It appears that our January hedge fund strategies conference will be held in a nick-of-time. November results for hedge funds bare out troubled times for the hedgies that should persist for awhile. The Wall Street Journal reported today that "average returns look likely to be back in negative territory for the first time since August, judging by the performance of listed closed-end funds. More worrying, those average returns conceal big dispersions not just between strategies but within strategies, with performances varying from as much as 10% down to 5% up, according to prime brokers."
When I was reviewing some of the hedge fund indexes a month or so ago, I noticed that some hedge fund strategies vary by a 15% difference. Quite a gap. Such volatility does not bode well for the industry, considering investors are sold on the idea that hedge fund managers maintain risk-adjusted returns in their strategies. "That will worry prime brokers, too. Most include material-adverse-change clauses in their contracts allowing them to withdraw financing -- and, if necessary, seize assets -- from funds that suffer major drawdowns," the Journal reports.
Speaking of brokerages, major banks have a lot to worry about too obviously from the ongoing debt market problems. Peter Hahn, a fellow at the Sir John Cass Business School in London, wrote an interesting editorial in the Journal's commentary section today, partly blaming weak bank boards for the current mess. It's worth the time to read.
"But November's figures are likely to trigger some soul-searching by investors, who will now have had several months to see how funds perform under pressure. Weak performers are likely to be jettisoned. Given that most hedge-fund investment these days is locked up for three months, the bulk of redemptions won't take place until the first quarter of next year. That could be when the credit crunch catches up with hedge funds," the article states.
For more information about IncreMental Advantage's Jan. 22 hedge fund strategies conference, please visit www.incrementaladvantage.com.
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