Nice Hedge Fund Managers Finish Last? Maybe Not

We all know nice guys finish last. This is particularly true when it comes to high finance and hedge fund managers. It's a dog eat dog world and only the most ruthless hedge fund managers make it to the top right? Wrong. 

At least according to a new study published in the Personality and Social Psychology Bulletin.

According to this new research, hedge fund managers that show signs of narcissism, Machiavellianism, and psychopathy actually underperform their peers. Sure, it's only underperformance of  1%, but this is still welcome news to the optimists among us.

Researchers at UC Berkeley and University of Denver attempted to measure the personality traits of over 100 hedge funds managers. They then compared this with 10 years of performance data. They found those with psychopathic traits underperformed in terms of annualized and risk-adjusted returns.

Of course, the sample size is rather small, representing just a few percent of US hedge fund managers. 

Still, the study also is supported by similar research that shows those who display courage, justice, and humanity tend to be the most effective leaders. 

Hedge Funds Off to Poor Start in 2010

Hedge funds had their fourth worst first half in more than 20 years according to the Hennessee Group. Though hedge funds outperformed the major stock averages in the first half of 2010, .2% vs -7%, it still ranked among the worst first half performances. In 2009, the Hennessee Hedge Fund Index was up over 11% January through June. In 2008, one of the worst years for hedge funds given the broad market declines, hedge funds were down over 2% through June and finished the year down 19.9%.

The best performing hedge fund sectors in 2010 have been the debt categories with Fixed Income up 5.69%, High Yield up 4.42%, and Distressed up 3.87%. This comes amid tightening spreads between high yield debt and government securities.

The worst performing hedge fund strategies in 2010 are, somewhat unsurprisingly, Europe funds down 6.46%, Health Care down 2.85%, and Growth down 1.95%.

Best Performing Hedge Fund Sectors of 2009 (YTD)

The best performing hedge fund sectors for YTD (through June 30, 2009):

#1. Latin America (LATAM) +26.05%
#2. Convertible Arbitrage +21.48%
#3. Distressed +17.16%
#4. Multiple Arbitrage +16.20%

Source: Hennessee Group

Interestingly, only the top 3 hedge fund strategies above even beat the NASDAQ's 16.36% return YTD.

Overall, the index is up 11.74% through the first half of the year, beating all the major US equity indeces, except for the NASDAQ.

Quant Funds Underperform Value Funds

Value based hedge funds have been outperforming their quantitative counterparts this year as highly levered out of favor companies performed well in the first part of 2009. Meanwhile, momentum based quant funds have been hit hard as the biggest losers in recent months, banks and other financials, actually outperformed. In fact, quant momentum funds posted their worst returns in 15 years in March, losing more than 25%.

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Hedge Funds Even for Q1 2009

Hedge funds either gained .5% in the first quarter of 2009, or lost .1%, depending on which index you follow. Hedge Fund Research showed a .5% first quarter gain, while Morningstar's 1000 Hedge Fund Index posted a miniscule .1% decline. Total hedge fund industry capital fell to $1.33 billion, $600 billion below its peak.

Most Asian Hedge Funds will Not Receive Performance Fees in 2008

Bloomberg's report today that more than 80% of Asian hedge funds will not receive performance fees in 2008, does not come as a huge surprise given most funds' dismal performance. About 30% of funds actually had positive returns in 2008, but presumably high water marks and benchmarks account for why only 2/3 of the hedge funds with positive performance in 2008 will receive performance fees.

More astounding is that the report found that 86% of asian hedge funds are below their high water mark.

APAC Capital Advisors closed its Greater China Fund in September after assets declined by 80% to just $10 million.

Hedge Fund Performance Report

Index Value Return Currency Dec 08 Nov 08 Dec 08 Nov 08 YTD Credit Suisse/Tremont Hedge Fund Index USD 351.08 351.20 -0.03% -4.15% -19.07% Convertible Arbitrage USD 221.62 223.82 -0.98% -1.88% -31.59% Dedicated Short Bias USD 88.94 90.46 -1.68% 3.04% 14.87% Emerging Markets USD 264.49 263.92 0.22% -1.87% -30.41% Equity Market Neutral USD 225.47 224.54 0.41% -40.45% -40.32% Event Driven USD 395.52 400.56 -1.26% -3.21% -17.74% Distressed USD 452.18 463.96 -2.54% -5.00% -20.48% Multi-Strategy USD 371.03 372.86 -0.49% -2.17% -16.25% Risk Arbitrage USD 277.63 273.26 1.60% -0.02% -3.27% Fixed Income Arbitrage USD 166.79 168.13 -0.80% -5.60% -28.82% Global Macro USD 582.69 576.30 1.11% 1.54% -4.62% Long/Short Equity USD 401.98 397.78 1.06% -1.41% -19.76% Managed Futures USD 284.19 277.61 2.37% 3.22% 18.33% Multi-Strategy USD 275.79 280.04 -1.52% -4.63% -23.63%

Record Hedge Fund Redemptions in Q4

Hedge Fund Redemptions Reach Record in Q4 2008:
Hedge fund investors withdrew more than $150 billion from hedge funds in the fourth quarter of 2008, a new record. Several funds including Tudor Investment Group, Citadel Investment Group, Drake Capital, and other large funds were forced to either suspend redemptions or create new lock-on requirements to halt the flow of assets.

Hedge funds lost more than 18% of their value in 2008 and saw total hedge fund assets under management (AUM) drop 30% from $2.0 trillion to $1.4 trillion in 2008.

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Best and Worst Months for Hedge Fund Returns

December is the best month for hedge fund performance since 1997. Between 1997 and 2008, the Barclay Hedge Fund Index averaged 2.14% in December compared with a .95% average monthly gain over the time period. The worst month for hedge fund returns was August, with an average return of -.14%, the only month with a negative return.

The best season for hedge fund returns has been the fall, averaging 4.64%. The worst season for hedge fund returns has been the summer, averaging only .84%.

Average Hedge Fund Returns by Season/Quarter 1997-2008
Winter (Q1) Spring(Q2) Summer (Q3) Fall (Q4)
3.16% 2.89% .84% 21.4%

Average Monthly Hedge Fund Returns 1997-2008
J F M A M J J A S O N D

1.2%

1.2%

0.7%

1.1%

0.8%

1.0%

0.3%

-0.1%

0.7%

0.9%

1.4%

2.1%

Hedge Fund Redemptions Rise amid Poor Performance

Hedge fund redemptions continue to rise amid the ongoing market turmoil and poor hedge fund performance. Harbinger Capital Partners Fund dropped 5% in October. Clarium Capital Management dropped 18% in the month and Ken Griffin, founder of Chicago-based Citadel, lost more than 20% in his Kensington and Wellington funds.

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Farallon Capital Management Posts Huge Losses

San Francisco's largest hedge fund, Farallon Capital Management's biggest hedge fund fell 24 percent this year through October which essentially ensures its first annual loss. The firm manages over $30 billion and has been selling stocks and other positions to meet investor redemptions after raising $750 million earlier this year to buy distressed securities.

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Top Performing Developed Asia Equity Hedge Funds

Top performing developed asia equity hedge funds for quarter ending Dec 2007.

Developed Asia equity

Ginga Service Sector Fund

SR Global: Asian Portfolio USD B

Boyer Allan Pacific Partners

MQ Absolute Return Strategy Asia

LG Asian Plus Fund

Hathersage Long Term Currency Program

DB Noetic Equity Long/Short Fund

AlphaGen Hokuto Fund (Class A)

Martin Currie ARF Asia USD

Thames River Edo C JPY

Absolute Partners Fund Limited

Henderson Asia Pacific Abs. Ret. USD

Ark. Royal B Class

UG Greater China Multi-Strategy Fund

SR Global Inc. H Japan

Prospect Absolute Return (Hybrid)

Tiedemann Falconer LP

Henderson Japan Absolute Return USD

DB Equilibria Japan Fund USD

HT Asian Catalyst Fund

Asuka Japanese Eq. L/S Offshore I B USD

H3 Japan Fund

Investcorp WMG Asia Fund