Hedge funds are now being forced to cover their positions due to this year’s market rally per the latest data.
Short sellers have now lost more than $175 billion this year according to the latest data conducted by financial analytics firm S3 Partners.
“Hedge funds who were betting on a market correction have been left reeling from the stock market’s remarkable rally that has defied all bearish bets so far this year.
Short-covering, where sellers buy back borrowed stock to return it to the lender, has reached levels not seen since 2016,” says Business Insider.
“But, despite a predicted recession, companies’ second-quarter earnings have been largely robust, the S&P 500 is enjoying one of its best years since 1927, and broader economic data holds firm – with falling inflation and low unemployment.”
June and July together saw hedge funds close out more positions than any time over the last seven years, as managers rescinded their bearish bets on the stock market, per the data.
Short-sellers took a hit of $53.5 billion mark-t0-market losses in July, marking over $175 billion in total losses for the year so far.
Last week, hedge funds lost more than $6 billion on bad bets against cruise ship and hotel operators this year, the Financial Times reported.
Other large short positions in Airbnb and Booking.com have also backfired after those stocks jumped 70% and 44% year-to-date.
“There are still many investors and hedge funds who think that this rally is ready for a pullback,” said Ihor Dusaniwsky, managing director of predictive analytics at S3.
“Hedge funds that are adding leverage after coming into the year positioned defensively have also increased their short positions.”
Other Recent Hedge Fund News
Representatives of private equity firms, venture capitals, and hedge funds have lobbied lawmakers to disrupt new proposed SEC rules, reports WSJ.
In July, the SEC finalized new transparency regulations meant to shed light on the U.S money market fund industry.
“The amendments will revise the primary rule that governs money market funds to remove the ability for a fund board to temporarily suspend redemptions if the fund’s liquidity falls below a threshold.
These money market funds will be required to provide daily disclosure of the percentage of its total assets invested in weekly liquid assets (as well as daily assets) on their website to provide transparency to investors and “increase market discipling”.
Private-equity and hedge funds are bracing for what could be the biggest regulatory challenge in years to their business of managing money for deep-pocketed investors, says WSJ.
The Securities and Exchange Commission is preparing to adopt a rule package as soon as this month aiming to bring greater transparency and competition to the multitrillion- dollar private-funds industry, people familiar with the matter said.
SEC Chair Gary Gensler has said he hopes to bring down fees and expenses that cost hundreds of billions of dollars a year.
“Since the agency first proposed new rules for the industry last year, representatives of private equity, hedge funds and venture capital have met frequently with SEC officials to try to dissuade them, SEC meeting logs show.
They have lobbied lawmakers to push back against the SEC’s plans and formed a group to fight the final rules, which could differ from the proposal.”
“Investors need increased transparency, more informative and useful data, and prohibitions on abusive and conflicted practices,” Sen. Elizabeth Warren and seven other Democratic senators wrote in a May 15 letter urging Gensler to complete the rules.
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