Hedge funds could shift focus to equities: Eurekahedge

Date: Wednesday, March 26, 2008
Author: Eurekahedge

Even as FII flows have improved, there have been individual instances of some large midcap sell offs. Tracking individual stocks down, raising apprehensions that some of these hedge funds might still be facing some redemption pressures, Ankur Samtaney of Eurekahedge said that India-based hedge funds have seen outflows at 10%.

He added that the Eureka India Hedge Fund was down 10-12% on a YTD basis. According to Samtaney there is a bit of redemption pressure and looses in some of the hedge funds. Commenting that hedge fund managers made good gains in commodities and currencies, Samtaney added that the focus of hedge funds could shift from commodities to equities.

Excerpts from CNBC-TV18's exclusive interview with Ankur Samtaney:

Q: Have India based hedge funds seen any significant outflows over the last month or two that you have been able to record?

A: The outflows have been to the tune of about 10% this year, but in terms of individual funds, I am afraid I will not be able to give you details on that as per our policies.

Q: Do you have any sense from people you talk to whether any individual hedge funds are facing some redemption pressures or are in danger of going bust, because we have heard of a few like Monsoon Capital etc, which has seen an erosion of nearly 45% from their peaks in terms of NAV, is it possible that some hedge funds are in trouble or is the situation not quite so bad?

A: The situation would not be so bad for the industry as a whole because the Eurekahedge Indian hedge fund index was up about 44% last year against which it shed about 10%-12% this year. So it is not so bad on the holistic picture. But yes, there are some outflows like 10% on the whole for the industry, but I cannot name hedge funds right now.

Q: Can you just flesh out this 10% outflow that has happened for a lot of India focused hedge funds, though is it redemption pressure they are seeing or did they just have to cash out and increase cash levels because of what has happened across markets?

A: There is a bit of redemption pressure and some losses as well. Investors would normally look at pulling out funds when they are little cautious on the markets. So I am guessing that is what it's more about rather than managers just losing money and they are being like a difficult scene in the markets.

Q: What kind of tactical approach do you see? A lot of these emerging market hedge funds taking now because we were speaking to someone who runs a hedge fund and he made the point that no-one is expecting a V-shaped rally but people are beginning to put in cash again, is that something you are seeing and hearing of anecdotally?

A: Definitely, we have spoken about the emerging markets taking a hit in February, where India was down, China was more or less flat but markets like Taiwan, Korea and other emerging markets across the globe like Brazil and Russia did pretty well. So I do not know about the V-shaped rally, but it is sort of doing good right now.

Q: Did you see a lot of hedge funds latching on to commodities as an asset class while the party was on and are you sensing any shift away from commodities to equities now that the commodity party is cooled off somewhat?

A: Definitely, managers made some good gains across the last couple of months from commodities across the board because shoring the US dollar against the yen and the euro worked out pretty profitable.

On the commodities front, I am guessing with the way things are going now, the focus is going to probably shift from commodities to not necessarily only equities, but managers might need to probably reallocate their risks on the commodities front.

Q: Many of these hedge funds run short positions in difficult market conditions and some of the long short funds also probably increase their proportion of shorts; in the last few weeks have you seen any sense of covering up of directional shorts or even changing the mix of long shorts for the hedge funds?

A: To be very honest, what I can talk about in terms of performance is up till February, because hedge funds usually would only declare the performance at the month end, which means March performance would come into April. Until February the western markets made some good money out of short positions. India and China where shorting is probably an issue, managers did take a hit, but like I said after having got about 40%-50% gains last year losing 10% is not much of a big deal.

Q: How carefully are these fund managers watching, what is happening in the currency market and if indeed the yen were to strengthen a little bit more, do you expect to see liquidity issues cropping up for a lot of the hedge funds now?

A: That would depend on how things go further, but till now it has not been much of an issue with managers making good money out of just shorting the US dollar for the yen. It is only time that will tell how things are going to go.