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Hedge Funds Suffer Reversal Of Fortunes In October

by Carla Johnson, Investors

01 November 2005

After a decent recovery in hedge fund results during the third quarter of the year, it is emerging from some media reports that several large hedge funds are due to disappoint investors when they report their performance figures for the month of October.

October is traditionally a bad month for the markets, but it appears that this year has been particularly harsh on money managers and investors as energy stocks plummeted, US stock markets faltered and corporate deals fell through. The collapse of Refco, formerly the largest independent futures broker in the US, is also likely to have tripped up some hedge funds along the way.

CNN Money reports that long/short equity funds, which seek to profit from buying undervalued stocks, and selling short overvalued shares, have borne the brunt of the losses, with many funds down as much as 8% to 10% for the month. However, the reversal in fortunes has also been felt across many other strategies.

"Outside Japan, most of the major markets are down, the emerging markets got hurt a lot, and macro funds that decided to go long in October are going to get hurt very badly," noted Larry Smith, chief investment officer of global macro fund Third Wave Global Investors, according to CNN Money.

Meanwhile, the New York Times, citing individuals familiar with soon-to-be-reported results, has also reported that several leading hedge funds are sitting on losses in the 5% to 10% range over the month.

According to the NY Times, the flagship hedge fund of Atticus Capital, an $8 billion manager, as of last week was down 9% for the month, although the fund is still up 40% for the year. Meanwhile, Third Point a hedge fund run by well-known activist investor Daniel S. Loeb, is facing a loss of 9% for the month, although remaining 11% up for the year, the NY Times reported.

The news puts something of a dampener on what was a good third quarter for most hedge funds, which, according to Hedge Fund Research, gained on average 5.6% in the three months to the end of September.

A comprehensive report in our Intelligence Report series examining offshore investment, offshore stock exchanges, and hedge funds is available in the Lowtax Library at and a description of the report can be seen at

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