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Hedge Funds Lost 1.8% Last Month as Global Stock Markets Fell

Date: Friday, February 8, 2008
Author: Jenny Strasburg and Katherine Burton, Bloomberg

Hedge-fund managers lost an average of 1.8 percent in January as stock markets around the globe got off to their worst start since 1990.

The biggest losers were managers who buy and bet against stocks, known as long-short funds, which fell 4.1 percent, according to preliminary returns compiled by Chicago-based Hedge Fund Research Inc. Event funds, which focus on companies going through corporate changes like mergers or spinoffs, declined 1.8 percent.

The average fund still beat worldwide stock indexes. U.S. shares, as measured by the Standard & Poor's 500 Index, fell 6.1 percent last month and global shares, as measured by the MSCI World Index, tumbled 7.7 percent.

``On a relative basis it's been OK,'' said Brett Barth, a partner at New York-based BBR Partners, which invests money in hedge funds for clients.

Some large stock funds that lagged behind the industry average include New York-based Goldman Sachs Group Inc.'s $7 billion Goldman Sachs Investment Partners, which fell 6 percent in its first month of trading. San Francisco-based Farallon Capital Management LLC dropped 3.6 percent. Oslo-based Concentric Capital ASA's $740 million Concentric European Fund lost 22 percent.

Farallon, which oversees $36 billion, invests in real estate and companies facing cash shortfalls or going through mergers or other changes. A similar strategy is used by Third Point LLC, the New York hedge-fund firm run by Daniel Loeb overseeing $6 billion, which fell 3.6 percent last month.

SocGen's `Massive Unwind'

Quantitative Investment Management, the Charlottesville, Virginia-based manager with $3 billion in assets, declined 7.8 percent in its QIM Global Program last month, following a 2007 gain of 28.4 percent, according to a monthly client letter.

``The sharp, sudden increase in volatility in the markets, exacerbated by the massive unwind of a fraudulently constructed portfolio of stock indices at SocGen, increased our volatility dramatically,'' according to the letter.

Societe Generale SA, France's third-largest bank, said Jan. 24 that unauthorized bets by 31-year-old trader Jerome Kerviel led to about 4.9 billion euros of losses.

Concentric Capital, run by Peter Jebsen, had wagers on about a dozen companies to increase in value, including financials, according to an investor. Jebsen, a former stock trader for billionaire investor George Soros, started Concentric in 2002.

Investors in the funds asked not to be identified because the returns are private. Officials for the managers declined to comment.

Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets and participate substantially in profits from money invested.

To contact the reporter on this story: Jenny Strasburg in New York at jstrasburg@bloomberg.net ; Katherine Burton in New York at kburton@bloomberg.net .