Quiet, Too Quiet: Hedge Funds And Last Week's Market Plunge

Posted by John Carney, Mar 05, 2007, 2:08pm

Financial journalists are scrambling to report on the big winners and losers among the hedge funds from last week's market turmoil. So far there has been lots of speculation and rumor but very little in the way of confirmed news about specific hedge funds.

Lots of money was lost by hedge funds last Tuesday. According to the hedge fund insider newsletter FinAlternatives last Tuesday was the "Worst Day Ever" for hedge funds.


According to Hedge Fund Research, Feb. 27 was the worst day it had ever recorded for hedge funds in the four-year life of its indices.

Macro funds suffered the worst drop, losing 3% to just about wipe out year-to-date gains. Market-directional funds, emerging markets and computer-driven managed futures funds were also hurting. Citigroup, in a note Thursday, wrote that the declines, “in conjunction with the long positions still shown by our credit survey… make us concerned about further de-risking ahead.”

Arki Busson of the $10 billion fund of hedge funds EIM told the Financial Times that hedge funds had lost about two-thirds of their gains for February, but, “The good news is there were no disasters.”

The category of likely losers on Plunge Tuesday includes funds that were shorting market volatility, a strategy which has been successful in recent years and has no doubt attracted fund managers in search of gains. Others have avoided the strategy as being historically too risky, emphasizing that its recent success is anomalous.

"Shorting volatility is like picking up nickels dimes in front of a steam roller," one hedge fund insider told DealBreaker. "You can make some money. But the moment you trip up, you're in a lot of trouble.

Word has it the the Wall Street Journal will report on hedge fund winners and losers in tomorrow's edition. But tomorrow is so far away.

What have you heard? Send your insights to tips@dealbreaker.com.

Worst Day Ever: Hedge Funds Hurting From Tuesday’s Tumble [FinAlternatives]

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Posted in: Hedge Funds, Market Plunge

Comments

Posted by Anonymous, Mar 05, 2007 3:01PM

Research indicates that many hedge funds are short volatility, even if not explicitly.

Posted by analyst, Mar 05, 2007 3:19PM

A contact at Hedge Fund Watch reports that 92% of funds reported losses of 3% to 5% for the month. The average investor in the stock market lost, what, 15% or so? I know where I'd rather be.

Posted by anon, Mar 05, 2007 3:22PM

Plunge Tuesday? you have got to be kidding .. wow that's pitiful

Posted by Dan Loeb, Mar 05, 2007 3:30PM

Since when did HFs report performance daily? I would take that data with a serious grain of salt.

Posted by Anonymous, Mar 05, 2007 3:33PM

analyst, what the hell are you talking about? The S&P500 is down 2.2% for Feb. How is that 15% or so? The average hedge fund is junk and this survey does do anything to suggest otherwise.

Posted by The Corner, Mar 05, 2007 3:34PM

Seriously, we can do no better than Plunge Tuesday?

And to "analyst" did the average investor lose 15%? The DJIA is only off 4.1% since pre-Plunge Tuesday, and the SP500 4.6%, what "average investor" idiot juiced his losses to 15%?

Posted by Dan Loeb, Mar 05, 2007 3:46PM

Also, analyst: your "contact" at HFW is either retarded or full of shit. There is no fucking way that 92% of funds reported losses of 3-5%. From the returns that I have seen, February is going to be a good month.

Posted by , Mar 05, 2007 3:51PM

Yep - which 92% of funds reporting into what authority?

Posted by The Corner, Mar 05, 2007 3:56PM

Haha, tough crowd this bunch!

Posted by AJ, Mar 05, 2007 4:00PM

Haha, no throwing around fake numbers with the dealbreaker readers!

Posted by anon, Mar 05, 2007 4:03PM

What's wrong with "Glitchday?"

Posted by anon, Mar 05, 2007 4:53PM

That steamroller quote is a total ripoff from "When Genius Failed".

Posted by analyst, Mar 05, 2007 6:22PM

Hey guys, I should have pointed out, those are preliminary numbers. And the 15% figure on balanced equity portfolios has been cited in the financial media. You need to start paying attention, pikers.

Posted by The Corner, Mar 05, 2007 7:28PM

I don't understand, maybe you could elaborate on "balanced equity". Presumably, the best this could mean is that you are long and short. Your longs are down 2.2%, and your shorts are up 2.2%. It could also mean you are long only but diversified, meaning you are still only down 2.2%. ???

Posted by Anonymous, Mar 05, 2007 8:48PM

analyst, which financial media claimed that the "average investor in stock market" was down 15% for the month of February? Who is this average stock investor anyway?

Posted by analyst, Mar 06, 2007 9:41AM

Hey guys, if you have time to verify/disprove the numbers, which I pass on here simply as hearsay, then go for it. As for Hedge Fun Watch, I've been told you can contact them directly. Now stop griping and stop waiting around for someone to wipe your ass for you.

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