Sagging Market Could Zap Smalls HFs

If Man Group’s flagship fund can sink, could the drooping market shipwreck smaller funds? Man AHL Diversified Futures fell 3.7% in a week, and while that loss is no giant killer, similar downturns could doom hedge funds of a lesser size. According to The Independent, rumors have it that one unnamed small hedge fund nearly liquidated after its big investment on Equator Exploration, an oil exploration and production company, sprung a serious leak. The British newspapersays the HF sold off its stake to get cash to cover the margin, but the sell-off sent EE’s price into a downward spiral, dropping by a third. Observers suspect that this HF is not the only one suffering, and we may hear of closures in coming weeks, if the market continues as is. As for AHL, it doesn’t appear to be suffering much. Even with returns off 4.5% for May so far, it is still up 31.9% for the year. As for the little guys, managed futures funds, watch out. “This sort of fall,” an unnamed hedge fund analyst told The Independent, “while it does not happen every week, does happen from time to time,” and funds like AHL weather it just fine. On the other had, fund manager Anthony Bolton of Fidelity Investments offered no comfort. He warned that a stock market “correction could take months rather than days... I think it could be the end of the bull market.”