Long/Short Equity Hedge Fund Managers Are In Experiencing The Worst Drawdowns In 20 Years As Of The End Of September

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As you’re surely aware, long/short equity hedge funds got destroyed even worse in September than they did in August.

To give that some context, in August, we heard that some l/s equity managers would be reporting losses up to 10% for the month.

The September losses amount to such poor performance that overlooking 2008, as of the end of September, equity funds are now in their “worst drawdown in the past 20 years,” according to Morgan Stanley. 

The drawdown started in May, and only got worse in September. In fact, from May to September, equity funds lost about 11.9%, according to Morgan. (Of course, there’s been a big rally since then.)

Morgan Stanley’s Prime Brokerage team put out a Hedge Fund Recap that details what happened in September. The numbers are particularly disappointing for l/s equity managers.

  • The median l/s equity fund was down 6.80% through September (vs the median fund, which was down 4.4% YTD)
  • The average l/s equity fund was down 7.49% through September

Thanks to Morgan’s report (which we have a copy of) we have some details about what the equity funds did last month.

  • The percentage of net-short US l/s funds remained fairly constant in September at between 15%-18%
  • September 23-28 was the longest break in net selling, which Morgan attributes to l/s funds (as well as Multi-Strat/Macro funds) covering and going long
  • At the end of September, median net leverage was 42% for US equity l/s managers
  • Sectors that sold off in September: Info Tech, Consumer Staples, Industrials, Financials, Materials
  • Sectors that were the most net bought: Health Care (Pharmaceuticals in particular), Utilities

Dont miss: Not everyone was getting killed in September.

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