In our previous article, we covered why Hedge Funds were rapidly declining and were unable to compete with the market standards currently being imposed on them. To be specific, the requirement for exclusivity and risk-adjusted outperformance are progressively becoming increasing difficult to attain. But recent, new updates from the Trump administration may provide some hope for the hedge fund industry.
Trump issued two executive orders last Friday with the purpose of repealing the Dodd-Frank Wall Street Rules – essentially, an act known as the Dodd-Frank Act which placed regulations on the liquefiable assets that were required to be owned by large banks, corporations making investments and anybody handling loans. The act was passed by the Obama Administration to mitigate a catastrophe like the economic meltdown which happened in 2008 and to prevent such an event from ever occurring again. But Trump believes that the Dodd-Frank act directly limits, for instance, the average person’s access to their retirement savings and such restrictions directly affect the financial system of the United States.
So how does all of this have to with Hedge Funds?
NEW YORK – Dan Loeb, the manager in charge of the U.S. Hedge Fund, is convinced that President Trump’s administration will be beneficial to the investment industry as a whole. His plan to reduce taxes, abolishing inane regulations and infrastructure planning may serve as the perfect combination of measures needed to bring the Hedge Fund industry back on its feet.
In a letter addressed to the clients of his $15 billion agency, Third Point LLC, on Wednesday, Loeb commented that this eco-political landscape is most decidedly more favorable for investments and comes as a relief considering the quick downfall of the investment industry. The transition from constant government surveillance with a financial stimulus to provisions that encourage individual and corporate expenditure will reduce the layover and semantic technicalities required to be catered to. For instance, the lack of involvement of multiple layers of security agencies in the stock market would lead to more efficient trading.
This, in turn, according to Loeb, should result in investment companies being able to offer higher interest rates, creating fresh opportunities. His company turned over a loss of 1.1% in its fourth semester, as is to be expected based on the studies provided in <THIS ARTICLE>, leading to him seeing the year as wholly “disappointing.” In 2016, the fund was only able to increase its assets by 6.1%, a significant decline since the usual 15.7% yearly return since 1996.
With the advent of Trump’s election, Loeb made significant changes to the stockholdings of the agency, moving away from the corporate and instead investing into the sectors of IT, raw materials, finance, and medicine. Third Point now has holdings in all the areas above, as well as making a big variation in the insurance of financial companies. Insurance for commercial enterprises now makes up 11.8% of the fund, up from its prior 4.4%. The focus of the agency is on banks and exposure to Japan.
Loeb notes that there is a significant decrease in the carefree leniency about monetary policy, but at the same time, financial regulations are becoming less stern and the limiting factors are slowly being removed. His words echo that whether or not the Trump administration succeeds in making America great, the rules of investment are most definitely being rewritten – hopefully, for hedge funds.