Currency Hedge Funds
Currency Funds May Face Investor Backlash After 2011
Hedge fund investors are gradually moving away from currency funds in response to poor returns from currency-focused strategies in the last year. Toward the end of 2011, investors withdrew money from smaller currency and placed their capital with larger funds, but most currency funds suffered some losses last year with the debt crisis and large fluctuation between different currency values.
In the final months of 2011, hedge-fund investors withdrew from smaller hedge funds, which are more likely to be currency specialists, and plowed money into bigger funds that invest across many markets. The net outflow from funds managing between $250 million and $500 million was $989 million in the fourth quarter, while funds that oversee over $5 billion saw an inflow of $6.8 billion, according to Hedge Fund Research Inc.
Last year was tough for hedge funds of all shapes and sizes, particularly the summer months. Europe's sovereign debt crisis and the political battle over reducing U.S. debt made markets hard to predict. Prices of financial assets tended to move in lockstep, making it hard for money managers to diversify.
The HFR data suggest some investors may have moved cash from smaller specialist funds to bigger, more mainstream funds after the third quarter's turmoil, most likely because bigger funds often make investments across markets and are perceived as sturdier.
"In a risk-averse environment, people are more inclined to invest in generalist managers," said Kenneth Heinz, president of HFR. Source
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