worst year since at least 1990 (hedge funds)
http://blogs.wsj.com/deals/2008/12/30/hedge-fund-returns-the-worst-year-evah/
December 30, 2008, 10:02 am
Hedge Fund Returns: The Worst Year Evah
Posted by Deal Journal
That hedge funds have done poorly this year isn’t exactly a surprise. Still, the end of the year brings data that quantify the damage. David Walker of Financial News files this dispatch on how hedge funds are poised for the worst year on record. Financial News is a Dow Jones publication and a contributor to Deal Journal.
The global hedge-fund industry will register its worst year in almost two decades unless hedge funds can increase the value of their investments by more than a fifth before midnight Wednesday. It brings to an end a miserable year for the sector, which has been battered by falling markets and record redemption requests.
Hedge funds have until New Year’s Eve to earn a 21.7 percentage point rise on their investments or the industry will have had its worst year since at least 1990, according to Hedge Fund Research.
Turbulent markets and the record investor redemptions in the latter part of this year that forced hedge fund managers to sell investments into falling markets, left the industry down more than 23% by Christmas Eve, according to HFR’s investable index. Global shares, by comparison, fell 44% this year.
HFR found that only two of the investment strategies pursued by hedge funds that it monitors yielded investors a profit by Christmas Eve. Hedge funds that invested in companies undergoing mergers or acquisitions returned 1.5% through Dec. 24, while portfolios whose managers invest in instruments linked to macroeconomic variables earned 3.8%.
Returns from the other six strategies make for grim reading for an industry whose previous worst year was a 1.5% decline in 2002. That had been the only decline in the 28 years HFR has monitored performance. The sector rebounded strongly in 2003, returning 19.6%.
Convertible-bond arbitrage fell 58%, while funds staking cash on price disparities of related financial instruments fell nearly 38%. Those investing in market events, distressed securities and equities generally were down 23% to 27%. Funds that balance amounts they put on shares rising while others fall shed only 0.9%.
Investors in hedge funds said that next year should improve, and that global macro and computer-driven funds would fare best. Guido Bolliger, co-chief investment officer at Olympia Capital Management, said global macro managers had “aligned their style with the economic climate expected to prevail next year.” He added that global macro did well when market volatility was high, which he expected it to be “for the next few months”.
However Craig Baker, global head of manager research at consultants Watson Wyatt, said funds would continue closing down next year and “mass redemptions over coming weeks will affect short-term performance”.
HFR said 693 funds, or 6.9% of the industry, closed in the first three quarters of this year alone as losses were compounded by record monthly withdrawals of about $77 billion in September and October.
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