Hedge Funds Follow Market in March - Flat

Hedge Funds Flat
Hedge fund indexes were flat in March of 2011, following in the footsteps of the S&P500 and other equity markets. The largest hedge funds in Morningstar's database were up just .1%. The S&P was up .04%

Following the financial meltdown in 2007 and beyond, hedge funds as a group had returns just about as disappointing as the broader market, making many question just how "hedged" the average fund is. In March anyway, hedge funds continued their lockstep performance with the markets.

Hedge Fund Launches Increase

Hedge Fund Launches Increased in 2010
There were more than 1100 new hedge fund launches in 2010, more than 50% more than in 2009. Better economic conditions and rising market prices probably account for the increase as investors begin to regain confidence. Also, many managers that could had to face prohibitively high water marks after the market crash have opted instead to open new hedge funds.

2010: A Banner Year for Hedge Funds

Hedge funds had an incredible 2010 in terms of performance. The group averaged a return of just under 20% for the industries best year since 1996.


Hedge funds' strong performance in 2010 is a result of several factors including a strong equity market, low volatility, and the self-selection process that has eliminated weaker hedge funds over the last couple of years.

If the equity and commodity markets are able to continue their bullish run (and there is certainly no guarantee of this) 2011 could be another great year for hedge fund performance.

Hedge Funds Increasing Leverage in 2011

In January of 2011 hedge funds increased their leverage to levels not seen since 2007, according to Bloomberg.


Though hedge funds seem to be increasing leverage in tandem with the rising market, it is not necessarily the case that record amounts of hedge fund leverage in 2011 indicate increased risk taking overall - available cash and margin available also increased.


Its also not unusual to see hedge funds lever into bullish (appearing) markets. It will be interesting to see how a moderate decline in the equity indexes will affect hedge fund leverage.

Hedge Funds Betting on Commodities

With gold, copper and other precious metals reaching all or near-term highs, hedge funds are making their biggest bet in years that commodities will continue to rally.  According to Commodity Futures Trading Commission data, speculative bets on commodities reached the highest level since at least February 2006.

And, according to Barclay Capital, about 75 percent of respondents surveyed  last week in New York predicted a bigger inflow into direct commodity investments next year.

Fund of Funds to Trade Publicly

London Stock Exchange

A London based hedge fund company with a  fund of funds product  is planning to list on the London Stock Exchange. The fund, the CQS Diversified Fund will invest its asserts in the Segregate Portfolio Alpha (DVA) a fund of funds.  CQS has over $8 billion in assets under management.

CEO of CQS, Michael Hintze, believes the multi-fund approach is appropriate for investors in the listed funds sector.


Read More

GS to Withdraw $120 Million from Major Hedge Fund

Goldman Sachs is withdrawing more than $120 million from Harbinger Capital Partners' most prominent hedge fund, the $3.4 billion Harbinger Capital Partners Fund. Harbinger has approximately $20 billion in assets under management. Goldman's withdrawal comes after revelations that Harbinger's CEO, Philip Falcone, borrowed hundreds of millions from the firm's other funds to pay personal taxes as well as the relatively poor performance of the fund.


Because redemption agreements with Harbinger limit quarterly redemptions to 25% it will take 12 months for Goldman to receive its entire investment. It is reported that Goldman had as much as $1 billion invested with Harbinger.

Philip Falcone, who grew up in Minnesota and was a star hockey player in college, helped Harbinger funds return more than 100% in 2007 with timely bets that the U.S. housing market would collapse.

Hedge Funds Have Strong October

Hedge funds had a relatively strong October led by Global Macro and Emerging Market hedge funds. Overall, the hedge fund sector posted returns of 2.35% for the month (a 32% annual rate), according to HFRI Fund Weighted Composite Index. Overall, the index is up just over 7% on the year. By comparison, the S&P 500 was up just over 8% YTD.

Read More

Hedge Fund Manager Provides GOP Strategy

Though hedge fund managers have been characterized recently as leaning democratic, the head of a major hedge fund held a strategy session this week to discuss how the Republican Party can better position itself to win the mid-term elections.

Steven Cohen, CEO of SAC Capital Advisors held the GOP event with other hedge fund managers in attendance including Paul Singer of Elliot Management ($16B AUM) and Bruce Kovner from Caxton Associates. Paul Singer is one of the hedge fund industry's largest contributors to the Republican Party. Singer has also been dissaproving over Ben Bernanke and Alan Greenspan.

SAC gave 93% of its 2010 election-cycle donations to Republicans through Aug. 1

Hedge Funds Scaling Back Risk

With the US economy and the major stock indexes taking a step back, hedge funds are putting their money into more defensive sectors such as utilities and other high dividend stocks.

Some hedge fund manages say that a lot of risk is being taken off the table.

Read More

Duquesne Capital Management to Shut Down

Stanley Druckenmiller of Duquense Capital Management

Dozens of hedge funds have closed already in 2010, and now you can add Duquesne Capital Management to that list. The $12 billion hedge fund run by billionaire Stanley F. Druckenmiller has not had a losing year and has averaged 30 % annually (though the fund is down 5% this year).

Duquesne returned about 11 percent in 2008, when hedge funds on average lost a record 19 percent. It rose about 10 percent in 2009, when the average return was 20 percent.



Druckenmiller is quitting the fund to pursue philanthropic goals.

Metals Hedge Fund to Close

Apollo Management LP, a New York based hedge fund and private equity firm  closed its metals hedge fund in London.

The $40 million into the Apollo Metals Trading Fund started in March 2009, according to a U.S. Securities and Exchange Commission filing. An outside spokeswoman for the firm declined today to say why Apollo shut the fund or to give the number of fund employees.

Commodity hedge funds fell in the first half of 2010 amid sliding commodity prices.

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%.

Alphabet Management Hedge Fund Attracting Top Talent

New York based hedge fund Alphabet Management landed Nelson Saiers, a managing director of derivatives trading with Deutsche Bank. Saiers will lead a group that trades derivatives including volatility options. The departure comes amid Deutsche Bank's decision to close down its proprietary trading operations.

Even Successful Hedge Funds Face Withdrawals

Even the most successful hedge funds can face withdrawals. This was illustrated in June as giant hedge fund Paulson & Co. lost more than $2 billion in assets under management. Although, about the thirds of that amount can be accounted for by market losses, Paulson & Co. likely paid out about $600 million in investor withdrawal requests. In June, Paulson & Co.'s financial services Recovery Fund, lost more than 12%. Paulson's best performing fund was its gold fund, up more than 7% in June.

On the other hand, hedge funds actually did quite well in May in terms of investor flows, taking in more than $4 billion in new assets, even while the industry lost $30 billion in trading the same month.

Source: Market Watch