Hedge funds not immune to downturn says Man Group

Date: Tuesday, July 31, 2007
Author: Rob Mackinlay, Financial Express

Most hedge funds will have sustained losses along with long-only funds as a result of last week’s market falls, according to John Bennett from Man Group.

Speaking at a briefing for journalists yesterday, Bennett said that hedge funds still tended toward traditional long plays because market trends were generally upward.

Figures provided at the briefing showed that the majority of hedge funds are still ‘equity hedged’ making up 35% of the hedge fund universe. However the funds with the greatest assets under management are those with ‘managed futures’ strategies – like Man Group’s £17bn AHL fund.

The figures from Hedge Fund Research Inc. for Q2 2007 showed that ‘event driven’ hedge funds were the next most numerous, making up 9% of the industry. Bennett explained that ‘managed futures’ strategies worked by gradually increasing their holdings in stocks as prices went up and shorting against them as they came down.

However he said that this strategy required a high volume of trading which, due to being expensive, required a certain level of volatility within the market in order to be viable. He said that the market environment in which most other hedge fund strategies were most effective were equally defined.

He said that ‘event driven’ funds were dependent on specific market conditions in which M&A activity was likely to occur, as seen in the bull market of recent years.

As such these hedge funds need markets to function with a certain amount of predictability which would not have included Friday’s market drops.

But Bennett also said that hedge funds investors should be prepared for short term volatility in returns, pointing to the returns of Man’s AHL fund which have ranged between 1.3% in 2004 and 48.2% in 1998.


To comment on this article please contact :
rob.mackinlay@financialexpress.net
Tel. 020 7534 3374