Hedge funds stage recovery with September returns

Date: Monday, October 1, 2007
Author: William Hutchings, Efinancialnews.com

Hedge funds shrugged off a disappointing August and made money again last month – though funds trading in credit continued to feel the impact of the credit squeeze.

The industry generated a positive return for investors of 0.85% net of fees for the month to September 26, according to the investable hedge fund index published by US data provider Hedge Fund Research.

Non-investable indices, which report after a delay, usually show returns that are higher than their investable counterparts.

The Hedge Fund Research investable index showed that, of the eight hedge fund strategies it details, six had made a profit in September. Global macro and managed futures was the best performer with a 3.24% return, while convertible arbitrage gained 2.34%.

The two losing strategies were equity market neutral funds which were down 1.48% in September, and distressed securities funds, which were down 0.62%.

Hedge fund managers and prime brokers, which finance hedge funds’ trades, said they were pleased with last month’s returns.

The recovery came too late for Holland Capital Management, a Dutch hedge fund manager specialising in credit. It has agreed to wind down one of its two funds after making losses in August. It came under pressure when Barclays Capital, which had sold investors in the funds a capital protection note underwriting €38m ($53.7m) of their money, triggered a redemption request.

Holland Capital Management has agreed to unwind the fund over the next four months, which it believes will give it enough time to sell the assets in an orderly fashion. Hans Schlukebir, chief executive of the hedge fund, said the group would continue to trade.

It is backed by AC Capital Partners, an Irish asset management firm specialising in structured credit that has registered slight losses as a result of volatility in the asset-backed securities market.

The industry is hoping the rebound will help restore confidence in the sector.

But investors were disappointed that almost every strategy lost money in August and a net outflow of capital is expected this month.

The fact that losses were across the board in August indicated a degree of correlation between strategies that was greater than investors had expected in turbulent times. This remains a concern, even though August’s results were better than initial estimates by investable index providers.

Investors were also disappointed that funds following a quantitative equity market neutral strategy lost up to 30% of their value in a week in early August. Goldman Sachs, whose quantitative funds were among the losers, wrote to investors last month to blame the results on market overcrowding.