Funds Hub

Money managers under the microscope

Another year of losses for hedge funds?

July 13, 2010

Are we heading for another down year for hedge funds?

I ask because after a choppy six months or so, during which the FTSE 100 is down 3.6 pct, hedge funds have also lost 1.12 pct.

Some commentators are predicting a rebound in equities and other assets, but others expect further volatility, which could be harmful to funds’ returns.

Our stablemate Lipper, the fund research firm, is sticking its neck out for a better H2, arguing that earnings will surprise on the upside, double-dip fears will fade, and commodity investing will continue to throw up arbitrage opportunities. You can read Lipper’s latest report here.

I remember, at the Reuters Hedge Fund & Private Equity Summit in spring 2008, asking outspoken fund manager Hugh Hendry whether hedge funds might finish 2008 in the red after a tricky start to the year and losses of 4.4 pct in Q1.

Hendry’s emphatic response was that they could. With the benefit of hindsight, and the subsequent deepening of the credit crisis, that might seem obvious, but at the time the consensus view, in the hedge fund industry at least, was that funds would soon recoup their losses.

In the event Hendry was proved right and hedge funds slumped to their worst ever calendar year of performance with losses of around 20 percent.

No-one knows whether economic and market conditions will worsen this year as they did in autumn 2008, but the industry’s natural optimism that things will get better could yet prove misplaced.

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