Hedge funds erase 2011’s gains in just 24 hours

Hedge funds had much of their gains this year wiped out on Friday as half the alternative strategies reporting daily data to Hedge Fund Research’s investable indices lost over 1% of their value in just 24 hours.

The $2trn hedge fund industry had struggled to a modest 1.55% by the end of July, according to the data providers’ broader, non-investable index.

But it then lost 1.1% on Friday, as per the narrower, investable industry index, which is widely seen as a precursor to whole-industry figures.

The narrower benchmark showed managers overall were 1.9% lower this month and 4.12% down this year.

The industry’s performance this month is still significantly better than the 10% plunge registered by the FTSE Eurofirst and UK FTSE 100 benchmarks – their worst weekly losses since November 2008.

Equity hedge fund strategies had made 0.86% this year on average to 31 July, before then falling 2.15% on Friday, and 3.9% this month, HFR data showed.

The turbulence on global capital markets over last week left only one strategy – systematically driven global macro – up so far this month, by 0.12%, and even it had to weather a 0.3% fall on Friday.

Discretionary and systematic global macro, a strategy some investors buy as it can thrive by exploiting otherwise damaging trends in macroeconomic variables, lost 0.47% on Friday, and 0.6% in the first week of August. This leaves it down 1.52% so far this year.

Of 13 strategies reporting daily data to HFR’s investable benchmarks, however, the harshest falls were suffered by equities funds.

On average hedge funds within HFR’s equities investable fund index are 12.6% down this year, down 3.9% this month, including 2.15% lower on Friday.

Fundamental value hedge funds fell 2.26% in a day, while fundamental growth declined by 2.22%. Equity market neutral, whose managers equally weight positive and negative bets on market direction, fell on Friday too, though by a more modest 0.22%.

Three further strategies – event-driven, merger arbitrage and special situations – were also down sharply on the day by over 1.4% each.

Only one strategy rose on Friday – convertible bond arbitrage, by 0.19%. This will go some way to offsetting the strategy’s 0.63% decline this year to 31 July.


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