Hedge Funds Back In The Black In August, Says Hennessee

Investors Offshore, London

12 September 2002

The Hennessee Hedge Fund Advisory Group, a global hedge fund investment consulting firm, which advises individuals and institutions on over $1 billion in assets, announced that hedge funds produced a positive return of 0.53% in August. Though hedge funds were back in positive territory for the month, their performance was just short of the broad market S&P 500 Index as it rose 0.60%, but still managed to edge out the Dow Jones Industrial Average which fell 0.84%, and the Nasdaq Composite Index, which fell another 1.01%.

Year-to-date, hedge funds are down 4.28%, far better than the overall dismal performance of the US equity markets, as the S&P 500 is down 19.48%, the Dow Jones Industrial Average is down 13.54%, and the Nasdaq is down a horrendous 32.57%. In addition, Lipper's Mutual Funds index is down 17.34% year-to-date.

August was a rebound month as two of the worst returns in July, Latin America and Financial Equities, bounced back to be the two top performers in August, with respective returns of +5.55% and +2.15%. Macro was the third best performer with a +1.76% return. Conversely, the worst performing hedge fund indices during August were the Short Biased Index (last month's best performer), down 0.97%, Healthcare/Biotech, down 0.91%, and High Yield, down 0.63%.

"After the lows of July, hedge funds were able to capitalize on market inefficiencies and opportunities in August," said Charles Gradante, Managing Principal of Hennessee Group LLC. "Despite increased pressure in the media that hedge funds are shaping this market, only 10 of the 23 strategies the Hennessee Group monitors beat the S&P 500 in August."

Mr. Gradante also stated, "July and August illustrate how hedge funds can limit an investor's downside exposure by outperforming the equity indices in down months and still perform well enough in up markets to generate higher compounded returns with less volatility."

Among overseas indices, the Pacific Rim index is up +1.80% for the year to date. Despite this positive performance, Mr. Gradante said, "I am concerned about the impact of Japan and China on developing countries in Asia. Japan's banking system continues to implode while China's banking system is shackled with 115,000 state owned corporations that are not profitable. China's banking system is insolvent but not illiquid. Both Japan and China are major lenders to Asian emerging markets. A credit crunch in Asian emerging markets could be in the making."

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