For some time, the hedge fund industry has been blaming the lack of volatility for lackluster returns (the early part of this year notwithstanding). Now that it’s back, observers are wondering whether in the long run it will make a difference, Reuters reports. A number of strategies, such as equity market neutral, convertible bonds and fixed income, benefit from rising volatility – rising even higher with the unsettling events in the Middle East. These relative value and global macros account for up to 40% of the entire hedge fund industry. But the big loser in these times – long/short equity – also makes up a major chunk of the industry, and it’s not likely to see any brighter days soon. “In this kind of environment where stocks are so vulnerable,” Alan Andreining, managing director of Money Management Group, tells Reuters, long/short is a strategy that he expects “will not do well for the balance of the year.” At this point, prognosticators say the hedge fund industry will end the year with returns below 7%, even lower if the Middle East conflagration continues to simmer.
