What Investors Want

What Investors Want From Hedge Funds Today

As much as hedge funds want to move on from the last 12-18 months, investors may not be so willing to forget and forgive. Some managers may believe that with returns back at respectable levels in the first half of 2009 the recession is over and investors will be as eager as they once were to invest in hedge funds. Standard & Poor’s Ratings Services suggests that potential and current limited partners will be reluctant to return unless hedge funds meet some high expectations such as greater transparency and communication with investors, lower leverage, and higher liquidity.

Investors and many hedge funds agree on the benefit and need for greater transparency and communication with investors, but those reluctant funds may see a dip in investors if they do not open up to their limited partners:

Many funds have realized that the benefits of being transparent outweigh the potential cost from the outset, enhancing investor goodwill. After all, during times of uncertainty, such as the recent financial crisis, investors’ focus seems to shift to return of capital from return on capital…Investors will likely increasingly judge a hedge fund based on the transparency of its dealings with all its business partners.

S&P Rating Services also highlights that investors are looking for less leverage after the credit crisis and the fall of highly-leveraged investment banks like Lehman Brothers. Additionally, this may draw attention from regulators looking to ensure that financial institutions are not too leveraged that they pose a “systemic risk.”

Most rated hedge funds with a 10-plus year history have generally understood that they can succeed or fail by leverage — borrowings or embedded leverage in instruments that can magnify both gains and losses — and have accordingly used it sparingly. Some funds have come to shun the use of leverage altogether because of its inherent risk.

In general, we believe investors will be more attracted to hedge funds that use low to modest balance-sheet leverage relative to their investment strategy in conjunction with a strong risk management system, which should enable them to respond to market changes more promptly. source

A consistent push by investors has been for greater liquidity after some hedge funds collapsed in the credit crisis because they had such a high concentration of illiquid positions in their portfolios. Furthermore hedge funds that simplify their operations–by reducing staff, number of strategies implemented and a greater focus on the core elements of the hedge fund’s strategy– may be more attractive to investors. With a refocus by hedge funds on the strategy that made consistent returns S&P Rating Services believes that hedge funds will regain investor trust and win big in this volatile market.

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Tags: hedge funds, hedge fund returns, hedge funds 2009, industry volatility, investor confidence, growing capital, hedge funds investor relations, hedge fund investors, limited partners

Hedge Fund Performance Update

The markets are in recovering mode and here are some statistics about how the various hedge fund investment strategies have performed in the last few months. The recent galloping in the equity markets and better corporate earnings has certainly had positive impact on the hedge funds performance.

Long-only hedge fund strategies posted the best returns of the asset class in July as global stock markets continued their upward trend, according to data in a report published by Lipper Global on Tuesday. As the industry looks to repair itself following last year’s heavy losses and record redemptions, these new figures will give more ammunition to market watchers who claim that the industry is on the road to recovery.

The data from the Thomson Reuters company showed that long-only hedge funds posting a 4.75 percent return for the month, building on gains of 14.34 percent for the year-to-date.

According to the recent reports released ahead of Lipper’s monthly Hedge Fund Insight Report, which is due at the end of August, showed that all hedge fund strategies posted a positive performance last month, with long/short equity and multi strategies both giving returns of 0.81 percent. Short bias strategies made a 0.40 percent return, boosted by profitable short sale strategies in the first half of the month, Lipper data showed.

The market is already looking for the next macro catalyst to drive market direction; there are a still a number of risks of market correction. The other hedge fund strategies which performed well were, options arbitrage performed strongly in July, with returns of 0.88 percent. Event-driven was the worst-performer, posting a 0.19 percent return.

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Hedge Funds Gain

Hedge Funds Gain 2.42% in July 2009

Hedge funds have continued this years impressive rally with more gains in July. According to data, the average hedge fund gained 2.42% last month, a much higher gain that the 0.13% increase in June. This signals a broader recovery of the hedge fund industry which struggled with redemptions and poor performance last year. On average hedge funds are up by 12.17% for this year through July 31.

“Overall, the hedge fund industry is continuing to build itself back up from the low points,” said Scott Esser, chief operations officer for the Hedge Fund Research in Chicago. Strong “equity market returns had a lot to do with it and the return of credit and decrease of volatility has helped,” he added.

The returns still fell short of the Standard & Poor’s 7.4 percent rise in July. Last month, the Dow industrials had their best July since 1989 and the S&P 500 and Nasdaq recorded their best gains for July since 1997.

Still, the figures marked the fifth consecutive month of gains for the hedge fund industry, which posted a record 19 percent loss in 2008. The industry saw investors pull out a record $152 billion in the last three months of 2008.

This year, July returns were driven by strong performances at fixed-income funds that specialize in “convertible arbitrage” strategies that match the purchase of convertible bonds with short positions. The these funds were up 7.27 percent in July on average and up 38.63 for the year. Read more..

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Tags: Hedge Fund gains, hedge funds gain, hedge fund returns, average hedge fund, hedge fund index, hedge fund research, hedge fund news, hedge funds 2009

2009 Hedge Fund Returns

First Half 2009 Hedge Fund Returns are 10-Year Best

The hedge fund industry seems to be recovering, as hedge funds to their best first half returns in 10 years. The industry suffered last year amid the financial crisis with big losses leading limited partners to demand their capital back.

According to Hedge Fund Research, hedge fund returns increased by 9.41% in the first six months of 2009, it has been ten years since returns rose so significantly. Back in the first half of 1999 hedge fund returns rose 13.5%. The increase seems to have peaked in June as fund returns only increased by 0.13%, compared to 5.2% in May. May’s returns were the best in 10 years and April’s the best in 9 years.

The high returns appear to be the result of a stock market recovery from optimism that the end of the recession may be in sight.

The data comes from findings by Hedge Fund Research, a Chicago-based performance and flow tracking firm. Source

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Hedge Fund Returns

Hedge Fund Investment Returns

Here is a short article excerpt from Bloomberg noting that hedge funds have just recently posted back to back positive returns over the past two months. This is the first time that this has happened in 8 months now – one of the first positive signs for the industry since early 2008. Here is a excerpt from the article:

Hedge funds posted their first back- to-back gain in eight months in January, rebounding from record losses in 2008 as North American managers benefited from betting stocks would fall, an industry report showed.

“I think what this is showing is that hedge funds have managed to shift their portfolios and they are effective in the current market conditions,” said Jennifer Carver, Hong Kong- based Asia chief executive officer at 3A SA, the alternative investment arm of Geneva-based Banque Syz & Co., that manages $3.5 billion worldwide. “We’re seeing a difference of what’s happening in the equity markets and bond markets and what’s happening in hedge funds, which is what should happen.” source

Read dozens of past articles regarding hedge fund returns within our Hedge Fund Performance Area.

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Hedge Fund Performance

Hedge Fund Performance Reports

This article category of reports was created to provide quick links to what I have written related to hedge fund performance issues and updates. I will be updating this each quarter to try to make it as comprehensive as possible.

I hope to improve this area of content within my blog over the next few quarters. Let me know if you would like to contribute some way to it. Also, let me know if you have a specific hedge fund performance related question that I could answer via email or through another article here on the blog.

• Hedge Fund Macro Fund Performance Video
• Hedge Funds Performance October Update
• Hedge Fund Assets Drop by Estimated $100B
• Hedge Fund Performance During the Financial Crisis of 2008
• Hedge Fund Performance Data Hedge Funds Video
• Hedge Fund Index Performance Performance of Funds
• Top Hedge Fund Performers Charts
• Bear Market Investing Bull and Bear Market Chart
• Hedge Fund Performance Reporting Requirements
• Top Hedge Fund Manager Performance Figures
• Hedge Fund Fees on the Decline Many Will Close
• Hedge Fund Year to Date Returns
• Top Performing Hedge Funds
• Alternative Investments Outperform
• Hedge Funds in Distress Industry Seeing Challenges
• Hedge Funds Failing or Thriving?
• Worse Hedge Fund Performance Ever
• Hedge Fund Performance Q1 2008
• Hedge Fund Returns
• Top 10 Hedge Fund Trades of 2007
• Hedge Funds – Kings of the Jungle
• Hedge Fund Bandits
• Hedge Fund Performance – Finance Sector
• Hedge Fund Decline
• Hedge Fund Industry Sees Downturn Discussion Notes
• Hedge Fund Hurdle Rate Definition – What is a Hurdle Rate?
• Hedge Funds Returns
• Hedge Fund Assets
• Diversified Investment Advisors
• Policy Effect
• Citigroup Hedge Fund
• Hedge Fund Investing
• Hedge Fund Interviews – Interview Questions
• Greenwich Hedge Funds Outperform

- Richard

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Hedge Funds Returns

April 2008 Hedge Funds Returns

HedgeFund.net just released the returns of hedge funds in their database for April 2008. In short the average hedge fund manager gained some meaningful ground while energy funds took off, overall most hedge fund managers are still weighed down though by poor Q1 performance. I skimmed through and have pulled out a few of the highlights below:

• The comprehensive HedgeFund.Net database reveals that Hedge Fund Aggregate Average increased by 1.96% in April.
• The energy sector funds were the best performing funds in April, improving with a Energy Sector Average of +5.70% last month.
• The spike in fuel and energy prices have benefited the Emerging Market Average +3.23%. These high prices specifically benefited hedge funds focusing in the Middle East and Northern Africa, who increased +6.54% last month.
• Indian and Chinese hedge funds rebounded in April, but this improvement is overshadowed by the heavy losses both areas have experienced this year.
• Generally, equity-related strategies performed the best.

Here are links to past hedge fund performance and analysis pages through my sites archives:

- Richard

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Many mainstream, well respected media outlets jump at any chance to dance on the graves of hedge funds who have recently shut down or seen poor performance. This comes at the cost of showing a realistic macro view of the health and growth of the hedge fund industry. I have mentioned this several times before and it is one of the reasons why I write in this hedge fund blog. Here are some of those related articles:

• Hedge Funds Failing or Thriving?
• Hedge Funds – Kinds of the Jungle
• Alternative Assets Outperform

The Euromoney Institutional Investor Network seems to think along similar lines as myself as they published an article earlier this month on how claims of the demise of the hedge fund industry are highly inflated. Their article was written in response to a FT article by Martin Wolf. Martin Wolf is one of the FT’s leader writers, and wrote: “Hardly a week goes by without the implosion of a hedge fund. Last week it was Carlyle Capital, with an astonishing $31 of debt for each dollar of equity. These collapses are inherent in the hedge-fund model. It is even conceivable that this model will join securitized subprime mortgages on the scrap heap.”

Since there are over 15,000 hedge funds applying over 200 distinct strategies with performance beating most mutual funds, equity benchmarks and slew of other investment types I don’t see them going anywhere any time soon. At worst I see a small contraction in the fees that mid-market hedge fund managers are able to charge.

Riskdata, a risk analytics firm agree stating that hedge fund returns”show massive outperformance” by hedge funds for more than 15 years. “They outperform all asset classes, even after payment of all management and performance fees to the fund managers.” Riskdata also said “Simply consider the following fact: the worst month for hedge funds has been Long-Term Capital Management (-7%), the worst day for equity has been black Monday (-20%).” “Mutual funds lost much more in the recent period than hedge funds. Hedge funds are so far the best investments to secure our pension plans—considering their long term performance. One could say that just going back to the old world would be like going back to old monopolistic telecoms as an answer to the Worldcom bankruptcy.”

Bottom line. When you read about hedge funds disappearing or “imploding daily” check the real data on what is going on through a major hedge fund database before believing what you read.

Read more articles like this within the Hedge Fund Performance Category of this hedge fund blog.

- Richard

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Tags: Hedge Fund Returns, Hedge Funds Returns, Hedge Funds Performance, Hedge Funds Return, Hedge Funds Return, Average Hedge Fund Returns, Performance of Hedge Funds

Hedge Fund Bandits

This in itself isn’t too surprising what is interesting is that they are trimming down those positions and using their capital to now bet against corporate debt. Scion specifically noted betting over $2.2B against corporate debt. It might seem odd that a hedge fund would give away it’s strategy like this but the more people that add to short positions the better for him. More sellers + less buyers = more Scion profits.

Read more articles like this within the Hedge Fund Performance Category of this hedge fund blog.

- Richard

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Related Terms: Hedge Fund Profits, Hedge Fund Performance, Hedge Fund Subprime, Hedge Fund Corporate Debt, Hedge Fund Returns, Hedge Fund bets, Scion Hedge Fund, Paulson Hedge Fund, Hedge Fund Capital Management