Hedge Funds Fell 1% in November, Beating Global Stocks Hit by Euro Crisis

Date: Wednesday, December 7, 2011
Author: Kelly Bit, Bloomberg

Hedge funds fell 1 percent in November as global stock markets slumped because of growing concern that the European sovereign-debt crisis would spread.

The Bloomberg aggregate hedge-fund index dropped to 116.03 from 117.22 in October, bringing this year’s loss to 3.8 percent. Long-short equity funds, multistrategy funds and macro funds, which bet on global economic trends, declined.

“Volatility has been fierce,” said Andrew Parrillo, president and founder of Newport Capital Advisers Inc. in North Quincy, Massachusetts, which has about $200 million in assets to invest. “Hedge funds are getting a bit of a whipsaw. They really are concerned about the resolution of this impasse in Europe.”

Europe’s crisis has added to woes for hedge-fund managers struggling with market volatility and increased correlation among asset classes. John Paulson, who oversees $28 billion, lost 46 percent this year through November in one of his largest funds in part because of wrong-way bets on an economic recovery. Paulson is the industry’s sixth-biggest manager, according to data compiled by Bloomberg.

The MSCI All-Country World Index of global stocks declined 3.2 percent in November amid concern that a Greek referendum would threaten Europe’s bailout, along with record costs to insure European government debt.

Multistrategy (BBHFMLTI) hedge funds fell 1 percent in November and 1.8 percent in 2011. Macro funds declined 1.5 percent last month and 4.8 percent this year. Long-short equity funds, whose managers can bet on rising and falling stocks, slumped 2.1 percent in November and 3.8 percent this year.

October’s Gain

Hedge funds rose 2.2 percent in October, based on Bloomberg’s aggregate index, as global stocks (MXWD) rallied. Funds dropped 4.7 percent in September, their worst month this year.

Paulson & Co.’s Advantage Plus Fund, which seeks to profit from corporate events such as takeovers and bankruptcies and uses leverage to amplify returns, fell 3.6 percent last month in its dollar-denominated share class. The firm’s Recovery Fund, which invests in assets Paulson believes will benefit from a long-term economic upturn, declined 4 percent in November and 28 percent in 2011.

Paulson cut the so-called net exposure in his main funds to 30 percent last month from 60 percent four months earlier. Net exposure is calculated by subtracting the percentage of a fund’s short positions, or bets on falling securities, from its longs, or wagers on rising stocks and bonds.

The main Bloomberg hedge-fund index (BBHFUNDS) is weighted by market capitalization and tracks 2,880 funds, 1,303 of which have reported returns for November. The index is down 11 percent from its July 2007 peak.

Hedge funds, investment pools that can wager on or against any asset, hold $1.97 trillion, according to Hedge Fund Research Inc. in Chicago. Investors put $8.7 billion of new money into hedge funds in the third quarter, bringing this year’s deposits to $70.1 billion, the firm said.

To contact the reporter on this story: Kelly Bit in New York at kbit@bloomberg.net