Hedge Funds Not Expected To Glitter This Year

by Carla Johnson, Investors Offshore.com

17 March 2005

A Reuters poll of funds of funds published this week shows that hedge funds are expected to make moderate profits over the coming months, with European stock markets seen as a particularly good investment in the short-term.

The survey of 15 funds of hedge funds, which together manage some $66.5 billion, forecast average to slightly below average positive returns over the coming six months. Expectations were broadly unchanged from the previous two polls, in October and December.

Results so far this year as reported by a number of hedge fund indices including Van Hedge, CSFB/Tremont and S & P have yielded only mediocre returns, with an average 2% rise by the end of February, although this admittedly beats most of the major stock indices.

Reuters survey shows that long-short funds will attract the most money in the next few months. "The outlook for equity long/short continues to look reasonably good, and recent performance in European long/short has been impressive," said John Capaldi, managing director at Financial Risk Management (FRM) in London.

Amid a chorus of doom-sayers predicting that the glory days of hedge funds are over due to overcrowding and a shortage of talented managers, the hedge fund universe seemed to clock up gains after fees of about 10% last year, lower than its historical average, but still better than long-term equity market returns.

Many commentators point out however that the methods used by hedge fund reporting agencies - most of them with extensive interests in the very markets they are reporting on - are suspect due to survivorship bias and other technical effects which would tend to exaggerate average returns.

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