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Hedge Funds Navigate Turbulence Amid Rising Recession Fears and Volatility Spikes
The mounting fears of a global recession, coupled with unprecedented volatility spikes, have created a perfect storm for hedge funds, challenging their strategies while also providing opportunities for those positioned to capitalise on the turmoil.
Recession Fears and Volatility: The Perfect Storm
July 2024 was a critical month for hedge funds, marked by escalating concerns over a potential recession. These fears were driven by a rapid shift in market sentiment as inflation concerns, which had dominated the first half of the year, suddenly gave way to fears of an economic downturn. This transition was not without consequences — volatility surged across global equity, fixed income, and currency markets, leading to sharp declines in large-cap technology stocks, which had been a key driver of market performance earlier in the year.
Hedge funds responded to this environment in a variety of ways. Event-driven strategies, which typically focus on out-of-favour equities and speculative M&A situations, were among the top performers. The HFRI Event-Driven (Total) Index, for example, advanced by 2.5% in July, buoyed by activist and merger arbitrage strategies. These strategies benefited from investors positioning themselves for…
