Hedge Fund Sector Wobbles

by Carla Johnson, Investors Offshore.com, London

09 August 2007

Despite the sub-prime horrors that took place in July, with two major Bear Sterns hedge funds going belly-up, early reports show that the month as a whole may have been positive for hedgies.

On the day that Rupert Murdoch appeared to have sealed his purchase of Dow Jones, its Wall Street Journal reported some hedge funds were able to profit by betting on problems in the subprime-mortgage market. Dallas firm Hayman Capital Partners, managing more than $500 million, is up reportedly up 240% percent so far this year, and the paper listed a number of other funds with mega gains in the month.

With just 400 funds having reported out of more than 6,000 for the month, the CogentHedge Dynamic Average (CHDA) of All Funds is - so far - showing a positive 0.829% for July (coming on a 0.799% gain in June), says the firm. The spread of returns would indicate that when the dust settles there will probably be nearly as many winners as losers for July, says Cogent.

Other reports however say that there may yet be major unpleasant surprises in store. The Financial Times reported last week that major German credit institution IKB admitted to losses of €8bn ($11bn) on its credit portfolio, a figure that rose to €17bn later in the week. Such losses would be unsustainable, leading German public-sector bank Kreditanstalt Fur Weideraufbau (KfW) to underwrite around €8bn of IKB-owned securities.

So don't stop taking those tranquillisers just yet . . .

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