Photo: BofA Merrill Lynch
Ramifications of the global economic upheaval and an erratic stock market are really taking a toll on hedge funds.According to the latest Hedge Fund Monitor compiled by Bank of America Merrill Lynch [via Reuters], hedge funds are preparing to deliver one of the worst quarterly returns since the financial turmoil that rippled through 2008.
The report says hedge funds lost around 5.02% in the third quarter, 5.03% in the past 3 months, and -7.27% in the past 6 months. Clearly, September was significantly worse than any other month this year for hedge funds.
In 2008, the collapse of the global financial system and Lehman Brothers brought hedge fund losses to 9.48 per cent and 9.44 per cent in the third and fourth quarter, respectively. Since then, the hedge fund industry has not seen worse returns than this past quarter, according to the Hedge Fund Monitor.Chris Jones, chief investment officer at Key Asset Management, told the Dow Jones that it has become near impossible for fund managers to make money in the short term because of stock market volatility.
Funds that use equity-driven strategies are getting hit hard – firms that focus on going long and short on stocks saw declines of 10.89 per cent this past quarter. In addition, managers that employ event-driven strategies – fuelled by mergers, acquisitions and initial public offerings also saw a 6.24 decline as companies shirked away from unfriendly market conditions.
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Investors said that there has been a larger than normal disparity in returns across different investment strategies – and even within them, managers have posted a bigger range of performance figures.
Global markets were driven by a “risk-on/risk-off” mentality, where investors moved in and out of risky assets together depending on the prevailing economic sentiment and risk appetite. In the third quarter, when the FTSE 100 index suffered its worst quarter in nine years, this resulted in a high correlation between different asset classes.
Some perspective: Hedge funds still fared better than the Standard & Poor 500 – the index was down 5.56%.