Blackstone's Wien Says Fund Returns May Shrink by Half to Protect Capital

Byron Wien, vice chairman of Blackstone Group LP’s advisory services division, said hedge fund returns may shrink by half as firms seek to protect investors’ capital.

Returns may drop to 10 percent from 20 percent as funds lose their “zeal,” Wien, 77, told the GAIM International hedge fund conference at Monaco’s Grimaldi Forum today.

“I’m worried that by trying to protect capital on the downside they give up too much on the upside,” he said. “The concept of hedge funds was to produce equity-like returns with bond-like volatility. The danger is we get bond-like returns with equity-like volatility.”

Hedge funds lost an average of 2.6 percent in May, the worst month since November 2008, according to the HFRX Global Hedge Fund Index. The S&P 500 retreated 8.2 percent, the biggest monthly drop since February 2007.

Wien called for a stock market rally in the U.S. last week, saying that Europe’s debt crisis caused too much pessimism in the U.S., where profits for companies in the Standard & Poor’s 500 index are projected to rise 17 percent this year. He forecasts the S&P 500 will climb to 1,300 from 1,089 before ending the year around 1100, where it started.

In April, he forecast that oil would go to $100 a barrel. At the time it was trading at $87, and is now trading at $75.25.

Source: Blackstone Group LP via Bloomberg

Vice chairman of Blackstone Group's advisory services division Byron Wein. Close

Vice chairman of Blackstone Group's advisory services division Byron Wein.

Close
Open
Source: Blackstone Group LP via Bloomberg

Vice chairman of Blackstone Group's advisory services division Byron Wein.

Wien called last year’s rally in stocks, oil and gold correctly. He incorrectly predicted that the dollar would fall to $1.65 against the euro. It fell to $1.51 in November 2009 and is now trading at $1.22.

Wien was chief strategist at hedge fund Pequot Capital Management Inc. from 2005 to 2009. He was a senior strategist at Morgan Stanley before joining Pequot.

To contact the reporter on this story: Tom Cahill in London at tcahill@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.