Hedge funds decline 5%

Date: Tuesday, November 11, 2008
Author: James Langton, Investment Executive.com

October poised to be the worst month in history for fixed income arbitrage managers.

Credit Suisse Tremont Index, LLC reports that hedge funds were down an estimated 5% in October.

The firm said that early estimates indicate that the Credit Suisse/Tremont Hedge Fund Index was down approximately 5% in the month, as extreme market volatility and extraordinary government intervention created a difficult trading environment. Estimates are based on 61% of assets reporting; final October performance will be reported November 17.

The early results indicate that October is poised to be the worst month in history for fixed income arbitrage managers, while the managed futures sector posted its best return of the year, the firm reported. The fixed income arbitrage sector finished down an estimated 18% for the month.

Prior to October, the worst month on record for the fixed income arbitrage sector occurred in October of 1998, when funds posted a negative 6.96% return. Many fixed income arbitrage managers are still holding inventory in mortgage-backed securities and corporate bonds, which has materially impaired their ability to generate returns in this illiquid market environment, the firm pointed out.

Conversely, the managed futures sector capitalized on short equity, short commodities and long US dollar positions to generate its best monthly return this year and positioning it as one of the two positive performing sectors in October, it added