Big and Better Will Weather HF Storm
Bigger and better performing hedge funds, while not immune to market gyrations, are more likely to eke out decent returns.
Bigger and better performing hedge funds, while not immune to market gyrations, are more likely to eke out decent returns, according to Neil Brown, managing director of Citigroup Alternative Investments. In a Financial Times interview, Brown said HFs that historically do well will continue to do so, as they find ways to produce good returns. But he noted that the large minions of hedgies that brought the numbers in the past five years from 1,000 to more than 8,000 funds are going to drag down returns for everybody. Those hedge funds with low overhead costs – meaning they don’t require a lot statistical research, for example – will do best, he suggests. In addition, he told the FT, investors will find it more difficult to get good returns as it “becomes harder to distinguish between managers who are genuinely good and those who have just been lucky in the past.”
Now, speaking of returns, as of mid-month, a couple of strategies are getting battered again. According to the Dow Jones Hedge Fund Strategy Benchmarks, event driven was up 4.7% year-to-date as of the end of May; that YTD return has dwindled to 2.8%. And equity long/short is in negative territory YTD, down 2.1%, after being up 3.0% YTD just two weeks ago. Three of the other strategies in the index are also down, while only one, convertible arbitrage, inched up, rising 0.4% to 5.8%. Distressed securities remains the top performer YTD so far, at 6.5%.