Hedge Funds Volatility

Hedge Funds Volatility

Hedge Funds May Suffer from 2010 Volatility

Hedge funds, unlike many other investors, often thrive on market volatility and instability in the financial world.  John Paulson's hedge fund made huge gains predicting the sub prime mortgage crisis and David Tepper of Appaloosa Management earned several billion dollars betting big on the banking trouble.  But the more recent turbulence seems to be the wrong type of volatility for hedge fund managers.  May's dismal performance shows that hedge funds may be having trouble producing returns in such a volatile market coupled with the euro's instability. 
Hedge funds, like others, have also suffered from a particularly brutal May and an initial failure to see the euro zone sovereign debt crisis coming.
Indexes that track the performance of hedge funds show them at best achieving cash-like returns since January.
The Credit Suisse/Tremont benchmark, for example, gained just 1.48 percent by the end of May, while the HFRX Global Hedge Fund Index was off 0.34 percent by mid-June.
Given the popular reputation that hedge funds have as swashbuckling money machines -- not to mention the hefty fees they charge for that reputation -- these are not the kind of returns that many investors might have hoped for.
And this is particularly the case given the volatility of markets, a backdrop which flexible, aggressive investors should be better equipped to handle than vanilla funds.  Source

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Tags: hedge funds volatility, hedge funds instability, currency, euro, trouble in europe, volatility in the markets, financial markets, hedge fund managers, david tepper, john paulson

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