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Almost all hedge fund strategies posted their worst losses in 2008, says Edhec


Date: Wednesday, February 18, 2009
Author: Hedgeweek.com

All hedge fund strategies except for CTAs and short sellers posted their worst losses in 2008, according to a report from Edhec.

Véronique Le Sourd, senior research engineer at the Edhec Risk and Asset Management Research Centre and author of the report, says the extraordinary events of 2008 had a significant impact on hedge fund returns.

Funds of hedge funds, which are sometimes taken to give an aggregate view of the industry's performance, performed very badly in 2008, with a strong negative average return of -17.08 per cent.

It is the first time since 1997 that this index has posted negative returns. Hedge fund investments lost value across the board.

The S&P 500 fell 37 per cent, which represents the greatest one-year fall for the period where data is available. Most of this fall took place in the last months of the year, as news of the worsening financial crisis spread.

Emerging markets were hit with even greater losses. For example, the S&P IFCI Index, which includes twenty-two emerging markets, fell by about 54 per cent in 2008.

The months of September and October were the major contributors to the negative performance for all the strategies. But other months contributed as well, as most of the strategies racked up more negative than positive months. Six strategies (convertible arbitrage, distressed securities, emerging markets, event driven, fixed income arbitrage, and funds of funds) posted negative returns for nine months in 2008.

Unlike the other strategies, CTA global and short selling posted not only positive, but strong returns, only slightly lower than their best annual returns since 1997.

The best performing strategy was short selling, with a return of 24.72 per cent. The lowest return (-30.30 per cent) was obtained by emerging markets, closely followed by convertible arbitrage (-26.48 per cent).