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Hedge Funds to Recoup Losses

Hedge Funds to Recoup Losses

Hedge Funds Close to Recouping Crisis Losses 

Hedge funds took massive losses throughout the financial crisis, but now most hedge funds are very close to recouping these losses.   Last week, the average hedge fund needed just a 2% gain to get back to its value at the peak of the last boom in 2007.

This will allow many hedge funds to earn performance fees once again.   A 2% gain is pretty reasonable given overall hedge fund performance in 2009.  If the hedge fund industry continues to recover at its current rate it will exceed the highest level of two years ago by the end of next month.  Funds have generated average returns of 18.3% this year to Oct. 21.
A return to the previous top is vital for managers, because only after hitting the level again -- known as the high-water mark -- can they earn 20% of fresh profits. The fact that global shares, as represented by the MSCI World index, have to claw back 27% after their slump in 2008 is little comfort for managers still under water.

Christopher Miller, CEO of Allenbridge Hedgeinfo, said the industry was now "tantalizingly close" to pre-crunch levels. "It seems managers have regained their self-confidence," said Rickard Lundquist, a portfolio strategist.
Equities-focused managers are still 9% short, and multi-strategy managers must still add 4%. Global macro funds, which aim to bet on broad global trends, are 15% above their mid-2007 level after making 4.8% last year amid strong market trends they could exploit. And, despite losing 16% this year as shares rose, short sellers' gains in 2008 leave them 14% above pre-crunch levels.  Source

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