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West Palm Beach (HedgeCo.net) - According to data released by Hedge Fund Research (HFR), the global financial and economic crises accelerated in October, contributing to continued losses in the hedge fund industry, with the HFRI Fund Weighted Composite Index falling nearly 6% for the month.
“Performance of the hedge fund industry has declined over 17% since October 2007, making the current performance drawdown the largest in history,” said Kenneth J. Heinz, President of Hedge Fund Research. “The industry has now registered five consecutive months of losses, another inauspicious first. Consolidation is likely to continue into 2009 as investors across all asset classes indiscriminately liquidate assets to move portfolios into cash holdings.”
Investors withdrew over $40 billion from hedge funds in the month of October which, in addition to $115 billion in performance-based asset losses, reduced the industry capital base by $155 billion. Assets under management in the global hedge fund industry declined to $1.56 trillion at the end of October, a level last seen at the end of Q4 2006.
As of the end of Q3 2008, HFR estimates the entire hedge fund industry to contain more than 10,000 funds, which includes more than 7,400 single-manager funds. October losses follow a challenging third quarter during which global hedge fund capital fell by $210 billion.
The largest capital reductions during the month came from Funds of Hedge Funds, from which investors withdrew over $22 billion. Funds of Hedge Funds have underperformed the overall industry so far this year, with the HFRI Fund of Funds Index posting an 18.50% decline, compared to a loss of 16% for the HFRI Fund Weighted Composite Index.
Performance losses were most significant in funds focused on Emerging Markets, Relative Value Arbitrage and Energy/Basic Materials equities.
Short Selling has posted a strong gain of over 22% for the year. Macro Systematic strategies, which employ quantitative trend-following programs, gained over 6.5% in October and nearly 15% year to date.
Fifty-two percent of October capital outflows were from firms with greater than $5 billion under management; these largest funds represent only 5.5% of the number of funds in the industry but control over 58% of all hedge fund capital.
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USA Today - The great unwind in the secretive hedge fund world caused by steep losses has contributed to the megapain in the stock market.
Wealthy folks and big investors yanked a record $31 billion to $43 billion out of hedge funds in the third quarter, according to estimates from tracking firms Hedge Fund Research (HFR) and TrimTabs. As a result of ongoing redemption requests from worried investors, the so-called smart-money crowd has been forced to sell assets to raise money to pay back investors.
That vicious cycle of forced selling by these private investment funds has exacerbated the heavy pressure that has pushed the U.S. stock market down as much as 43% from its October 2007 high. "It is really like a global margin call. It feeds on itself," says Woody Dorsey, president of Market Semiotics, which specializes in behavioral finance.
Reuters - More hedge funds have called it quits worldwide in the first half of 2008 than a year ago, as tumbling markets and finicky investors take a heavy toll on the $1.9 trillion industry, new data show.
Liquidations rose by 15 percent during the first six months of 2008 when 350 funds closed their doors compared with 303 a year earlier, according to numbers released by Hedge Fund Research (HFR) on Thursday.
"This year, the industry will likely see more funds shut down than start up," said Phil Duff, who runs Duff Capital Advisors.
In the first eight months of the year, hedge funds lost an average 4.83 percent, making for the worst returns in a decade.
Bloomberg - Nicola Horlick’s money-management firm, Bramdean Alternatives Ltd., pulled money out of hedge funds run by Nobel prize-winner Myron Scholes and James Dinan to focus on more defensive funds as volatility increases.
“In response to the continuing market turbulence,” Bramdean “is increasing the focus on capital preservation,” the London-based company said in a statement today.
Horlick’s firm pulled money from five of the eight money managers who oversee its so-called transitional portfolio. Bramdean redeemed investments in Dinan’s York Capital Management LLC’s Asian and European funds, and Scholes’s Platinum Grove Contingent Capital Offshore Fund.
The monthly reshuffle is Bramdean’s biggest since the firm raised 131 million pounds ($243 million) in a share sale a year ago. The transitional pool, Bramdean’s largest, fell 1.4 percent in July as hedge funds struggle through their worst patch in almost 20 years, according to Chicago-based Hedge Fund Research Inc. HFR’s Global Hedge Fund Index fell 2.8 percent in July, its biggest monthly drop in five years.
InvestmentNews - Emerging-market strategies gained some momentum during the quarter ended June 30, but are still struggling, according to Hedge Fund Research Group LLC of Chicago.
HFR reported today that emerging-market hedge funds took in $995 million during the second quarter, reflecting a 66% increase over the $597 million worth of inflows into the strategy during the first quarter of the year.
But the inflows into the category paled in comparison to the year-ago quarter, when emerging market hedge funds took in $3.7 billion.
If the current pace of asset flows continues through the end of the year, the emerging-markets strategy could experience its worst year for investment flows since 2000, when the category had net outflows.
Times Online- Hedge funds are continuing to feel the full force of the credit crunch, with 170 funds forced into liquidation during the first quarter, a Chicago research firm reported yesterday.
The bleak figures published by Hedge Fund Research (HFR) also showed that fewer funds were launched over the three-month period than at any time since 2000.
Publication of the report came as speculation was mounting that several London hedge funds are sitting on heavy losses after being caught on the wrong side of a sharp change in sentiment about future interest rates in the past fortnight.