Hedge fund manager consultant, Hennessee Group LLC, reported that managers benefited as international equities rallied in July, while the unpredictability of government intervention continues to be one of the greatest concerns for hedge funds.
“We have expected greater scrutiny and new regulation for the financial industry, and specifically for hedge funds, in 2009,” commented Charles Gradante, Co-Founder of Hennessee Group. “In the energy markets, regulators are calling for hard position limits on financially settled energy contracts set by NYMEX, starting as soon as September. While the goal is to reduce speculation and volatility in the energy markets, this could potentially reduce transparency by shifting trading to over-the-counter markets and decrease liquidity. The unpredictability of government intervention continues to be one of the greatest concerns for hedge funds.”
“The deterioration of the economy has clearly slowed, however we continue to see positive signs that we are on the road to recovery, including increases in new home sales, new orders, and production.” Gradante said, “I am still cautious and see emerging signs of ‘protectionism’ in the form of dramatic reductions in external lending by G-7 institutions, which could stifle a global economic recovery.”
“Hedge funds underperformed in July, as we would expect, but were able to capture a good portion of the market rally in July,” said Lee Hennessee , Managing Principal of Hennessee Group. “Managers opened up their net exposures to participate, but also benefited from a better than expected earnings season. However, managers remain vigilant, knowing that the markets could crack and crack quickly. The VIX is at pre-crisis August 2008 levels and that worries many.”
The Hennessee Hedge Fund Index advanced +3.37% in July (+15.50% YTD), while the S&P 500 increased +7.41%.