Each business day HedgeCo.Net keeps you informed with the top hedge fund industry news, opinion and insight from around the globe. From the latest hedge fund launches, to the impact of regulation, competition, and investor activism - we track the topics and people that make a difference to you.
Explore the most informative hedge fund articles and take the news with you, using HedgeCo RSS.
Still want more? Browse the hedge fund blogs, authored by hedge fund industry experts.
West Palm Beach (HedgeCo.net) - Morningstar presented their monthly analysis of hedge fund performance for November and asset flows through October.
"Hedge funds have a long path to recovery ahead of them," said Hedge Fund Analyst Nadia Papagiannis. "November was a better month than the last two, mostly because hedge funds hoarded cash, but they are still losing money on their investments and facing the ongoing challenge of funding investor redemptions."
Hedge funds slid again in November, as the Morningstar 1000 Hedge Fund Index lost 2.5% for the month and 23.7% year to date. Hedged against the appreciating U.S. dollar, the asset-weighted Morningstar Composite Hedge Fund with MSCI Index fared better dropping only 0.8%. Hedge funds charge performance fees on any new profits earned, but those have been scarce since November 2007.
Compounding the funds’ pain, investors have responded to the lackluster performance by pulling more than $20 billion in October, which accounts for the bulk of the $29 billion withdrawn over the last 12 months from hedge funds.
Hedge funds of funds performed better than multi-strategy hedge funds this month, as the Morningstar Hedge Fund of Funds and the Morningstar Multi-Strategy Hedge Fund Indexes dropped 2.3% and 3.0% respectively.
November returns and October asset flows for the Morningstar Hedge Fund Indexes are based on funds that reported as of Dec. 16, 2008. Returns for the Morningstar Hedge Fund Indexes with MSCI are based on funds that reported November performance as of Dec. 14, 2008.
As announced in September 2008, Morningstar is also now calculating hedge fund indexes by applying the MSCI Hedge Fund Index Methodology and Hedge Fund Classification Standard to Morningstar’s hedge fund database. These indexes demonstrate the performance of hedge funds to investors who have hedged their currency exposure back into U.S. dollars. The MSCI Hedge Fund Index Methodology classifies hedge funds by investment process, geography, and asset class.
But the news was not all doom and gloom. Once again, the Morningstar Global Trend and Global Non-trend Hedge Fund Indexes performed well, funds in these categories experienced outflows during October, global trend funds saw overall inflows of $9 billion for the first 10 months of the year, more than every other category. Emerging markets fared poorly, as dwindling demand for commodities depressed the equities in commodity-based economies. The Morningstar Emerging Markets Hedge Fund Index lost 5.1% in November.
The Morningstar Developed Asia Hedge Fund Index’s relatively small loss of 0.3% was bolstered by the Bank of Japan’s interest rate cut and stimulus package announcement. The Morningstar Japan with MSCI Hedge Fund Index gained 0.5%. U.S. equity hedge funds performed among the worst this month, small capitalization equities took a beating in November, but most hedge funds hedged, as the Morningstar US Small Cap Equity Hedge Fund Index ended down only 4.6%, as compared to the Russell 2000 Index’s almost 12% decline.
The Morningstar Security Selection with MSCI Hedge Fund Index, with component funds that also take directional bets on equities, lost 2.7%. For the year to date through October, directional Europe and U.S. equity funds experienced significantly more outflows than other categories. Funds that kept a lid on market exposure fared relatively well this month. U.S. Treasuries across the board showed the largest monthly gain in decades amid poor economic data, fears of deflation, and a government plan to buy U.S. mortgage-backed securities.
The Morningstar 1000 Hedge Fund Index, a global, broadly representative benchmark for hedge fund performance, has return history from January 2003.
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds!
Motley Fool - What does the turmoil in the hedge fund world mean to most investors? Losses and more losses. Over the past few weeks, the forced deleveraging of the industry, combined with redemptions by frantic clients, has led to hundreds of billions in stock sales (redemptions in the third quarter amounted to $117.3 billion, according to a new report out by HedgeFund.Net), creating horrific declines in many stocks — but interestingly, not in all stocks.
According to an equity strategist for one of the most successful fund-of-funds outfits in the country, stock holdings among equity hedge fund managers are and have been highly concentrated. Described as "crowded longs," these most-favored stocks tanked in September and October as funds scrambled for cash. Overall, equity long-short funds are down 25% year to date, according to Hedge Fund Research, compared with a near-40% slide in the S&P 500. While hedge funds have outperformed, the showing certainly is disappointing for an industry that is supposedly hedged. The shortfall is because so many managers own the same stocks, and all rushed to sell at the same time. (There were more than 8,000 hedge funds operating at the start of 2008.)
CNBC - About half of the investors in T. Boone Pickens’ energy-oriented equity hedge fund have asked to withdraw their money on the heels of losses of about 60 percent this year, the Wall Street Journal said, citing people close to the matter.
Pickens and his investment fund have lost $2 billion since peaking in late June, Pickens told the CBS program ‘60 Minutes’ on Sunday.
His fund, BP Capital, will have about $400 million to $500 million after expected withdrawals, the Journal said.
A few weeks ago, Pickens moved the fund almost entirely into cash to help ride out the volatility in the energy patch, the paper said, citing people close to the matter.
West Palm Beach (HedgeCo.net) - Morningstar, Inc. reported that hedge funds reported the worst losses in the Morningstar Hedge Fund Index’s history, which began in January 2003.
In September, the Morningstar 1000 Hedge Fund index dropped 7.87%, more than double August`s losses. Hedge funds entered the third quarter virtually flat for the year, but the index`s 13.17% third-quarter drop dragged year-to-date performance into the red.
"In September, the financial world as we know it turned upside down. We saw a shakeout in the hedge fund industry all around the globe. Hedge funds experienced poor borrowing, hedging, and trading conditions while liquidity dried up and volatility skyrocketed," said Morningstar hedge fund analyst Nadia Van Dalen.
Hedge funds were affected by extreme and unforeseen events during the month, including failures and takeovers of mortgage agencies, banks, insurers, and prime brokers.
As the world watched in anticipation of a U.S. government bailout, the global equity markets roiled. The Morningstar Global Equity Hedge Fund Index lost 11.22% in September. The Morningstar Europe Equity Hedge Fund Index declined 9.62% during the month but outperformed the MSCI Europe Index by more than five percentage points, while the Morningstar US Equity Hedge Fund Index underperformed the SandP 500 Index by more than one percentage point.
Developed Asia and emerging markets equity hedge funds managed to avoid some of the market losses, as these indexes outperformed the MSCI AC Asia Index and the MSCI Emerging Markets Index by about five percentage points in September. For the year to date, however, these emerging markets funds have taken more than a 30% hit.
Hedging proved difficult for hedge funds this month. The SEC and the FSA announced temporary bans on shorting financial stocks. Many convertible arbitrage funds taking long positions in financial sector convertible bonds were unable to hedge with short stock positions. The Morningstar Convertible Arbitrage Hedge Fund Index lost 12.39% in September. Fortunately, some equity arbitrage hedge funds were able to avoid financials. The Morningstar Equity Arbitrage Hedge Fund Index lost only 4.60%.
Debt-oriented hedge funds also experienced hedging problems. Credit default swaps, a common way to hedge bond exposure, became more expensive and less attractive with fears of default and counterparty risk. Both the Morningstar Debt Arbitrage and the Morningstar Global Debt Hedge Fund Indexes underperformed global and U.S. bonds, losing 4.39% and 7.50% respectively. The Morningstar Distressed Securities Hedge Fund Index closed the month down 6.21% as risky debt yields rose.
Global trend following hedge funds actually profited from some of the downward trends in the market, as these funds trade stock index futures as well as interest rates, currencies, and commodities. The Morningstar Global Trend Hedge Fund Index lost only 1.26% in September, the best-performing category other than short equity. The Morningstar Global Non-trend Index, comprised of funds with a more macro-economic approach, slid only 1.56%.
Funds of funds performed in line with the Morningstar 1000 Hedge Fund Index, outperforming the index by about 20 basis points in September, but falling slightly short for the quarter and year to date. The Morningstar Multistrategy Hedge Fund Index underperformed the overall index by about 200 basis points in September.
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds!
West Palm Beach (HedgeCo.net) - The Morningstar 1000 Hedge Fund Index lost 3.12% in August, significantly underperforming U.S. and global equity and bond markets.
August, like July, was characterized by a large drop in emerging markets and commodities. "Even though commodity prices have started to descend, their lofty valuations slowed growth and demand, especially in emerging markets,” said Morningstar Hedge Fund Analyst Nadia Van Dalen. "It was only a matter of time before hedge funds riding these waves crashed."
The Morningstar Emerging Markets Hedge Fund Index lost 7.13% in August while the Global Trend Hedge Fund Index, which profited from a previous upward trend in commodities, lost 5.35%. Both of these indexes experienced similar losses in July. Through July however, these funds continued to receive the largest inflows of assets this year, approximately $10.9 billion.
Unlike emerging market hedge funds, U.S. equity hedge funds fared relatively well. The Morningstar US Equity Hedge Fund Index earned 0.47% in August. Even though these hedge funds performed better than those in other equity categories, they still underperformed the markets—the S&P 500 Index gained 1.45% in August. Similarly, the Morningstar US Small Cap Equity Hedge Fund Index lost 2.81% while the Russell 2000 Index gained 3.61%
The U.S. equity markets were propped up for most of the month by the rising dollar and weakening Euro. Morningstar calculates its hedge fund indexes by converting hedge fund returns into U.S. dollars using the spot rate at the end of the month. This methodology does not hedge U.S. dollar exposure, and reflects the negative impact of Euro-denominated funds.
Along with the Euro, European equity markets dropped in August, reacting to weak economic data. The Morningstar Europe Equity Hedge Fund Index dropped 3.33%. Year to date through July 31, funds in this index have seen the largest outflows, approximately $9.6 billion. Despite the appreciation of the Yen, developed Asian equity markets followed that of emerging markets in general. The Morningstar Developed Asia Equity Hedge Fund Index lost 3.10%. Currency traders on the right side of the dollar, Yen, and Euro trades helped to cushion the blow for the Global Non-trend Hedge Fund Index, which lost 1.63%.
Global bonds, as measured by the Lehman Global Aggregate index ended the month in the red, and the Morningstar Global Debt Hedge Fund Index and the Morningstar Debt Arbitrage Hedge Fund Index both experienced losses of 3.64% and 1.33%, respectively. During the month, credit spreads widened amid financial distress at Fannie Mae and Freddie Mac, hurting funds in these indexes. Volatility in the credit markets also affected funds in the Morningstar Convertible Arbitrage Hedge Fund Index, which lost 1.08%.
Distressed securities funds and corporate event funds continued to wait for a market turn around. The Morningstar Distressed Securities Hedge Fund Index and Corporate Actions Hedge Fund Index dropped 1.28% and 2.34%, respectively. Multi-strategy funds outperformed hedge funds of funds. These indexes fell 2.40% and 3.99%, respectively. Read Complete Article
West Palm Beach (HedgeCo.net) - Hedge funds saw their worst monthly performance in the history of the Morningstar 1000 Hedge Fund Index. The index returned a negative 3.07% in July 2008, an eventful month for the markets.
In the first half of July, high oil prices and continued trouble in the U.S. banking sector caused equities to tumble and the U.S. dollar to slide, hitting a low point mid-month when the Federal Reserve expressed concerns about economic growth. The announcement of a U.S. government bailout plan for Freddie Mac and Fannie Mae, along with the Securities and Exchange Commission’s short-sale restrictions on financial stocks allowed for a partial rebound in the second half of the month. "In July, the bet on long commodities and short financials didn’t work as well for hedge funds,” said Daniel Farkas, hedge fund analyst for Morningstar.
Commodities showed their worst month in more than five years. The S&P GSCI Index, a commodities index heavily weighted in energy, fell more than 12% in July, as the price of crude oil plunged from its July 2 peak on weaker demand forecasts. European and Asian central banks attempted to combat inflation with interest rate hikes, causing a slide in those equities markets.
Consequently, the Morningstar Europe Equity, Morningstar Asia Equity, and Morningstar Emerging Markets Equity Hedge Fund Indexes saw much strife in July, though not as much as the Morningstar Global Equity Hedge Fund Index, which lost almost 8%. The Morningstar US Equity Hedge Fund Index also performed poorly, underperforming the S&P 500 Index by more than two percentage points.
"It’s unusual for hedge funds to underperform equities in down markets, but hedge funds haven’t been able to navigate the credit crunch that started last summer” added Farkas. The MSCI World Index outperformed the Morningstar 1000 Hedge Fund Index in four of the 24 down months since January 2003, the inception of the Morningstar 1000 Hedge Fund Index. Three of these four months occurred in the last year.
Because July also saw big losses in commodities, the Morningstar Global Trend Hedge Fund Index halted its upward trend. For the year, however, this index still outperformed every other Morningstar hedge fund category index by a wide margin. Year-to-date through June 2008, hedge funds in the Morningstar Global Trend category also experienced the highest inflows, at almost $10 billion. For the month of June, hedge funds overall saw more than $10 billion of inflows.
Multi-Strategy hedge funds had more than double the inflows of other categories, placing second only to Global Trend hedge funds. In a dynamic macro-economic environment, Multi-Strategy hedge funds can be more nimble than single-strategy hedge funds, quickly allocating assets to strategies with a brighter outlook, while pulling away from strategies with more dismal prospects. In July, however, most hedge fund strategies proved unprofitable, and the Morningstar Multistrategy Hedge Fund Index lost more than 3.67%.
Funds-of-Funds outperformed the Morningstar 1000 Hedge Fund Index in July, returning a negative 2.41%. Year-to-date, the Morningstar Hedge Funds of Funds Index has lost 2.52%.
Returns are based on hedge funds in the Morningstar hedge fund indexes that reported performance as of August 8, 2008.
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds!
FINalternatives- Bedrock Alternative Asset Management in May launched its Global Diversified Fund, a fund of funds covering private equity, hedge funds, real estate and commodities, combined with traditional stock and bond investments.
The fund will invest in a 15 to 25 underlying hedge fund managers, with exposure to event-driven, long/short equity, managed futures, global macro distressed, volatility and emerging markets strategies. Some 70% of its portfolio was weighted toward hedge funds, followed by equities (19%) and cash (8.4%). The firm is limiting its p.e. and real estate exposure to no more than 15% and commodities at 10%.
The US$65 million fund finished its first month of trading up an estimated 0.68%. Its hedge funds sub-portfolio was the strongest contributor to its performance in May, providing almost two-thirds of its gains, according to the firm.