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The U.S. bond rally eases pressure on hedge funds in emerging markets

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The fall in U.S. yields and a weakening dollar help drive a recovery in hedge funds focused on emerging markets, after some leaders including $ 12 billion in equity Pharo Management struggled after a tough start to the year.

Emerging market funds gained 1.9 percent last month, according to data group Eurekahedge, ahead of a 1.1 percent gain among hedge funds more broadly. That leaves them 5.4 percent this year, still behind average hedge fund gains of nearly 8 percent.

Emerging market managers have benefited from a recent decline in U.S. Treasury yields, which rose earlier this year when the loosening of coronavirus blockchain restrictions raised expectations of the investor of a strong economic recovery in the United States is rising inflation.

The 10-year Treasury yield rose from 0.9 percent at the beginning of the year to more than 1.7 percent at the end of March as prices fell. However, it has since fallen below 1.5 percent, driven in part by growing US-China tensions.

Investors often leave emerging markets as U.S. growth picks up and Treasury yields become more attractive, but tend to do so. also pay the money when American bond yields fall. The weakening dollar in the last two months has also helped push up debt service costs in emerging markets, many of whose debt is denominated in the dollar.

London-based Pharo, which is led by former Merrill Lynch banker Guillaume Fonkenell and which is one of the largest hedge funds in emerging markets in the world, was hit hard in the first quarter.

Its $ 5.6 trillion and $ 5.3 billion Macia funds, which had both made money in each of the last five years, had fallen nearly 9% and 7% respectively at the end of March, according to numbers sent to the US. investors, while their Trading fund fell by around 11.5 per cent. The company had been reliant on emerging markets and on some of the most up-to-date emerging market bonds, said a person familiar with its position.

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However, it has reduced some of its losses in the last two months, taking advantage of the more favorable conditions for emerging markets. Its Gaia fund has now dropped 6.3 percent this year to the end of May, according to people who had seen the numbers. Its Macro Fund fell 4.7 percent, while its small Business Fund lost 7 percent, people said.

“The last year has been tough for fund managers” in emerging markets, said Peter Sleep, senior portfolio manager at Seven Investment Management.

Pharo declined to comment on what had driven the performances.

Other funds that have recently gained traction include London-based Carrhae Capital, which was up 2.7 per cent in its hedge fund and 4.5 per cent in its fund over the past month, according to numbers sent to investors. The hedge fund has gained 2.1% for the year, while the Long fund has gained 9.6%.

Ali Akay, head of investment at Carrhae and a former partner at hedge fund SAC, said rising U.S. yields have led investors in emerging markets from rising stock prices, which have benefited them. some of his positions.

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