Hedge funds hit by May volatility

Date: Monday, May 17, 2010
Author: Sam Jones, Hedge Funds Correspondent, Financial Times

Some of the world's biggest hedge funds have suffered significant losses this month after high levels of volatility across markets and the shortlived stock market plunge in New York combined to wipe billions from portfolios.

Losses in the first week of May alone erased all gains made so far this year for some managers, according to investors who spoke to the Financial Times.

Large losses in a single week are not unusual for hedge funds, which typically aim to outperform markets and cut volatility, but those this month have come as a stark reminder to many of the continuing uncertainty over the economic recovery.

London's BlueTrend - the $10bn computer-driven fund run by BlueCrest Capital, one of the most successful managers to emerge from the financial crisis - dropped 7.57 per cent during the first week of May. Rival AHL, the $20bn monolith run by the Man Group, fell 3.3 per cent.

In the US, the Renaissance Institutional Equities Fund, another quantitative trader run by Long Island-based Renaissance Technologies, fell 3.6 per cent. Sharp losses were also taken by many large long-short equity managers, which both invest in stocks and look to take advantage of price falls by selling them short.

The $15bn Lansdowne Partners saw its European equities fund drop 6.02 per cent and its Global Financial fund fall 5.53 per cent. The $2.2bn Odey European fund, another prominent London-based manager, fell 8.68 per cent.

In the US, the $12bn Viking Global Investors saw its Global Equities fund lose 3.77 per cent, and in Asia the Templeton Emerging Markets fund - run by the eminent investor Mark Mobius - lost 6.42 per cent.

Uncertainty over the success of the European Union's €750bn (£639bn) bail-out plan has added to volatility, exacerbated by a so-called "flash crash" in the US on May 6.