Emerging Funds Tumble

Date: Tuesday, September 11, 2007
Author: Hedge Fund Daily

Emerging markets hedge funds were the weakest link in the industry last month, according to Hedge Fund Research, with those focused on Russia and Eastern Europe tumbling 3.89% and Latin-focused funds falling 2.93%. The performance was a dramatic turnaround for emerging markets, which enjoyed a strong July and strong year-to-date figures. Overall, HFR says hedge funds posted losses of 1.31% for the month, according to reporting by 40% of the 2,000 funds it tracks. Another previously solid performer, macro strategies struggled, posting -2.18% for the month, as a result of sharp reversals in key markets, as well as in economic indicators, says HFR. Other big losers in August, according to HFR, were fixed income strategies, with fixed income: diversified declining 1.55% and fixed income: high yield finishing -1.97%. The bad news is that HFR predicts the industry will feel the effects of market turbulence for the foreseeable future. “Hedge fund performance volatility increased at the end of July and has persisted into September, driven in part by investor concern about continued deterioration in the subprime mortgage sector and the corresponding impact on access to liquidity by other consumers and corporations,” said HFR President Kenneth Heinze. “While a number of strategies posted losses for the month, much of these aggregate, intra-month losers pared into month end.” On the bright side, the fund tracker notes that after 10 consecutive losing months, short selling came up a winner for the third month in a row, adding 1.29% in August for a three-month gain of roughly 11%. Also, quantitative funds recovered more than 65% of their intra-month losses by the end of the August. Meanwhile, some market watchers are saying August will turn out to be not as bad as originally expected, with the industry experiencing its first down month of the year, but only in the 1 percentage point range, one-third of earlier predictions. Analysts warn, however, that the worst performers tend to wait until the last minute to report, so there can still be some nasty surprises in store.