Funds Hub

Another year of losses for hedge funds?

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.

GAIM 2009: Hendry’s investment outlook

Watch maverick fund manager Hugh Hendry, partner and CIO at Eclectica Asset Management, talk about his investment outlook at this week’s GAIM 2009 hedge fund conference in Monaco.

A hectic schedule

The hedge fund circuit can be exhausting.

Last Thursday saw the plush fundraising dinner of ARK, the charity headed by Arpad Busson, fiance of Uma Thurman, at London’s Waterloo International.

The next date in the European hedge fund industry’s diary is next week’s annual GAIM conference, held in Monaco (where else?).

From June 16th-18th top executives and managers will be gathered in the principality to discuss the outlook for the industry, which delivered record poor performance last year and which has seen waves of investor outflows.

The packed programme shows the industry is coming to terms with the new conditions in which it is operating.

Man Group CEO Peter Clarke and NewSmith Asset Management chairman Stephen Zimmerman will be among those debating “the criteria for the safe, smart alternative business of the future”, while a separate panel will examine the opportunities in ”emerging, transforming and deconstructing businesses”.

Maverick hedge fund manager Hugh Hendry of Eclectica will discuss “the crisis in capitalism”.

Odey’s Barclays boost

There’s nothing like backing up your stock market calls with a nice healthy profit, and Crispin Odey has done just that, revealing a 27.74 percent return in April from his European fund.

Having last month said the rally in equities could turn into a new bull market and having recently tucked away a few banks into his portfolio (after last year making money shorting banks), Odey has profited from the astonishing recovery over the past two months in Barclays shares, which alone accounted for nearly half the fund’s return last month.

There could be more to come.

According to Odey, the “government has felt and acted like a gorilla in this downturn”, and says state actions, while hindering its ability to borrow, may have turned “a deflationary bust into an inflationary bust”.

The result, for Odey, is that if inflation does take off then equities, which look cheap to him, will protect investors’ money in real terms.

In contrast, former Odey fund manager Hugh Hendry, who is now at his own firm Eclectica and who is well known for his bearish stance, lost 5.4 percent last month

“We were not positioned for such an embracement of risk-taking,” admits Hendry, although he quickly moved to limit losses rather than fight the rally and cut back all his risk positions.

Written in the stars

It is not often that Reuters journalists carefully take down the words of an investor who regularly consults an astrologer, but then not every investor recorded a 32 percent increase in his portfolio in 2008.

As head of Eclectica Asset Management, Hugh Hendry cuts a figure not often seen in modern-day financial investing: a besuited Malcolm McLaren-esque counter-culture figure rather than a pointy-headed quant analyst.

Hendry says he draws direct inspiration from hedge fund managers from yesteryear, making money on the far fringes of the market, rather than today’s hedge fund professionals wedded to the big bastions of the financial industry.

“I have always identified with the spirit of the hedge funds of the 1970s. They were always these fascinating people who you wanted to hang out with, but always regretted not giving them more money,” Hendry said.

“But you couldn’t quite give them a lot of your money because they were too interesting, too edgy — that’s why you call it alternative,” he said.

A charismatic figure, his astrologer thinks he will be the prophet of the next century, but then, says Hendry, that is because his astrologer is mad.

Reuters Hedge Funds and Private Equity Summit

Next week sees Reuters running its annual Hedge Funds & Global Equity Summit from 23rd-25th March, with some top speakers lined up.

Regulation is looming for both industries, as G20 leaders prepare to consider recommendations from finance ministers at next month’s summit in London, and is likely to be one of the hot topics.

Hedge funds are facing their biggest challenge ever in the form of high levels of outflows and record poor performance, while many have gated or suspended redemptions.

Private equity, meanwhile, faces major concerns about the sustainability of the leveraged buyout model, as high debt levels push many portfolio companies into breaching their banking covenants.

Last year’s Summit included big-hitters such as Blackstone senior managing director John Studzinski and Eclectica hedge fund manager Hugh Hendry.

Look out for stories and blogs on the Summits section of our website and on Hedge Hub next week.

Saving Hendry? Thanks but no thanks, says Hugh

It was always unlikely that a letter of advice was going to change the mind of maverick hedge fund manager Hugh Hendry.

And in his latest letter to investors, Hendry has smartly rebuffed any attempt to ‘save’ him from his bond investments.

The letter in question – Gregor.us’s monthly note, entitled “Saving Hugh Hendry” – praises the Eclectica co-founder and CIO as a “brilliant and colourful” hedge fund manager who saw the coming storm and took cover well in advance.

But it goes on to argue that the 27-year bull market in government debt, in which Hendry is a big investor, is probably coming to an end: