Savings outshine hedge funds
THOUSANDS of wealthy investors who succumbed to the lure of hedge funds this year would have been better off putting their money into an ordinary savings account.
Average hedge fund returns were 3.2% in the 11 months to November, according to the widely followed Credit Suisse First Boston/Tremont index. By contrast, cash put in an ordinary savings account offered by a High Street bank or building society would have grown by 4% or more over the same period.
The most popular type of hedge, long-short equity funds, which bet on share price movements in both directions, lost 4.8% of their value. A flood of money was invested in such equity funds last year as investors sought sanctuary from falling conventional investments. A net $12.5bn (£8.6bn) was pumped into this category alone. But hedge fund investors convincingly beat conventional global share market investors, who lost 18.3% of their money in the first 11 months of the year.
Oliver Schupp, hedge fund expert with Credit Suisse First Boston in New York, said: 'It's still a very positive return, compared to equity markets.' While equity- orientated hedge funds suffered, other types of these funds prospered, he added.
Event-driven funds - which bet on takeover bids, bankruptcies and other corporate restructurings - grew
10.3%. Convertible arbitrage funds - which exploit tiny imbalances in the pricing of related securities - grew by 14.2%. The best-performing category were global macro funds - opportunistic funds trading all asset classes and betting on macroeconomic trends - which grew by 15.53%.
But the overall performance was pedestrian compared with previous years when hedge funds delivered average returns well into double figures and the star performers produced 50% or more. The average over the previous seven years was 11.6%.
Many investors will have done worse than the average by investing indirectly in the sector through so-called funds of funds, which charge an extra layer of performance fees. 'It's been a difficult year for hedge funds,' said industry expert Jacob Schmidt of Allenbridge. 'Investors have been protected on the downside, but it has been disappointing on the upside.'
The best-performing fund he tracks - futures fund GCT, managed by Austria-based Quadriga - grew 45%, while one of the worst performers, London-based Weavering Capital - a global macro fund - lost 95% of its value.
Stanley Fink, chief executive of fast-growing hedge fund manager Man Group, said: 'To be up at all when the market is down is a good performance for the industry.' He added that there was no let-up in investor demand.
