November was a bad month for the hedge fund industry. A Bloomberg story reports on further losses at quant funds Global Alpha and AQR, as well as declines at non-quant funds:
Hedge funds run by Goldman Sachs Group Inc. and AQR Capital Management LLC fell in November as swings in financial markets confounded the computer-driven trading models used by the quantitative managers.Goldman’s Global Alpha, which started 2007 with more than $10 billion, dropped 6 percent, bringing the decline for the year to 37 percent, according to an investor in the fund. AQR’s $4 billion Absolute Return fund is down 11 percent, after losing about 6 percent last month, said a client of the firm, based in Greenwich, Connecticut.
Losses in November extended beyond quant managers to stock pickers such as James Pallotta, whose Raptor fund declined 3.1 percent. Traders were tripped up by increased volatility, as the Standard & Poor’s 500 Index rose or fell by more than 1 percent on 12 trading days last month, compared with four days in October. The Reuters-Jefferies/CRB Commodity Price Index moved more than 1 percent on 10 days in November.
“Every manager at some point experienced a violent move against a position, whether it was in stocks, bonds, currencies or commodities,” Philippe Bonnefoy, chairman of Geneva-based hedge fund Cedar Partners Investment Management Ltd., said in a telephone interview.
Hedge-fund managers globally lost an average of 1.4 percent in November, bringing the average 2007 gain to 10.2 percent, according to the HFRI Index, a monthly estimate released today by Chicago-based Hedge Fund Research Inc. using a sample of managers worldwide. The benchmark S&P 500 ended the month down 4.2 percent, the most since December 2002….
The Old Lane hedge fund acquired this year by Citigroup Inc. lost 1.4 percent in November, trimming its 2007 gain to 2.7 percent, according to a report sent to clients yesterday. The fund, which has about $4 billion in assets, has lagged behind average industry returns since it was started in 2006 by Vikram Pandit and other former Morgan Stanley executives….
For quant managers, November was a reprise of August, when market volatility swamped their computer models….
Some quants fared better. Highbridge Capital Management LLC’s Statistical Opportunities fund gained less than 1 percent in both October and November, trimming its 2007 decline to about 14 percent, according to investors….
New York-based manager D.E. Shaw’s Oculus fund gained 1.1 percent last month and 21.5 percent this year….Quantitative Investment Management LLC, a Charlottesville, Virginia-based hedge-fund manager, gained 3.4 percent in November in its largest fund,…
So-called equity-hedge managers lost 2.4 percent on average last month, making their strategy one of the worst-performing, according to Hedge Fund Research. Such managers bet on rising prices of equities and hedge their risks by also shorting stocks they expect to decline.
Event-driven managers, who bet on securities of companies going through transitions such as mergers and spinoffs, declined 2.1 percent. Funds that focus on the securities and government debt of emerging-market countries lost 2.8 percent, Hedge Fund Research said today in a statement.
Fixed-income arbitrage funds were one of the few to rise in November, with a 1.3 percent average return, compared with the 0.8 percent average gain among the broader universe of fixed- income managers who bet on mortgage-backed, high-yield, convertible and other types of debt.
Among managers who use a variety of securities to bet on economic trends, Clarium Capital Management LLC gained 5.3 percent last month and 24 percent this year. San Francisco-based Clarium, whose $3 billion in assets are managed by Peter Thiel, was helped by wagers that securities firms’ stock prices would decline and the price of oil would rise.
Moore Capital Management Inc., the New York-based firm founded by Louis Bacon that has about $13 billion in assets, declined 2 percent last month in its Moore Global Investment Fund Ltd. The fund trimmed its 2007 gain to 15 percent.
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First Marblehead Corp.’s stock continued a five-day plunge on Friday after the student loan services provider cut its dividend and said it was unable to sell student loan bonds this quarter.
The Boston-based company’s shares have plummeted 44 percent in the past five days and almost 70 percent this year.
First Marblehead helps banks package student loans into bonds and sell them to investors. The company said it was unable to help banks sell student loan-backed bonds this quarter because of heightening aversion to risk in the bond market.
Friedman Billings Ramsey analyst Matt Snowling said he believes First Marblehead was trying to sell about $1 billion in bonds.
The immediate problem, Snowling said, is that First Marblehead does not collect much revenue if it cannot sell new bonds. Most of First Marblehead’s $871.3 million in revenue last year came from charging advisory fees on bond sales, while a smaller portion came from fees collected throughout the life of the bonds.
The bigger problem for the future, though, is that First Marblehead typically agrees to buy student loans from banks if the company cannot sell the bonds after 180 days. First Marblehead does not have enough money to do that, he said.
Snowling said if demand for student loans does not return to the bond market, First Marblehead will either have to breach its contracts with the banks or figure out how to raise enough money to buy the loans.
First Marblehead reported $1.1 billion in loans awaiting securitization in late October, and meanwhile Snowling said banks continue to pile more loans on.
“That pool of loans to be securitized keeps growing,” he said. “If they are unable to securitize them that potential funding issue gets bigger and bigger.”
First Marblehead’s stock slipped $1.24, or 6.9 percent, to $16.72 in afternoon trading. The stock touched as low as $15.69, the cheapest trade in more than two years.