Hedge Funds Lost 1.9% in October as Global Stocks Dropped

Date: Wednesday, November 7, 2012
Author: Kelly Bit, Bloomberg

Hedge funds lost 1.9 percent in October as global stocks slumped after companies reported earnings that spurred concern the economy was weakening.

Multistrategy, global macro (BBHFMCRO) and long-short equity managers all fell, according to data compiled by Bloomberg.

“There were plenty of headwinds out there -- the S&P was down, that weighed on equities in total and most of the long- short equity players,” said Charles Mires, director of fixed income and alternative strategies at Franklin Street Partners Inc., the $2 billion Chapel Hill, North Carolina-based wealth manager and fund of funds.

Managers including billionaire John Paulson posted losses as global stocks declined after companies including Microsoft Corp. and General Electric Co. missed earnings estimates. Paulson is seeking to rebound from record losses in 2011.

The MSCI All-Country World Index (MXWD) lost 0.6 percent last month, including reinvested dividends, and the Standard & Poor’s 500 Index dropped 1.8 percent.

The October results reduced hedge funds’ gains this year to 1.1 percent, compared with an advance of 13 percent for equities worldwide, including dividends. The index tracking performance in the $2.19 trillion industry is down 11 percent from its July 2007 peak.

Advantage Plus

Paulson’s Advantage Plus fund, which seeks to profit from corporate events such as takeovers and bankruptcies and uses leverage to amplify returns, lost 3 percent in October and is down 17 percent this year, according to a person briefed on the results, who asked not to be identified because the information isn’t public. Paulson’s Advantage Fund, which employs a similar strategy, dropped 2.3 percent last month and 13 percent year-to- date, the person said.

The manager posted gains last month in several other funds, according to the person. Paulson Enhanced advanced 1.5 percent in October and 9.1 percent in 2012. Paulson Credit Opportunities rose 3.8 percent last month and 6 percent this year. Paulson Recovery gained 2.2 percent during the month and 2.6 percent year-to-date.

Paulson’s Gold Fund declined 6.9 percent during the month as bullion fell. The hedge fund is down 11 percent in 2012.

Armel Leslie, a spokesman for New York-based Paulson & Co., which manages $20 billion, declined to comment on the returns.

The main Bloomberg hedge fund index is weighted by market capitalization and tracks 2,697 funds, 1,304 of which have reported returns for October.

Macro Funds

Macro funds, which bet on economic trends, fell 0.6 percent in October and 1.3 percent this year. Brevan Howard Management LLP posted a 0.2 percent decline last month through Oct. 19 in its flagship fund, bringing year-to-date gains to 1.5 percent, said a person briefed on the performance, who asked not to be identified because the fund isn’t public. Alan Howard founded $39 billion London-based Brevan Howard in 2002.

Max Hilton, a spokesman for the firm at Peregrine Communications, declined to comment.

Multistrategy funds slumped 2.5 percent last month and 7.1 percent in 2012, according to data compiled by Bloomberg. Long- short equity funds, whose managers can bet on rising and falling stocks, fell 1.2 percent in October, paring gains this year to 1.5 percent.

Citadel, SAC

Hedge funds that beat benchmarks last month included Citadel LLC, the $13 billion Chicago-based firm founded by Ken Griffin; SAC Capital Advisors LP, the $14 billion Stamford, Connecticut-based firm run by Steven A. Cohen; and Daniel Loeb’s $9.6 billion Third Point LLC, based in New York.

Citadel posted a 3.2 percent return in its main Kensington and Wellington funds, bringing year-to-date gains to 19 percent, according to a person familiar with the matter, who asked not to be identified because the information isn’t public. Katie Spring, a spokeswoman for Citadel, declined to comment on the returns.

SAC rose 1.1 percent in October and 10 percent this year, said a person briefed on the returns. Jonathan Gasthalter, a spokesman for SAC at Sard Verbinnen & Co., declined to comment.

Third Point posted a 2.6 percent October gain in its Third Point Offshore Fund Ltd., increasing its 2012 return to 14 percent, according to a performance update on the firm’s website.

Hedge fund assets grew 3.6 percent to a record $2.19 trillion in the third quarter, according to Chicago-based Hedge Fund Research Inc. Investors deposited $10.6 billion during the period, the firm said last month.

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