Hedge Funds: Defensive In Tone, Aggressive In Strategy

Wall Street Journal Blogs – In an effort to forestall more redemptions and panic, hedge-fund managers preached “strong stomachs” and washed their hands of responsibility for losses in the latest round of investor letters.

A review of nearly a dozen investor letters sent by hedge funds around the beginning of October finds a tone that could, at best, be described as somber — and, at worst, dire. Oaktree Capital Management L.P.’s Howard Marks called the last couple of weeks “the greatest panic I’ve ever seen,” while Tontine Associates LLC’s Jeffrey Gendell said he was “embarrassed by this performance.”

All told, Chicago-based Hedge Fund Research Inc. said assets at hedge funds declined by $210 billion in the third quarter, the biggest quarterly decline ever, with investors redeeming $31 billion in the third quarter alone. That was the largest quarterly redemption in history.

At the same time, the main focus of these letters is to calm investors sufficiently enough so that they don’t start another round of redemptions later this year — or perhaps invest more money. And to accomplish that feat, many of the letters said investors’ lack of understanding of the markets and the whims of government leaders had hurt them, rather than their own misevaluation of the current environment.

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