Hedge Funds Lost 1.41% Last Month on Emerging Markets

Date: Monday, December 8, 2008
Author: Saijel Kishan, Bloomberg

Hedge funds fell 1.41 percent in November, a record sixth straight monthly decline, on losses by managers focused on emerging markets and equities, according to data compiled by Hedge Fund Research Inc.

The drop left hedge funds down 17.7 percent this year, the Chicago-based firm said on its Web site today. While managers outperformed the Standard & Poor’s 500 Index, which fell 7.4 percent last month, they are headed toward their biggest losing year since the research firm started tracking returns in 1990.

“They’ve done pretty well given the turbulence in the markets last month,” said Matt Simon, analyst at New York-based Tabb Group, a financial-services consulting company.

More than 80 firms including Fortress Investment Group LLC and Tudor Investment Corp. have liquidated hedge funds, segregated assets or limited withdrawals following market losses and tightening credit conditions.

Industry assets, which peaked at $1.9 trillion in June, may shrink by 45 percent by the end of this month because of investment losses and client withdrawals, according to estimates by analysts at Morgan Stanley.

Citadel Investment Group LLC, the Chicago-based hedge-fund firm run by Kenneth Griffin, lost 13 percent in its two largest funds last month, bringing their year-to-date decline to 47 percent, two people familiar with the matter said yesterday.

London Diversified Management LLP’s main fund lost 5.45 percent last month and 27.8 percent for the year, according to investors. The London-based firm, run by Robert Standing and David Gorton, was among the firms that last month halted investor redemptions.

Third Point

Third Point LLC, run by Daniel Loeb, lost 2.9 percent last month from its $2.5 billion Offshore Investors Ltd. fund, bringing the decline for the year to 31.1 percent, according to a Dec. 2 statement by the New York-based firm.

Hedge funds focusing on emerging markets lost the most in November, declining 3.53 percent, HFR said. Those funds have lost 36 percent this year, HFR said. Equity funds fell 2.66 percent, bringing their loss since January to 25.6 percent.

The index’s worst month since its inception in 1990 was August 1998, when it lost 8.7 percent as hedge fund Long-Term Capital Management LP imploded. That year, the index dropped for four straight months, the longest losing streak before 2008.

The hedge-fund index declined 1.45 percent in 2002, when the Standard & Poor’s 500 Index tumbled 23 percent. The U.S. stock benchmark has declined 44 percent this year, its worst since 1931.

Liquidations

Firms that liquidated funds last month include Parkcentral Capital Management LP, an investment firm that manages money for the family of former U.S. presidential candidate H. Ross Perot, and Tontine Associates LLC, run by Jeffrey Gendell.

Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets, bet on falling as well as rising asset prices and participate substantially in profits from money invested.

Hedge fund firms that made money last month include BlueGold Capital Management LLP, which gained 9.5 percent and has almost tripled this year. The London-based firm, co-run by Pierre Andurand, manages $1.1 billion.

Paulson & Co., run by John Paulson in New York, returned 3.2 percent for its Advantage Plus Fund Ltd., bringing its year- to-date gain to 33.5 percent. Capula Investment Management LLP, a London-based hedge fund, posted a 3.14 percent gain last month on its Capula Global Relative Value Fund, extending the annual return to 7.76 percent.

Executives at the hedge funds declined to comment.

To contact the reporter on this story: Saijel Kishan in New York at skishan@bloomberg.net