Hedge funds hit more turbulence

August 18, 2008

Things are going from bad to worse for hedge funds.

Hedge funds were hit when their bets went wrong in JulyHaving only just clawed back their losses after a dreadful March, the closely-watched Credit Suisse/Tremont Hedge Fund Index shows hedge funds lost a hefty 2.61 percent in July after being hit by a double-whammy of market movements.

These freewheeling funds had been betting for some time that banks stocks would fall as the credit crisis ate into their profits, while also betting that commodities would rise as demand for oil, metals and food soared.

This had been working well, but in July banks bounced back because they looked so cheap to some investors, while commodities fell from some of the dizzying heights they had recently reached.

To make matters worse, anecdotal evidence suggests some managers had only recently put these bets on. Having watched them work for months and months and eyed the lucrative returns from a distance, they almost immediately saw them turn sour.

This all means that for the first seven months of the year the industry is down 2.11 percent and could even end the year in negative territory.

If this happens, more investors may reassess why they are putting their money with funds that are supposed to be able to make money in all market conditions — yet can’t deliver.

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The use of high leverage has hurt these hedge funds……..many of them will go out of business.

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