Hedge funds suffered their second biggest loss on record last month, tumbling 7.25 per cent on average as the sharp economic downturn following the Covid-19 outbreak took its toll on performance.
Hedge funds suffered their second biggest loss on record last month, tumbling 7.25 per cent on average as the sharp economic downturn following the Covid-19 outbreak took its toll on performance.
New data from eVestment indicates managers fell some 9.87 per cent on average during Q1, while the S&P 500 – which plummeted more than 12 per cent in March – lost close to a fifth of its value in the first three months of 2020.
But with hedge fund strategies of various stripes now looking to capitalise on the recent turmoil, raising new capital to tap into cheap assets, the fallout is offering the industry the chance to regroup and prove its worth to a shell-shocked investor base still counting the costs of the collapse elsewhere in their portfolios.
Among the names said to be raising new capital are Sir Chris Hohn’s TCI, DE Shaw and Covalis Capital, according to recent media reports.
“While headline numbers are highly negative, March was, as anticipated, a month where managers had the opportunity to begin to define themselves clearly in the spectrum from exceptional to disappointing,” Peter Laureilli, global head of research at eVestment, said of the dispersion in performance among funds.
“While there were highly negative and positive returns in the month of March, managers will ultimately be judged over the course of the continually evolving situation.”
The ten largest hedge funds tracked by eVestment lost 5.37 per cent last month, and were down 7.27 per cent in the three-month period to the end of March.
However, dispersion underpinned March’s performance, with managed futures strategies – which often fare well in tricky periods – advancing 0.41 per cent in March, while long/short equity funds gave back 9.69 per cent, and event driven/activist funds lost more than 20 per cent.
“It is now more important than ever to think of the industry not as a whole, but as a vast group of individuals with discretion, and programs and algorithms with differing and evolving rules,” Laureilli said of the numbers.
“In a group of individuals operating in a pool of markets, some will navigate successfully, and some will not.”
More than half (53 per cent) of trend-following managers enjoyed positive gains in March, with the largest managers gaining more than 2 per cent. In contrast, macro saw sharp performance dispersion: while the largest macro managers averaged -3.78%, within that group of large funds there were gains and losses that were two or three times larger.
Overall, March’s losses proved to be the worst for the hedge fund industry since the 2008 global financial crisis, when the average hedge fund fell between 8-9 per cent in October of that year, according to the research and data provider.
“Just as in the global financial crisis, the current crisis is not contained within a single month, but rather one which has taken the prior global economic environment and drastically reshaped it in a way which is still evolving,” Laureilli added.
