Hedge Fund Performance Hit By Directionless Markets

by Phillip Morton, Investors Offshore.com

09 August 2004

Tara Capital, the European based hedge fund advisory firm have released results from their latest quarterly Hedge Fund Strategy Barometer, which has noted how a lack of market direction has begun to impact fund managers across most strategies.

“In stark contrast to the spring HFSB, global macro discretionary and managed futures funds have fallen out of favour with investors,” observed John Lowry, founder of Tara Capital, noting that investors have become most nervous over convertible arbitrage and certain event driven strategies.

“Strategies most in favour now are interestingly at either end of the risk /return spectrum, with emerging markets at one end and market neutral equity strategies at the other end increasingly popular in the current market cycle,” added Lowry.

According to the Barometer, the big winners in the relative value class this quarter were fixed income and equity market neutral strategies, reflecting falling fixed income markets and directionless equity markets.

Meanwhile, event driven strategies, particularly distressed strategies, continue to be relatively unpopular.

Japanese funds, which had been the most popular strategy of late, look to have come off the boil, with only 28% planning an increase in such exposure as opposed to 89% in the winter survey. In contrast, emerging market funds look set to receive significant inflows despite constraints in finding experienced managers.

Managed futures funds are falling from favour due to the disappointing returns delivered during the recent market turbulence, although the survey found steady and growing interest towards the more systematic type strategies.

The HFSB concluded that investors are increasingly losing faith with many strategies and managers, with the lack of market direction frustrating both more traditional long short managers and momentum seeking strategies.

The institutions surveyed have a combined $91 billion allocated to hedge funds, accounting for over 10% of the total assets invested into hedge funds worldwide.

Recommended