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Hedge Funds Fell 4.9% in 2011 as Europe Debt Crisis Hurt Stocks

Hedge Funds Fell 4.9% in 2011 as Europe Debt Crisis
The sun disappears behind a Euro sign sculpture in front of the European Central Bank's (ECB) headquarters in Frankfurt. Photographer: Simon Dawson/Bloomberg

Hedge funds fell 4.9 percent last year as global stock markets slumped amid fears that the European sovereign-debt crisis would spread and managers struggled with increased market volatility.

The Bloomberg aggregate hedge-fund index dropped 0.9 percent in December, with long-short equity and multistrategy funds falling. Macro funds, which bet on global economic trends, rose last month and declined in 2011.

“Managers are probably happy 2011 is behind them,” said Emma Sugarman, global head of capital introduction at BNP Paribas SA in New York, which helps hedge funds meet clients. “The notion of absolute return has changed. In the past, some hedge funds were sold as absolute return, meaning they would always generate a positive return, and clearly that has not been possible.”

The MSCI All-Country World Index of global stocks declined 0.3 percent in December as European leaders struggled to contain the region’s debt crisis, bringing yearly losses to 9.4 percent and halting a two-year rally in equities. Stocks experienced sharp price swings, beginning the year with a rally, rising to almost a three-year high on May 2 and then falling 24 percent to a yearly low on Oct. 4.

Multistrategy, Macro

Multistrategy hedge funds fell 1.1 percent in December and 2.9 percent in 2011. Long-short equity funds, whose managers can bet on rising and falling stocks, slumped 1.6 percent last month and 6 percent last year. Macro funds increased 0.3 percent in December and declined 6.5 percent in 2011.

Hedge funds dropped 4.7 percent in September, their worst month last year, based on Bloomberg’s aggregate index. The main Bloomberg hedge-fund index is weighted by market capitalization and tracks 2,781 funds, 1,272 of which have reported returns for December. The index is down 12 percent from its July 2007 peak.

Hedge funds, investment pools that can wager on or against any asset, hold $1.97 trillion, according to Hedge Fund Research Inc. in Chicago. Investors put $8.7 billion of new money into hedge funds in the third quarter, bringing deposits for the first nine months to $70.1 billion, the firm said.

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