While the music plays funds gotta dance
(James Saft is a Reuters columnist. The opinions expressed are his own)
With just a few short weeks until the end of the year, look for many fund managers to take on more risk in an effort to salvage their annual return figures.
This is not about fundamentals, this is about something far more important: career risk.
Hedge Fund Research’s Global Hedge Fund index, which is broadly representative of the industry, is up just 11.9 percent year to date, while its Equity Hedge index is scarcely doing better, up 12.6 percent. The HFR Macro Fund index is actually down 8 percent, indicating the best paid minds in the business did not see the astounding emerging markets rally and dollar fall coming.
Given that global emerging markets are up something on the order of 60 percent this year, that all global shares are up 30 percent and even the S&P 500 is up 22 percent, we can conclude that a lot of managers are heading into the year-end reporting season with a lot of ground to make up.
There are also lifeboats full of institutional fund managers and mutual fund managers in the same position.
What all who have missed the rally have in common is not a common failure of analysis — there are lots of different ways to get it wrong — but a collective vulnerability to finding themselves waving their clients goodbye. Letters detailing 2009 performance will have to be posted, ranking lists of funds will be published and there will be consequences.
In and around the hedge, nomatter what they try and sell you, it’s always Groundhog Day. Always. Only the groundhogs have now completely morphed into lemmings, vaunting rancid vaporware as though it were The New Commodity.Even so, not all of them jump at once. Why, you ask?Here’s why: because it would be just too fantastic if that entire species were to become suddenly extinct.