Hedge funds hit by May volatility

Discussion in 'Professional Trading' started by ASusilovic, May 16, 2010.

  1. Some of the world’s biggest hedge funds have suffered significant losses this month after high levels of volatility across markets and the shortlived stock market plunge in New York combined to wipe billions from portfolios.

    Losses in the first week of May alone erased all gains made so far this year for some managers, according to investors who spoke to the Financial Times.

    Large losses in a single week are not unusual for hedge funds, which typically aim to outperform markets and cut volatility, but those this month have come as a stark reminder to many of the continuing uncertainty over the economic recovery.

    London’s BlueTrend – the $10bn computer-driven fund run by BlueCrest Capital, one of the most successful managers to emerge from the financial crisis – dropped 7.57 per cent during the first week of May. Rival AHL, the $20bn monolith run by the Man Group, fell 3.3 per cent.

    In the US, the Renaissance Institutional Equities Fund, another quantitative trader run by Long-Island-based Renaissance Technologies, fell 3.6 per cent.

    Sharp losses were also taken by many large long-short equity managers, which both invest in stocks and look to take advantage of price falls by selling them short.

    The $15bn Lansdowne Partners saw its European equities fund drop 6.02 per cent and its Global Financial fund fall 5.53 per cent. The $2.2bn Odey European fund, another prominent London-based manager, fell 8.68 per cent.

    In the US, the $12bn Viking Global Investors saw its Global Equities fund lose 3.77 per cent, and in Asia the Templeton Emerging Markets fund – run by the eminent investor Mark Mobius – lost 6.42 per cent.

    Uncertainty over the success of the European Union’s €750bn ($928bn) bail-out plan has added to volatility, exacerbated by a so-called “flash crash” in the US on May 6.

  2. schizo


  3. 1st quater = january to march. Losses by HF in may.
  4. I once ran a hedge "fund of funds". The positive correlation of most hedge funds to the market at large is astonishing. Most hedge funds are mostly long to keep up with their competitors in commonly experienced bull markets.

    Many hedge funds are not hedged to protect on the downside. Even sophisticated high-frequency traders are even on the year, or down. Too much money chasing too little Alpha!
  5. Hedge Funds Post Inflow of $7.6 Billion in March;
    Hedge Fund Assets Stand at 16-Month High of $1.64 Trillion

    New York, NY – May 10, 2010 – TrimTabs Investment Research and BarclayHedge reported that the hedge fund industry posted an estimated inflow of $7.6 billion, or 0.5% of assets, in March 2010. Hedge fund assets stand at a 16-month high of $1.64 trillion


    I think zero percent interest policy made the large funds pretty comfortable in thinking the rally in equities will continiue as the obvious target of uncle Ben and other central banks is / was "equity inflation" - not to say creating the next assset bubbles. Therefore not many of the large funds were in the need of hedging their positions against downturns, especially after our very best friends ( sh..t your pants HFT liquidity providing boutiques ) gave the doubtful impression nobody is disturbing them in pumping up the markets...

    As far I can hear from investment bank prime brokerage services in London, hedging seems to be a newly rediscovered trading technique...

    Latest Credit Suisse Global Risk Appetite Index is showing highly negative figures, means risk aversion. Meaning it's too late for hedging activities. Time to buy...
  6. nitro


    Thanks. These are interesting stats. I will point out though that this analysis is biased. Rentec is known to have several funds with different styles of trading/investing. If you don't pick from a menu of choices randomly, then the conditional probability of your hypotheses is biased.

    I don't know, I am just guessing, but for example if this fund tries to track the SP500 the closest, and they do it 130:30 style


    then of course it will show loses disproportionate to the index they track. What I am saying is that unless you know the style of the fund, it is just a bunch of numbers without context. If you set out to prove something and pick and choose your facts selectively, you can prove just about anything.

    I would not be surprised to learn that several other of their funds did extremely well during the same period, and people that have a portfolio weighting of all their fund offerings (or some set of fund of funds) came out ahead in the same period.

    If I were doing this analysis, I would get the entire set of hedge funds by style, do a correlation and covariance of their returns, then try to see what minimal set of hedge funds together would have done best based on risk/return. Then I would have seen what FOFs had close to this return. These are the people I want to invest with.
  7. First sentence doesn't imply the second. Often they aren't "long" but are exposed to strategies that, while nominally market neutral, perform better during bull markets.
  8. Conclusion.....They are hedge funds merely masquerading as mutual funds with "hedge fund compensation". :mad: :( :eek:
  9. Well that comes as absolutely no surprise, RIEF investors have been taking it on the chin since the fund's inception. I'm much more curious how RenTec's internal Medallion fund did during Flash Crash, my guess is they made an absolute killing once again.
  10. The Suss Fund must have gained atleast "in the teens" for the month so far. :eek: :D
    #10     May 17, 2010