Stockholm (HedgeNordic) – In 2023, the Nordic hedge fund industry marked its fourth-best year over the past decade, recording a 5.9 percent advance. The industry concluded the year on a positive note, with a 1.5 percent increase in November and a notable gain of 2.4 percent in December, representing one of the best monthly performances in over three years. The industry’s performance had been generally underwhelming through the end of October.
The Recovery of Fixed-Income Strategies. Fixed-income strategies emerged as the standout performers in 2023, with six of the ten top performers in the Nordic Hedge Index being fixed-income hedge funds. The fixed-income category in the index recorded its best annual performance since 2012 with an average gain of 12.0 percent. This recovery came after a 7.1 percent loss in 2022, primarily attributed to the unexpectedly aggressive interest-rate hiking cycle that led to high single-digit or low-teen losses for most funds. In 2023, these fixed-income funds not only rebounded from the previous year’s downturns but also achieved gains surpassing 10, 20, and even 30 percent.
Performance of Equity Long/Short Managers and CTAs. Strong performance in the final two months of 2023 propelled equity long/short managers to an average gain of 5.5 percent for the group. However, this category masks considerable disparity. In 2023, for example, the top 20 percent of this group achieved an average gain of 21.4 percent for the year, while the bottom 20 percent incurred an average loss of 13.3 percent. The small group of Nordic managed futures vehicles, which primarily rely on a trend-following approach, concluded 2023 with a decline of 3.0 percent. Although most vehicles in this segment experienced single-digit losses, three out of the ten finished 2023 in positive territory.
Diversified and Multi-Manager Funds. Following a challenging 2022, during which the diversified funds category concluded the year in the red at minus 8.6 percent, this multi-strategy category saw limited recovery in 2023 with an average gain of 3.2 percent. Despite several bright spots in this segment, numerous funds that faced challenges in 2022 struggled to recuperate losses in 2023 and, more concerning, ended the year in negative territory. Multi-manager hedge funds in the Nordics, on the other hand, had a relatively favorable 2022, experiencing only a marginal decline of 0.7 percent in the challenging market conditions of that year. 2023 turned out to be a positive year for this segment of the industry, with the small group of multi-manager funds posting an advance of 3.9 percent.
The Recently Launched Equity Long-Only (ELO) Category. In September, HedgeNordic introduced a new sub-strategy category to the Nordic Hedge Index: Equity Long-Only (ELO). This category is home to funds that would fall short of qualifying as a hedge fund due to their long-only trading approach but exhibit habitual characteristics of a hedge fund strategy (e.g., leverage and derivatives usage, portfolio concentration, fee structure, a spin-off of a long/short strategy, and absolute return objectives, among others). This group of 11 funds advanced 22.2 percent on average in 2023, after gaining 8.5 percent in November and an additional 5.2 percent in the last month of the year.
Leading the pack in 2023 was Asilo Argo, which maintains a concentrated portfolio of approximately 12 current or potential future “superstar” companies. The fund recorded an advance of 63.8 percent in 2023. HCP Focus, under the umbrella of Helsinki Capital Partners, followed suit with an advance of 62.8 percent. HCP Quant, Stolt Explorer, Being and Investments Public Active Value, and Protean Small Cap also enjoyed a solid performance in 2023.
Highlighting some of the top-performing funds in 2023
The Nordic Hedge Index concluded 2023 with a 5.9 percent gain, yet the top 20 percent of funds advanced 19.9 percent on average, while the bottom 20 percent incurred an average loss of 8.1 percent. Over three-quarters of index constituents posted gains for 2023, and exactly half of the funds with a track record exceeding two years reported a cumulative gain over the past two years.
Pareto Total, a long-biased equity long/short fund overseen by Bård Johannessen and Oddmund Nicolaisen Enæs in Oslo, secured the top position in the performance charts of the Nordic hedge fund industry for 2023, delivering an impressive full-year return of 31.4 percent. Celebrating its ten-year anniversary in January, Pareto Total achieved its best annual performance since its inception. Since launching in mid-January 2014, the fund has delivered an annualized return of 11.8 percent, growing into one of the largest hedge funds in the Nordics, currently managing around NOK 8 billion, equivalent to over €700 million.
Capital Four Structured Credit Opportunities Fund, focusing on structured credit opportunities such as Collateralised Loan Obligations (CLOs), also enjoyed a solid performance in 2023, delivering a return of 30.7 percent. The fund’s management team employs a fundamental bottom-up approach to analyze the underlying asset pools and select CLO managers to generate attractive risk-adjusted returns. Despite its strong performance in 2023, the fund continues to maintain an attractive yield of 17.5 percent across a well-diversified portfolio of CLO managers, coupled with a low interest rate sensitivity. Since launching in mid-2020, Capital Four Structured Credit Opportunities Fund has delivered an annualized return of 15.8 percent.
After successfully running their investment philosophy of picking the “finest companies in the world” under the hood of long-only equity fund Coeli Global Select, Andreas Brock and Henrik Milton launched two other funds relying on the same philosophy in 2022. The Stockholm-based duo introduced another long-only equity fund with a focus on smaller companies and a long/short equity fund that borrows its long ideas from the existing long-only funds. The long/short equity hedge fund, Coeli Global Opportunities, ended 2023 with an advance of 26.2 percent.
The entire trio of relative-value fixed-income hedge funds at Danske Bank Asset Management concluded 2023 among the ten best performers within the Nordic Hedge Index. Two of these fixed-income hedge funds, Danske Invest Fixed Income Global Value and Danske Invest Fixed Income Relative Value, ranked fourth and fifth with returns of 26.2 percent and 25.0 percent, respectively. After experiencing high single-digit or low-teen losses in 2022 due to several factors, mostly stemming from the unexpectedly aggressive interest-rate hiking cycle, all three funds swiftly recovered from the 2022 drawdowns, achieving gains surpassing 20 percent in 2023.