Hedge Funds Do Not Always Suffer in Volatile Markets

Hedge Funds Do Not Always Suffer in Volatile Markets

The business times online recently ran an article which is of the variety that keeps me motivated to keep writing in this hedge fund blog. Here is what they wrote with my insert comments:

Hedge funds suffer in volatile markets

Hedge funds worldwide are heading for their worst monthly performance in almost ten years amid signs that the credit crunch is claiming fresh victims across the investment markets.

Industry experts (which experts? There are none mentioned here) predict that there will be a shakeout of the hedge fund industry this year, with a rash of collapses among funds with less than $10 billion under management (There are only 50 hedge funds with over $10B in assets representing just .5% of the total hedge fund industry. There will always be some hedge funds collapsing within this 99.5% section of the industry).

Sources (un-named) said that last week's stock market volatility would have hit some managers hard, raising question marks about their reliance on equity strategies. Other managers would have made substantial profits despite the market storm, they said.

“The next few months will sort the men from the boys. January has asked some big questions, as no one was predicting the market movements of last week,” one prime broker said. “But plenty of hedge funds are making money in the current environment, even as there are those making losses."

Maybe I'm just being nit-picky here and have spent too much time reading hedge fund news and articles but it seems un-justified to say that hedge funds do poor through periods of volatility when as a group they crushed many benchmarks last year riding through the late summer and early fall volatility. I will admit I haven't looked at industry-wide #'s this past week but I think it is important to keep in mind just how many hedge funds are out there with less then $10B in assets under management, that is pretty much the whole industry. Most mainstream news focuses on the top 50-200 hedge funds out of a sea of 10,000-12,000.

- Richard

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