Majority of hedge funds lost money in May

Date: Tuesday, June 13, 2006
Author: Svea Herbst-Bayliss, Reuters

BOSTON, June 13 (Reuters) - More than 70 percent of all hedge funds lost money in May, the first time this year that these lightly regulated portfolios were in the red, according to research released on Tuesday.

Sharp declines in metals, oil and stock prices rattled investors around the world and took a particular toll on hedge funds, according to statistics compiled by the Barclay Group, which invests in and tracks the performance of hedge funds.

While several other firms have tallied what the average fund lost last month, the Fairfield, Iowa-based Barclay Group is the first to say roughly how many of the world's approximately 8,000 hedge funds lost money last month.

Among the funds that posted declines, the average loss was 3.09 percent, the Barclay Group said. Some funds, like short sellers, posted fairly robust gains and helped keep the overall industry losses on the low side, managers and analysts have said.

"Directional equity strategies took the brunt of the losses, reflecting price declines in the stock markets of industrialized and emerging economies," Sol Waksman, founder and president of the Barclay Group, explained.

In the last days, groups that track hedge fund performance said the asset class posted losses somewhere between 1 percent and 2 percent in May. The Barclay Hedge Fund Index lost 1.78 percent in May, while Chicago-based Hedge Fund Research (HFR), a leading industry benchmark, last week said the average hedge fund lost 1.16 percent.

During the heaviest selling, investors feared the losses for the industry would be much deeper with some investors reporting certain funds suffered double-digit declines.

Despite the worrying results in May, 2006 has so far been good for hedge fund investors. The average fund is still up 6.72 percent in the first five months of the year, according to HFR research. The broader stock market gained 1.75 percent, according to the Standard & Poor's 500 index.

News of broad-based losses comes just as some would-be investors said they plan to allocate more to hedge funds.

Nearly half of all U.S. foundations and charities, which have been investing with hedge funds for years, said they expect to raise their allocation to the asset class this year, according to a survey released last week by Commonfund Institute, which offers investment information and development programs to education and other nonprofit groups.

In May, 11 out of Barclay's 18 hedge fund indexes lost value, Waksman said.