According to Hennessee Group, the hedge fund industry had a good June. The average hedge fund posted a 0.88% return. This compares to the S&P's -1.8% performance for the same period. So far for this year, the average hedge fund has returned 8.7%. How about the S&P? It has clocked about 6%.
While interest rates have been an issue, the fact is that the buyout boom has been extremely helpful for equities. And as seen with the IPO filing of KKR and mega deals like the buyout of Hilton Hotels Corp. (NYSE: HLT), there still appears to be momentum with M&A and private equity.
It's also encouraging that hedge funds have been able to deal with the subprime meltdown. Interestingly enough, it looks like some hedge funds aggressively shorted subprime vehicles. Paulson & Co., for example, posted a 40% return in June because of its bearish bets (there's an excellent story on this in Bloomberg.com).
With credit agencies like S&P and Moody's reducing their ratings of subprime mortgage backed securities, there may be more shorting opportunities for hedge funds. There is also likely to be more pain for firms like Bear Stearns (NYSE: BSC), which have been on the wrong side of the subprime market.
Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.
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