These Three Hedge Funds Are Profiting Off The Market Mess Right Now

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Things are so bad for long/short equity hedge fund managers right now that there was a rumour of one hedge fund getting margined called yesterday.The rumours we heard say that some long/short and/or managers that invest in opportunity strategies would be reporting up to 10% in losses this month if things continue.

Case in point: Reuters reports that “small gains nursed by big hedge funds like Dan Loeb’s Third Point, and others at the end of July, are likely to have vanished in the first few days of August.” Reuters also says that “the scars are expected to be even deeper” for ie: John Paulson. UPDATE: Paulson’s Paulson Advantage funds are down 10-11% in August and SAC Capital is down 4% in August, according to CNBC.

However hedge funds that are investing in a global macro strategy, we hear, are performing better than they have all year. We hear at least one three hedge funds are enjoying nice returns after betting that Sovereign interest rates would go up and bonds would go down and shorting the Euro dollar while going long LIBOR.

UPDATE: Three hedge funds performing well this month have been identified. $185 million Vulpes‘ Stephen Diggle told Reuters that his long Asian volatility and arbitrage hedge fund LAVA is up about 4% in the first six trading days of the month. He says, “We are basically long risk and that’s going higher.” And $300 million Tantallon Capital‘s Alex Hill and Nicholas Harbinson were up 4.15% in their flagship fund last week, according to a letter seen by Reuters. And the huge Brevan Howard‘s macro fund is up 2% as of the end of last week, and is up 7% this year, according to Bloomberg.

Of course the volatility and interest rate bets are somewhat obvious: interest rates go up in times of stress or inflation, and thus interest rates are obviously up right now.

But unfortunately, long/short equity managers in general could not reap the benefits, too.

Managers in that strategy are performing poorly for obvious reasons. Basically, because the stock market is down and because most long/short guys are at least 50% net long. 

The good news: they’re not performing as badly as the market (we hear).

The bad news: 

  • A basket of stock representing major positions of hedge funds has falled 17.3% in August, through Monday, compared with a drop of 13.4% for the S&P 500, according to the Wall Street Journal
  • Some hedge funds are down 8%, according to an anonymous prime broker who spoke to Reuters
  • Managers might soon be telling their investors that they suffered double-digit losses during the last few days, managers and investors forecast, according to Reuters, and a source who spoke to Business Insider yesterday