Some HFs Celebrate Double-Digit Returns With A Bang

Date: Tuesday, December 19, 2006

Hedge funds are poised to prove the industry is alive and well, performance wise, by finishing 2006 with double-digit returns for the first time in three years. Some of those funds are coming back with outsized returns reminiscent of what many regard as the heyday of hedge funds, which was not too many years ago. Long/short equity, which claims one-third of all hedge fund assets, was up 10.6% through November, according to The Hennessee Group, but that percentage doesn't do justice to the real winners--and some losers--in the group. According to Financial News, citing investors, the Penta Japan Fund skyrocketed 183.3% through Dec. 8, while The Gradient European Fund soared a healthy 36.1% through Nov. 30. On the other hand, there are not so many happy long/short equity returns for the Blue Sky Japan Fund, which was down 29.1% so far this year, while Crispin Odey's Odey European Fund is off 1.9% and John Duffield's New Star U.K. Hedge Fund tumbled more than 20%.

Other strategies had more of a consistent positive attitude. Emerging markets as a strategy climbed 15.1% through October, says Hedge Fund Research, but the hottest offerings in that category are GLG Partner's fund, surging 48.1% through Dec. 8 and William Browder's Moscow-based Hermitage Fund up a nifty 37.9%. A winner among merger arbitrage offerings so far is Atticus' fund in that strategy, up 33.8% through early December, while its European event-driven fund did even better, rising 40.5%. In convertible arbitrage, a prime contender for comeback strategy of the year, GLG's market neutral fund moved up 24.4%, while the Ferox Fund added 18.7%.

Not everyone is walking away a winner, strategy wise. Global macros are up just 2.2% so far, according to Hennessee, and short-selling-focused hedge funds stood at -2.0% as of Oct. 31, says HFR.