Cheer Up! Hedge Funds Had a Lousy First Half Too « naked capitalism

Wednesday, July 9, 2008

Cheer Up! Hedge Funds Had a Lousy First Half Too

The media enjoys stories of bad times in hedge fund land. It probably makes up for having to write about their managers’ over-the-top lifestyles.

What is a little different about today’s hedge fund sighting from Bloomberg isn’t that certain funds or certain styles are faring poorly (remember the quant disasters of last August?) but hedge funds on average lost money the first half. And that was before fees. Nevertheless, this lackluster showing has put only a dent in their popularity. leading investors to switch managers rather than withdraw from the sector:

Hedge funds turned in their worst first-half performance in almost two decades amid the credit crunch and the onset of a bear market.

Hedge funds declined by an average 0.7 percent in June, bringing the year-to-date loss to 0.75 percent, data compiled by Hedge Fund Research Inc. show. It’s the worst start to a year since the Chicago-based firm began tracking returns in 1990. The $1.9 trillion industry has posted one losing year, in 2002, when funds fell 1.45 percent.

Managers attracted a net $16.5 billion during the first three months of the year, down from $30.4 billion in the fourth quarter, Hedge Fund Research reported. Investors have become less tolerant of losses and are shifting assets to traders who have shown they can thrive in turbulent markets, said Antonio Munoz, who runs EIM Management USA in New York, which farms out $15 billion to hedge funds.

“We don’t see investors pulling the plug across the board and putting their capital into cash,” Munoz said.

As a recent post by Paul Price at Seeking Alpha showed, citing data from GuruFocus (hat tip reader Scott), even famous investors have taken it on the chin:

Manager…………………. 6-months ……………….. 12-months

Marty Whitman ……….. ( – 43.38% ) ………………( – 34.61% )
Mohnish Pabrai ………… (- 41.20% ) ………………( – 36.88% )
Bill Miller ……………… ( – 37.05% ) ……………… ( – 40.90% )
Joel Greenblatt ………… ( – 37.00% ) ……………… ( – 37.00% )
Eddie Lampert ………… ( – 28.95% ) ……………… ( -33.94% )
Robert Bruce ………….. ( – 25.00% ) ………………. ( – 19.16% )
Bruce Sherman ………… ( – 24.68% ) ……………… ( – 30.55% )
Charles Brandes ……….. ( – 24.58% ) ……………… ( – 29.51% )
Robert Rodriguez ……… ( – 22.20% ) ……………… ( – 17.75% )
Mark Hillman ………….. ( – 21.53% ) ……………… ( – 25.40% )
Carl Icahn ……………… ( -21.00% ) ………………. ( – 3.98%)
Edward Owens ………… ( -20.94% ) ………………. ( – 16.74%)
Irving Kahn ……………. ( – 20.75% ) ………………. ( – 24.68% )
Brian Rodgers …………. ( -20.48% ) ……………….. ( – 24.68% )
Arnold Schneider ……… ( -20.39% ) ……………….. ( – 27.25% )
Bill Ackman …………… ( – 19.38% ) ………………. ( – 23.06% )
Chris Davis ……………. ( – 19.17% ) ………………. ( – 19.75%)
Bill Nygren ……………. ( – 17.80% ) ………………. ( – 27.96% )
Richard Snow …………. ( – 17.68% ) ………………. ( – 19.77% )
Hotchkis & Wiley …….. ( – 17.28% ) ………………. ( – 25.02% )
Richard Pzena ………… ( – 16.27% ) ………………. ( – 25.22% )
David Dreman ………… ( – 15.82% ) ……………… ( – 11.87% )
Tweedy Browne ………. ( -14.73% ) ………………. ( – 17.23% )
Arnold Van Den Berg … ( – 14.67% ) ……………… ( – 22.32% )
Robert Olstein ………… ( – 14.46% ) ……………… ( – 21.05% )
Wally Weitz …………… ( – 14.31% ) ……………… ( – 23.00% )
Third Ave. Mgt. ………. ( – 13.84% ) ………………. ( – 11.83% )
John Rodgers …………. ( – 13.57% ) ………………. ( – 21.47% )
Mason Hawkins ………. ( – 13.51% ) ……………… ( – 20.88% )
Dodge and Cox ……….. ( – 13.17% ) ……………… ( – 15.01% )
Bruce Berkowitz ……… ( – 12.26% ) ……………… ( – 3.68% )
David Swensen ……….. ( – 12.19% ) ……………… ( – 12.23% )
Ron Baron …………….. ( – 11.70% ) ……………… ( – 12.80% )
Ian Cumming ………….. ( – 11.05% ) ……………… ( – 11.68% )
David Tepper ………….. ( – 10.68% ) ……………… ( – 14.87% )
Jean-Marie Eveillard ….. ( – 10.62% ) …………….… ( – 7.23% )
NWQ Managers ………. ( – 10.46% ) ………………. ( – 13.39% )
Ron Muhlenkamp …….. ( – 9.58% ) ………………… ( – 13.39%)
Glenn Greenberg ……… ( – 9.45% ) ………………… ( – 15.22% )
Michael Price …………. ( – 9.26% ) ………………… ( – 13.87% )
Tom Gayner ………….. ( – 9.19% ) …………………. ( – 17.50% )
Richard Aster ………… ( – 6.73% ) …………………. ( – 5.00% )
George Soros …………. ( – 6.56% ) ………………… ( – 9.43% )
Ruanne Cunniff ………. ( – 6.40% ) ………………… ( – 10.61% )
David Einhorn ………… ( – 5.91% ) ………………… + 3.18%
Chuck Akre …………… ( – 4.00% ) ………………… ( – 11.08% )
Warren Buffett ……….. ( – 4.00% ) …………………. ( – 3.60% )

Of course, I am sure the list was cherrypicked to show famous losers. Nevertheless, you can see the carnage. So if you are up, better yet, if you have earned more than if you had been in cash, pat yourself on the back. There are times when preserving capital so you can play in a better environment is more important than trying to eke out higher returns.

More on this topic (What's this?)

Hedge Fund News: Soros, Citadel, Atticus, Caxton & More (market folly, 10/30/09)

Mohnish Pabrai's Hedge Fund Q3 Investor Letter (market folly, 10/21/09)

Hedge Funds 1 Year to Register (HedgeFundBlogger.com by Richard ..., 10/27/09)

Read more on Hedge Funds at Wikinvest

11 Comments:

etc says:

July 9, 2008 at 5:26 am

A quibble, but the performance list appears to be somewhat off, possibly due to mismeasurement of the performance of stocks purchased during the quarter. The list appears to measure performance of stocks based on price at the beginning and end of the quarter, rather than the purchase price and the quarter end price.

Scott says:

July 9, 2008 at 6:54 am

“…hedge funds on average lost money the first half. And that was before fees.”

Yves,

FYI, to the best of my knowledge, all the HFRI published returns are net of, i.e. after, fees.

Regards.

Anonymous says:

July 9, 2008 at 7:02 am

“Hedge fund” stories in the press drive me nuts because they’re lumping an enormous variety of strategies.

Stuart says:

July 9, 2008 at 7:56 am

I wonder how Jimmy Rogers is doing.. lol
The media loves their icons, or their need to create myths of icons. that’s for certain.

daveNYC says:

July 9, 2008 at 10:06 am

“Hedge fund” stories in the press drive me nuts because they’re lumping an enormous variety of strategies.

There’s only one strategy: Two and Twenty.

etc says:

July 9, 2008 at 10:37 am

“There’s only one strategy: Two and Twenty.”

Or 5 and 40, if you can get it. And do techniques to generate non-economic P&L in order to purportedly earn the 40.

theinvestingspeculator says:

July 9, 2008 at 12:04 pm

More than 50% of fund managers will not beat the market over 10 years. When there is a bear market-few have positve returns. This market will not go up until people take care of the energy problem. The economy is going to by weak until the United States takes care of its biggest problem. One billionaire calls our biggest problem the “Largest transfer of wealth in the history of mankind”. Find out who said it and how we correct it @
http://www.theinvestingspeculator.com

Doc Holiday says:

July 9, 2008 at 1:53 pm

I think these losses by these people get to the heart of the matter at hand which is the impending recession, stagflation and liquidity trap — which are exposing all the greedy retards.

These people play arbitrage games and help manipulate the imbalances between currencies and oil prices, and as they hedge bets, they take risk in betting against each other, which results in more and more losers. This is a great example of late cycle volatility and it is great to see them eat each other alive! I hope that as this list grows in length with increasing losses, that this will correlate with more and more closures, defaults and BKs!

Cheers

Peripheral Visionary says:

July 9, 2008 at 3:23 pm

I think it would be interesting to trace back the source of money for the hedge fund industry. What is the ultimate source of the money that they make?

While there are likely to be multiple sources, I suspect the ultimate source of cash for market speculators is new capital issued in the form of public offerings and securitization. The money paid by investors, both small investors and institutional investors, goes into the flow of money through the markets that the hedge funds skim off of (and make no mistake, this is primarily a skimming operation; only a few funds are genuine suppliers of capital.) As public offerings and securitization have dried up, the ultimate headwaters of the financial stream have gone dry and there will be less money downstream for the hedge funds to skim off.

At this point many funds have switched to commodities speculation, but commodities are a pure zero-sum game, and for every winner there will be a loser–and unlike the investment banks, they do not have other lines of business (e.g. brokerage) to fall back on.

Anonymous says:

July 9, 2008 at 3:55 pm

Hang on a moment, let me get this straight…. I’ve been in cash (in the UK) for the past 12 months. Average interest on my savings account was about 5%.

So I’ve outperformed the FTSE 100 and Dow by 25%, and outperformed George Soros by 10%. Hell, I even outperformed Warren Buffet.

Does this mean I should pat myself on the back and wait for the head-hunters to call?

How about my grandmother. Her money is in a tin under her bed. Will she get invited to run her own hedge fund?

Nick

Jesse says:

July 9, 2008 at 5:10 pm

These rankings and results are wildly inaccurate. GuruFocus, the website that they were drawn from, produced them by tracking the performance of the stocks disclosed on the filings of 1st quarter holdings. Any investments not in stocks aren’t accounted for by this (e.g. “Swenson’s” portfolio is only 14 positions amounting to less than $500mm), and any changes since 3/31/08 aren’t either.

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