Hedge funds declined by an average of 5.94 per cent in September, according to the Barclay Hedge Fund Index compiled by Fairfield, Iowa-based BarclayHedge, bringing the index’s decline sin
Hedge funds declined by an average of 5.94 per cent in September, according to the Barclay Hedge Fund Index compiled by Fairfield, Iowa-based BarclayHedge, bringing the index’s decline since the beginning of the year to 11.33 per cent. The Barclay Fund of Funds Index lost 5.12 per cent in September, and is down 11.42 per cent for the year.
‘This is the worst one-month decline since August 1998, when hedge funds fell 7.81 per cent,’ says BarclayHedge founder and president Sol Waksman.
‘Ten years ago, Russia defaulted on its bonds, Long Term Capital Management had to be bailed out, hedge funds were forced to delever by their prime brokers, emerging markets were in a tailspin, and the market for mortgage-backed securities seized up. As Yogi Berra once said, ‘It’s like déjà vu all over again.”
Barclay’s Distressed Securities Index dropped 10.37 per cent in September, Emerging Markets fell 10.28 per cent, Convertible Arbitrage was down 8.97 per cent, Equity Long Bias lost 8.29 per cent, and the Multi-Strategy Index was down 8.16 per cent.
‘All of the MSCI developed market and emerging market country indices were down in September,’ Waksman says. ‘As investors continue to shy away from risk, equity markets decline and credit spreads widen. Both of these factors are negative for hedge funds.’
In contrast to declines in most hedge fund strategies, the Barclay Equity Short Bias Index jumped 7.94 per cent in September and has now gained 23.42 per cent so far in 2008. ‘Obviously, when equity markets are in trouble, going short can provide significant gains that can help offset other losses in a portfolio,’ Waksman says.
BarclayHedge, formerly known as the Barclay Group, was founded in 1985 and tracks more than 6,800 hedge funds, funds of hedge funds, and managed futures programmes for its 18 proprietary hedge fund indices and eight managed futures indices, used as performance benchmarks by clients including institutional investors, brokerage firms and private banks.
All six hedge fund strategies covered by Dow Jones Hedge Fund Indexes posted net-of-fees losses in September and ended the third quarter in negative territory for the year.
Equity market neutral had the smallest losses for September, falling 1.84 per cent, and is now down 4.20 per cent for the year. Merger arbitrage fell nearly 4 per cent for the month to push its year to date performance into negative territory with a decline of 2.44 per cent – the best performance among the six strategies so far this year.
Event-driven and equity long/short each declined a little more than 6 per cent for the month, compounding an already weak third quarter. Both strategies are down more than 8 per cent for the year.
Distressed securities and convertible arbitrage continue to be the distant laggards among the strategy benchmarks. Both had a dismal September, falling 8.92 per cent and 10.89 per cent respectively. Distressed securities is down 15.68 per cent so far this year, while convertible arbitrage remains the worst performing strategy with a decline of 18.40 per cent.
