Hedge Fund Returns Improved in January

Date: Thursday, February 19, 2009
Author: Lauren Tara LaCapra, TheStreet.com

A hedge fund research group provided further evidence on Tuesday that the industry's performance has markedly improved so far this year, despite ongoing market turbulence.

Hedge funds returned 1.09% to investors in January, according to the Credit Suisse/Tremont Hedge Fund Index calculated by Credit Suisse (CS Quote - Cramer on CS - Stock Picks). Two other firms, Hedge Fund Research and Hennessee Group, also reported earlier this month that the sector ended January in the black.

The positive performance is a bright spot in a sea of bleak news for the industry, which faces redemption demands, limited financing, tougher regulation and major consolidation. Though they performed much better than the broader markets, hedge funds fell victim to the dips and peaks of the financial crisis last year, losing nearly 20% on average. Amid the carnage, funds lost 30% of assets under management just through the last half of 2008, forcing 1,300 to liquidate, according to Hedge Fund Research.

Even some top funds have had issues with high-profile investments, like Cerberus' stakes in struggling U.S. automakers Chrysler and General Motors (GM Quote - Cramer on GM - Stock Picks), which teeter on the edge of bankruptcy, relying on government intervention to stay afloat.

Other prominent funds of Citadel, Harbinger Capital, Glenview Capital Management, Fortress Investment Group (FIG Quote - Cramer on FIG - Stock Picks) and Och-Ziff (OZM Quote - Cramer on OZM - Stock Picks) have also suffered and been plagued by investor demands for cash.

Credit Suisse said among the best-performing strategies in January were convertible arbitrage, which capitalize on market dislocations; short-bias funds that bet against positive returns; and diversified funds with multiple strategies or broad, "global macro" exposure." Among the weakest were managed-futures funds, equity funds with long and short exposure, and those invested in emerging markets.

Oliver Schupp, president of Credit Suisse Index Co., said convertible arbitrage funds benefitted from a thawing in the credit markets, while global-macro managers were helped by high volatility.

"Overall, seven of the index's ten sectors finished the month in positive territory," noted Schupp.