www.hedgeco.net excerpts ... -May has seen tough trading conditions that may mark the end of earning easy money. The $1.5 trillion hedge fund industry has seen a sell off in prices of precious metals prices in emerging markets and analysts blame fears of inflation and rising rates for the sudden drop.- - losses were not confined to metals, investors said. Global macro hedge funds that bet on currencies, commodities, and interest rates are said to have lost roughly 25 percent. Funds specializing in emerging markets were said to have given back as much as 50 percent.- -People have given back a lot of profits and the rest of the year will be much more difficult to trade, with people becoming more sensitive to risk and making fewer bold moves.â Many of the worldâs roughly 8,000 hedge funds lost between 3 and 6 percent in the first three weeks of May with some having seen swings of 10 percent or more, investors and researchers said.- -The weaker players could get knocked out and that would be a good thing.-
According to rumour mill, an equity hedge fund went bust on the same day of those inflation figures last month. I had my best ever trading day due to all the paper that flooded the market and hope that the trend continues...
Well, personally I know of a few trading firms / funds that had a bad may. Problem is cerainly volatility, the high volatility during the 1-2 spiky days are problematic for both trend following and mean reversion short-term strategies. Also the commodities market seems to have topped as well. VIX went from about 12 to 18-19 during peak (which is still not that high by historical standards). To be specific, I know of one firm that is down $50M or so on their volatility book, another fund is currently down about 48M in FX (due to the continued weakening of USD). On the other hand, I know of a firm that made a little over 10% for the month of May, mostly shorting the commodities (such as Gold at the top).
If a hedge fund is really a "hedge fund", it should have had a good month of May, at worst a break-even month. I believe there are too many former "mutual fund" guys with a long-only attitude about the market. Mix in leverage and a sharp downturn and we should be hearing about some debacles that will be remembered for a long time. It's always hilarious to hear about emerging markets turning into submerging markets and yadda, yadda, yadda.
according to my initial calculations, we are up about 8% for May. We got hurt like everybody else in some markets, but these days are when diversification really helps.
Agreed. If you ask me - we are in a bull market as far as volatility and trend, at the moment. April/May were the best months this year when you think about it from a trending perspective - gold (730-630), S&P (1350-1250), currencies (Euro 1.21-1.30) etc. all moved very well from a technical analysis perspective - the monthly ranges were phenomenal. Just because they didn't move in the direction that Joe average would have liked them to move (up) is no reason for hedge fund managers to not take advantage of these market conditions. What's going on?
Hedge Funds Fell in May, Cutting Gains for 2006, Investors Say June 2 (Bloomberg) -- Hedge fund managers gave up about half of this year's market gains in May as prices for stocks, oil and metals fell, investors said. Most funds were down 3 percent to 6 percent last month, said Stuart Bohart, head of alternative investments at Morgan Stanley Investment Management in New York, which oversees $18 billion for clients. ``A few funds are up and a few funds are down double digits,'' he said. The $1 billion Boyer Allan Pacific Fund in London fell 10 percent from May 1 to May 26, cutting its return for the year to 1.8 percent, data compiled by Bloomberg show. Dorset Energy, a $756 million fund in New York, dropped 8.4 percent through May 19, leaving it up 3.3 percent for 2006. The $1.3 billion Threadneedle European Crescendo Fund in London declined 3.7 percent through May 30, trimming its 2006 return to 4.2 percent. The industry's declines may end up being the steepest since November 2000, when the loosely regulated investment funds fell 3.49 percent on average, according to Chicago-based Hedge Fund Research Inc. The biggest drop occurred in August 1998, when funds tumbled 8.7 percent after Russia defaulted on its debt. Some bigger funds fared better than average in May. Louis Bacon, who oversees $10 billion at New York-based Moore Capital Management LLC, saw his flagship Moore Global fund drop 1.4 percent through May 16, investors said. The fund is up 6.5 percent for the year. Paul Jones's $5.8 billion Tudor BVI fund rose 0.45 percent through May 17, extending this year's advance to 8.1 percent. `Tough Month' Both funds chase macroeconomic trends by investing in stocks, bonds, currencies and commodities. Bacon and Jones declined to comment. Investors poured almost $340 billion into hedge funds during the past five years, increasing the industry's assets to $1.3 trillion, Hedge Fund Research reported. The funds endeavor to make money whether financial markets fall or rise. They can use leverage to help boost gains, and they can sell short, or borrow securities and immediately sell them with the hope of buying them back at a lower price. Hedge fund assets probably will reach $2 trillion in the next three years, according to Needham, Massachusetts-based TowerGroup, a financial-industry consultant. ``Although May has been a tough month, the bigger picture for the first five months of the year is still very good,'' Morgan Stanley's Bohart said. Market Slide Financial markets fell last month on concern that rising interest rates globally would curtail economic growth and make it more expensive to borrow money to buy stocks and other financial instruments. Emerging-market stocks, as measured by the MSCI Emerging Market Index, gave back about three-fifths of their gains and ended May up 7.3 percent for 2006. The Standard & Poor's 500 Index halved its increase to 2.5 percent. Gold futures hit $728.60 on May 11, the highest since January 1980. Prices fell to $649 an ounce by month's end. Crude oil futures climbed to $76.06 at the beginning of the month, before falling to $71.29. ``The biggest damage came from emerging markets and mid-cap stocks globally,'' said Philippe Bonnefoy, who runs Cedar Partners, a Cayman Island-domiciled fund that farms out money to other hedge funds. He expects further losses. ``There will be a smattering of buying and then it will fade out, and funds will get whacked again,'' Bonnefoy said. To contact the reporter responsible for this story: Katherine Burton in New York at kburton@bloomberg.net Last Updated: June 2, 2006 03:17 EDT http://quote.bloomberg.com/apps/news?pid=10000006&sid=aFGa3if.d.PY&refer=home
probably just the beginning... with US rates at 5% and not done rising, EC rates on the rise and Japan's positive rate outlook: . for every anticipated 25bp bump in JPY rates, billions in so-far-free money will simply leave the table, starting with current red hot speculative mkts... . tons or money are already flowing towards risk-free 5% returns ... time to be selective...