Hedge funds have had a lousy year, losing an average of 10.8%. But two hedge funds -- big winners in 2007 -- kept making money this year as well. Meanwhile, those two winners mask an awful lot of losers who will probably find their way into oblivion.
The winners for 2008 (at least through September) are run by James Simons (a math genius whose money-making techniques elude explanation) and John Paulson (who made so much money last year shorting subprime). Here are the details:
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Medallion Fund, run by Simons' Renaissance Technologies LLC, has $8 billion in assets and gained more than 58% -- or $1.43 billion in profits; and
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Advantage Plus fund, Paulson's $13 billion investor in takeovers, restructurings and other corporate events, returned 24.6% through September.
Meanwhile, investors are scrambling for the exit for the typical hedge fund, withdrawing $87.5 billion. Total industry assets fell 11% from the peak of $1.93 trillion in the second quarter of 2008 to $1.72 trillion at the end of the third. Hedge fund closures by the middle of 2008 were 15% ahead of 2007. And that may be only the beginning for the world's 10,000 funds.
Isn't capitalism great?
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.
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Reader Comments (Page 1 of 1)
12-03-2008 @ 7:45PM
Steven Zoernack said...
The problem is that a lot of managers started to get style drift in 2008 and got away from the "pure" hedge. What we've seen is a lot of directional trades in equities and futures become the main strategy, even though the fund's mandate stated something else. Directional trades are designed to complement the main strategy and can offer an enhancement to returns of other strategies, but are often inappropriate as standalone strategies. So …. Its probably a good idea for some of these managers to get back to basics and stick with what has worked best in the past.