Are we living through another 2008 crisis? Is it a deeper crisis? How long will it last? Are you betting that the safeguards put in place to protect against global systemic financial risk will hold through the COVID-19 crisis? Can today’s challenges trigger a credit event at one of your counterparties? Are the major counterparties well enough capitalized to support their businesses across the range of potential COVID-19 economic ramifications? These, and many more, are questions that hedge fund managers are facing every day while focusing on cash and liquidity to support their trading activity, and concentrating on exposure to, and the relative health of, counterparties.
Deleveraging / Liquidity Buffers
Based on a measurement of equity long/short managers across the Hazeltree client community since the beginning of February 2020, we have seen a clear trend toward de-leveraging from over 230% to under 200% in early March 2020.
Similarly, we have seen managers increasing their cash positions along the same timeline.
The Hazeltree white paper, “STAYING IN CONTROL: Maintaining Funding and Liquidity during the COVID-19 Crisis,” is available at https://www.hazeltree.com/wp-content/uploads/2020/03/HazeltreeWhitepaper-StayingInControl.pdf