10 September 2007

Hedge funds post shock losses

Some of the grandest names in the hedge fund world suffered last month having failed to anticipate the turmoil in the markets and failing to produce the absolute returns they promise investors.

The list of badly-hit hedge funds in August reads like a Who's Who of the best-known on Wall Street, according to investors.

They include Paul Tudor Jones, philanthropist and head of Greenwich, Connecticut-based Tudor Investment Corp; his friend and former colleague Louis Bacon of Moore Capital; Bruce Kovner, super-secretive head of Caxton Associates; and Matthew Tewksbury, who bought Wall Street trader Monroe Trout's hedge fund business and renamed it after himself.

The falls leave many of the biggest hedge funds in the world telling investors they have lost money for the year to date, while some of those that weathered the storm – such as Raymond Dalio's Bridgewater Pure Alpha fund – have returns this year only just better than cash.

The results are likely to rattle investors who are worried that the hedge industry had one of its worst months in August.

"There's a big concern about the redemptions in September in the hedge fund industry," said Arnauldt de Torquat, chief executive of Harmony Asset Management, a London fund of hedge funds that has not faced big redemptions itself.

The difficulties at Tudor are particularly painful for investors because Tudor – founder of the biggest hedge fund charity, the Robin Hood Foundation – profited handsomely from the 1987 market ructions, correctly betting that the market would fall.

Tudor BVI Global, the $6bn fund run by Mr Tudor Jones, tumbled 5.5 per cent in August to leave it down 1.5 per cent for the year, while Raptor, the $6bn Tudor fund run by head of US equities James Pallotta, was down 5.6 per cent in the month and down 9 per cent for the year so far, investors said.

Caxton's $11bn flagship fund was down 4.8 per cent in August, for a loss of 1.5 per cent this year, while Tewksbury's $3bn Investment fund fell 8 per cent, more than wiping out all this year's gains. Moore's $7bn Global fund fell 5.7 per cent in August, and its $4bn Fixed Income fund was down 4.3 per cent, although both remain up for the year.

Many other big-name managers struggled in August, with Atticus, a New York-based activist and financial specialist, down more than 10 per cent in both its flagship funds as holdings including Barclays and Deutsche Börse were hit hard in the month – although both funds remain up for the year.

Third Point, an aggressive activist run by Dan Loeb, was down 8.3 per cent, leaving it up 6.8 per cent for the year, while in the UK several funds from Lansdowne, GLG and Sloane Robinson had a weak month, investors said.

Jeffrey Gendell, who runs Tontine Associates from Greenwich, Connecticut, produced one of the worst results of all the big name managers with a 7.9 per cent drop in his $1bn Overseas fund – although it is still up 7.6 per cent this year. By contrast, his Financial Partners fund leapt 8.4 per cent in the month, one of the best performances – but remains down 37 per cent for the year, among the worst of all managers.

However, some well-respected managers have done very well. John Paulson of Paulson & Co produced another month of spectacular returns across his funds thanks to aggressive shorts of US subprime mortgages. Philip Falcone's Harbinger Capital distressed fund gained 3.7 per cent to take its total return for the year to more than 55 per cent.

Big name managers Dan Och of Och-Ziff, Izzy Englander of Millennium Partners and David Tepper of distressed debt specialists also came through the month with gains or slight falls, leaving them securely up for the year. The $6bn Bridgewater Pure Alpha fund was up 0.4 per cent for the month, for a gain of 3.6 per cent this year.

Copyright 2007 Financial Times

No comments: