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FirstFT: Quant hedge funds reap windfall during market ructions

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Hedge funds that use powerful computers to manage their portfolios are making huge gains in this year’s turbulent market, marking a rebound for an industry trying to recover from a long period of underperformance.

Trend-following hedge funds, which use mathematical models to predict market movements, struggled for years as central bank bond buys suppressed much of the volatility they thrive on.

But according to data provider HFR, the $337 billion industry is now making its biggest gains since the 2008 financial crisis.

These quant funds have particularly benefited from government bond bets, which have been shaken by expectations that the Federal Reserve will continue to raise interest rates aggressively to combat high inflation. They have also benefited from a rise in energy and commodity prices, fueled by supply chain bottlenecks and the Russian invasion of Ukraine.

“This is one of those moments from 2008 when everyone [in trend-following] going well again. The trends are clearer,” said Leda Braga, founder of Systematica Investments and former head of systematic trading at BlueCrest.

Thanks for reading FirstFT Europe/Africa. Here’s the rest of the day’s news.

The latest on the war in Ukraine

  • sanctions: Ukraine’s allies and partners must go further and adopt measures that will undermine Russia’s ability to finance its war, writes Andriy Yermak, chief of staff to President Volodymyr Zelensky.

  • Military briefing: The Battle of Sievierodonetsk in Donbas illustrates how the fighting is likely to unfold this summer: in an exhausting battle of attrition.

  • Winners and losers: As the war enters its fourth month, the possibility of a Ukrainian victory raises questions, including what would “win” mean?

1. Plant scientists welcome UK law to deregulate crop technology The UK will today introduce legislation to speed up genetic engineering of crops in England. The bill has baffled environmentalists but delighted researchers, including those opposed to leaving the EU, who said the relaxation of genetic engineering rules was a rare benefit of Brexit.

2. Qatar pledges to invest £10bn in the UK over the next five years Qatar has pledged to invest £10bn in the UK, including in the technology, healthcare, infrastructure and clean energy sectors, while the UK government is ramping up efforts to secure investment in sovereign wealth funds from oil-rich Gulf countries.

3. Gloomy mood descends in Davos The Russian invasion of Ukraine, soaring inflation, Chinese lockdowns and growing uncertainty over globalization have conspired to cool business mood at the World Economic Forum meeting in Davos. “There are now three R words: it’s Russia, it’s recession and it’s… [interest] rates,” said Citigroup chief Jane Fraser.

4. Asset managers divided by the HSBC director’s climate critique A provocative speech on climate change by HSBC chief executive Stuart Kirk has divided the wealth management industry. While many disagreed with his tone, others applauded his willingness to spark debate and expose inconsistencies in environmental, social and governance investments.

5. Inequality in the UK is increasing as wages rise fastest for high earners Inequality is rising again in the UK, with figures showing average financial sector earnings in March were 25 percent higher in cash than pre-pandemic levels, surpassing 15 percent growth over the same period of the average. revenues throughout the economy.

Column chart of annual CPI inflation per income decile (%) showing that poorer households have higher inflation than richer ones

the next day

economic data The European Central Bank publishes its biannual stability assessment and the OECD publishes its economic outlook for the eurozone. France will publish consumer confidence figures in May and Germany will have final quarterly gross domestic product figures and a GfK consumer confidence survey. In the US, the minutes of the Federal Reserve’s Federal Open Market Committee meeting in May have been released.

Business reporting Amazon shareholders will vote on executive pay, unionization and a 20 for 1 stock split, Twitter holds its annual meeting and Marks and Spencer chief executive Steve Rowe checks out after 39 years. Peter Thiel will step down from the board of Meta at its annual shareholders’ meeting. Other companies reporting include Hollywood Bowl, Nvidia, Pets At Home, Severn Trent and SSE.

World Economic Forum ECB President Christine Lagarde, the Irish, Dutch and Slovak Prime Ministers and the President of the European Parliament join a Davos Forum on the unity of the EU in response to the Russian invasion of Ukraine.

What else do we read

UK energy suppliers brace for backlash as bills skyrocket Pressure is being put on the UK government to impose a windfall tax on energy groups, which could target not only oil and gas producers but also electricity producers. But suppliers complain that they too have been hit by rising gas prices and that the retail sector is particularly vulnerable.

German companies struggle to rise above the noise Germany’s largest industrial groups are finding it more difficult to attract the attention of investors. While the country’s famed “hidden champions” have little need for media attention, German companies can no longer count on their products to do the talking.

The Fed must act now to fend off the threat of stagflation Whether there will be a recession in leading economies has arisen at Davos. This is the wrong question, argues Martin Wolf, at least for the US. The correct one is whether an era of higher inflation and weak growth, similar to the stagflation of the 1970s, is looming.

Is the ‘subscription economy’ going to feel the Netflix effect? The wave of subscription companies took off around 2011, led by TV and music streaming services and quickly followed by beauty products, clothing, organic coffee, craft beer, pet food and more. The ‘subscription economy’ is heading for its first serious downturn, writes Helen Thomas.

The rise of the Gulf and hope for sustainability Luxury companies report a surge in spending in the Middle East thanks to rising oil prices, strong economic growth and a return to local shopping, just as the two main markets – the US and China – are looking less rosy, executives at the FT Business of Luxury said Summit last week.

How to spend it?

Kylie Minogue has been at the top of the charts for decades. Now her wines are winning awards. What is the secret of her business? The pop megastar turned mogul explains everything.

Kylie Minogue

Kylie Minogue in Melbourne, on the cusp of a new invention © Michelle Tran

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