Hedge-Fund Returns Decline in 2010 Amid European Debt Crisis
Hennessee Group LLC managing prinicipal E. Lee Hennessee. Source: Hennessee Group Llc via Bloomberg
Hedge funds fell for a second month in June as the stock market slump hurt managers investing in equities.
The Eurekahedge Hedge Fund Index, which measures the performance of more than 2,000 funds worldwide, declined 0.5 percent after losing 2.6 percent in May, Eurekahedge Pte said in a report on its website. Funds investing in stocks fell 1.1 percent. The main index is down less than 0.1 percent for the first six months of the year.
Hedge funds, which returned an average 20 percent in 2009, are struggling amid signs of a global economic slowdown as governments pare stimulus measures, Europe faces surging budget deficits and China’s expansion slows. The funds’ six-month performance compares with an 11 percent drop by the MSCI World Index and an 8.8 percent decline by the Reuters Jefferies CRB Index, a commodities benchmark.
“Simply outperforming the traditional market won’t be enough for hedge funds because they are expected to deliver absolute returns,” said Shinichiro Nagai, a senior manager at the investment group of Tokyo-based GCI Asset Management Inc., a Japanese hedge-fund firm.
Four out of seven regional indexes declined in June, with the Eurekahedge Eastern Europe and Russia Hedge Fund Index losing the most with 2.3 percent. Latin American funds were the best performers, gaining 1 percent. The measure tracking North American managers declined 0.9 percent.
Long-Short, CTAs
For year-to-June, the index tracking Latin American managers gained 1.5 percent, while the gauge of Asia ex-Japan managers fell 3.1 percent, the worst performance.
By strategy, so-called equity long-short funds that trade on rising and falling stock prices were the worst performing group in June. Commodity trading advisers, or CTAs, which use computer programs to search for price signals in futures markets ranging from equities and bonds to oil and gold, were the best performers, returning 0.6 percent in June, according to the report. Funds that invest in fixed income benefited from a rally in bond prices, returning 0.5 percent last month.
Managers investing in distressed debt were the best performers, gaining 6.4 percent, in the first half of 2010, followed by funds that invest in fixed income, it showed.
A separate report by Hennessee Group LLC showed hedge funds worldwide had their fourth-worst six-month start to a year since 1987 when the a New York-based investment advisory firm started compiling the data. The Hennessee Hedge Fund Index added 0.2 percent in the first six months of this year.
‘High Correlation’
“Volatility and high correlation among asset classes have created a challenging investment environment,” E. Lee Hennessee, managing principal of Hennessee Group, said in an e- mailed statement. “While funds have not generated substantial positive performance, investors should be satisfied with lower drawdowns and lower volatility.”
Assets managed by so-called UCITS III funds surpassed $100 billion in the first half of 2010, according to Eurekahedge. The funds, known by an acronym for Undertakings for Collective Investment in Transferable Securities, comply with European Union rules and are allowed to use alternative investment strategies such as shorting and leverage to boost returns.
Eurekahedge’s preliminary report is based on 52 percent of funds reporting performances in June. The research firm plans to release a full report later this month.
Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall.
To contact the reporter on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net
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