedgenordic.com - December 2017 The Editor on... The green, big short Future of Hedge Funds Like a stubborn, powerful locomotive, equity markets as natural a concept as going long. If you can go upstairs, are climbing from high to higher highs, barely stopping you should also be able to go downstairs. After all the for a brief moment. While there is some dispersion saying “buy low, sell high”, does not necessarily dictate coming in, volatility on an index level is hovering at an order in which these actions should take place. For historic lows. Beating Beta, and the chase for alpha outsiders, this is one of the hardest concepts to grasp. pockets, and managers positioned to be able to extract those opportunities of excess returns are becoming The end of the year also marks a point to sit down and more sought after. In the last special report of the look back at the past months and events, and also attempt Seasons Greetings ... year, HedgeNordic is putting a focus on those trading to look ahead. In this addition of our special report we strategies predominantly navigation equity markets. want to take this a step further, and discussed with some market participants of where and Happy Trading in 2018! Equity strategies, be it trading they thought the hedge fund stocks, equity indices or industry was heading. There are derivatives are by far the “Buy low, sell high”, still big regulatory waves that most wide spread segment of does not nesseraily are influencing the space, buzz Facts & Figures on NHX Equity SUB INDEX the hedge fund space. The words like big data, artificial strategies managers apply to dictate an order in intelligence, machine learning are find and extract alpha from the commonly heard when in talks markets are manifold, the clean which these actions with managers, some fintech cuts being a long only (or long players are moving and shaking biased) and a dedicated short should take place.” the space. 23.2% / (-14.6%) bias approach. on the other end of the spectrum. From A third focus point which will be Best (Worst) Calendar Year for NHX Equity equity arbitrage, market neutral, systematic traders or playing a far stronger part in our editorial coverage and discretionary stock pickers, activist managers, those trading research over the coming years lies on Socially Responsible large caps, or only micro caps and the enormous spread in Investments (SRI) and ESG. These aspects of the financial the middle. Managers could focus on certain geographies industry will not go away and in contrast, thankfully, play -17% / 18 Months or industries, be event driven, looking at a vast number of an ever increasing role also in alternative investments. Do Depth and length of largest NHX Equity Sub different types of events...I could go on here and would visit our sister site, NordSIP.com on this topic, too! still be doing little more than scratching the surface of the Index Draw Down (07/07 - 11/09) many shapes and colours equity funds appear in. Thank you for having HedgeNordic and her publications on your screens, minds and agendas. Whishing you very Next to the general broad theme, there are two special happy holidays, Hohoho! topics we took a closer look at, the first being the 55 challenges, opportunities and ethics of shorting stock, the CONSTITUENTS TO NHX Equity SUB-INDEX other, more daring, a look into the future of the hedge fund industry. Kamran G. Ghalitschi CEO / Publisher HedgeNordic For those of us who work with hedge funds, going short is PAGE 4 www.hedgenordic.com - December 2017 www.hedgenordic.com - December 2017 The NHX Equities Index, an equally-weighted sub-index short sales of stock, stock indices, related derivatives, or of the NHX Composite, tracks the performance of Nordic- other financial instruments related to equity markets - has based hedge funds that predominantly invest in equities delivered a cumulative return of 24.3%, which equates to HARD EARNED and equity-related derivative securities. The NHX an annualized return of merely 2.5%. Additionally, Nordic- Equities includes funds that employ both quantitative based equity funds delivered higher returns at lower and fundamental techniques; their strategies can be volatility levels. For instance, the annualized standard broadly diversified or narrowly focused on certain deviation of the monthly returns delivered by the NHX FIKA FOR NORDIC sectors or geographies, and can range significantly in Equities equals 4.8%, whereas the annualized standard terms of net exposure, leverage, holding periods, as well deviation for the HFRX index totals 6.2%. as concentrations of market capitalizations. Nordic-based equity hedge funds outstripped their Equity-focused funds account for slightly more than international peers each year since 2009, save for 2010. EQUITY FUNDS one-third of the overall NHX universe, with 37 of the 55 However, Nordic equity fund managers are on course to Nordic equity funds being based Sweden. The NHX family suffer the worst annual result since 2011 and are lagging also comprises 13 Norwegian equity funds, four Finnish, international fund managers this year, predominantly as well as one Danish equity hedge fund. reflecting a recovery on the part of international players. Nordic equity hedge funds have outperformed international When comparing Nordic managers against international peers by a wide margin since the beginning of 2009. For peers, one can easily notice the good downside protection by Eugeniu Guzun – HedgeNordic instance, the NHX Equities Index has generated a cumulative offered by Nordic-based equity strategies. For instance, return of 90.4% since December 2008 through the end of the NHX Equities Index lost 5.6% in 2011, whereas the October of this year, corresponding to an annualized return HFRX Equity Hedge Index dropped by an alarming 19.1%. of 7.6%. Meanwhile, the HFRX Equity Hedge Index - an The outperformance may be explained by differences in index that tracks the performance of various equity hedge the compositions of the two indices.