Hedge Funds Post First Back-to-Back Gain in 8 Months

Date: Wednesday, February 11, 2009
Author: Tomoko Yamazaki and Bei Hu, Bloomberg.com

Hedge funds posted their first back- to-back gain in eight months in January, rebounding from record losses in 2008 as North American managers benefited from betting stocks would fall, an industry report showed.

The Eurekahedge Hedge Fund Index, which tracks more than 2,000 funds worldwide, gained 0.5 percent last month, extending the 0.8 percent advance in December, according to preliminary data compiled by Eurekahedge Pte. Last time the index rose for two months in a row was in April and May 2008. The January advance contrasts with the 8.9 percent slide by the MSCI World Index of stocks in developed markets.

“I think what this is showing is that hedge funds have managed to shift their portfolios and they are effective in the current market conditions,” said Jennifer Carver, Hong Kong- based Asia chief executive officer at 3A SA, the alternative investment arm of Geneva-based Banque Syz & Co., that manages $3.5 billion worldwide. “We’re seeing a difference of what’s happening in the equity markets and bond markets and what’s happening in hedge funds, which is what should happen.”

The global hedge-fund industry shrank by more than 20 percent to $1.5 trillion at the end of December, from a peak of $1.9 trillion, as the credit crisis crippled returns and forced investors to pull money out.

‘Double-Punch’

Net redemptions totaled $30 billion in January, according to Singapore-based Eurekahedge. More than 500 funds have closed since the start of 2008, while 350 started, Eurekahedge said.

The global hedge-fund index slid 12 percent in 2008, the most since the data provider first published the figures in 2000.

“Hedge funds throughout the world took a double-punch last year as we struggled to improve performance while our investors’ appetite for risk faded fast,” said Makoto Kikuchi, chief executive officer at Myojo Asset Management Japan Co., a Tokyo- based hedge fund advisory firm. “This year is going to be a year when hedge funds will be tested on their performances, and what we’re seeing is just the start of it.”

Eurekahedge’s figures are estimates based on 34.8 percent of the funds that have so far disclosed performance. The research firm plans to release a full report on Feb. 18.

By region, the Eurekahedge North American Index gained 1.3 percent, the best performance, in part because of the dollar’s 8 percent rally against the euro as the European Central Bank cut rates, the report said. The measure for Latin America followed with a 1 percent gain, while the European Hedge Fund Index posted a 0.5 percent advance.

Winning Strategies

An index measuring Eastern Europe and Russia slid 7.6 percent, the worst performer, as funds investing in commodities and equities took a toll, Eurekahedge said. The Reuters Jefferies CRB Index, a benchmark for commodities, tumbled 11 percent in January.

In Asia, the Eurekahedge Japan Hedge Fund Index lost 1.5 percent, while the Asian index fell 0.5 percent.

Eight out of nine measures tracking different hedge-fund strategies gained in January. Managers that use so-called arbitrage had the biggest advance, of 2.3 percent, the report said. Hedge funds investing in distressed debt added 1.7 percent, while managers employing relative value methods that take advantage of price or spread inefficiencies, fell 0.8 percent.

Among funds that posted gains in January were the two largest at Ken Griffin’s Citadel Investment Group LLC, which rose 4.75 percent. Paul Jones’s Tudor BVI Global Fund returned 2.9 percent, and the Myojo Japan Long Short Fund, run by Myojo Asset, added 0.5 percent on a dollar basis.

Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall.

To contact the reporter on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net; Bei Hu in Hong Kong at bhu5@bloomberg.net