Weak Equity Markets Contribute To Poor Hedge Fund Performance In January

by Carla Johnson, Investors Offshore.com

10 February 2005

Weak equity markets were the cause for negative performance of hedge funds in January as the Hennessee Hedge Fund Index declined by 0.14% over the month, although most fund managers were able to outperform the main equity benchmarks, the Hennessee Group has reported.

“Despite losses in the equity market, long/short equity managers were still able to generate alpha. Approximately 77% of long/short equity managers outperformed the S&P 500,” commented Charles Gradante, managing principal of Hennessee Group LLC.

According to Hennessee, the Long/Short Equity Index fell back by 0.62% in January but still managed to outperform the S&P 500, which declined 2.44% last month.

Meanwhile, the Hennessee Arbitrage/Event Driven Index gained 0.09% in January as corporate credit spreads widened during the month, which Hennessee partially attributes to volatility in General Motors’ bonds following the automaker's reduced 2005 earnings guidance.

“Hedge fund managers reported to the Hennessee Group that General Motors may be the ‘credit event’ in 2005 that causes spreads to widen considerably. Some feel General Motors could be downgraded to junk status within the next twelve months,” stated Mr Gradante.

The Hennessee Global/Macro Index also advanced in January, by 0.69%.

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