Despite a steady bull market, hedge funds have collectively struggled during 2014. On average, hedge funds posted returns of just 2% during 2014, compared to the S&P 500’s 2014 gain of over 12%. Since the 2008 recession, hedge funds have seen returns of just 41%, compared to the S&P 500’s 153% gain during the same period. Throwing in the lofty fees that hedge funds are known to charge and the investment appeal dwindles further.
Just in the first half of 2014, 461 hedge funds closed their doors, which is on pace to be the worst year for fund closures since 2009. Part of the blame can be placed on oil for the second half of 2014’s lagging fund returns, but investors are still jumping ship. CalPERS, the largest pension fund, announced last year that they had liquidated their hedge fund assets and would turn to other investments for returns. Some fund managers made successful calls, while others considerably lagged.
Hedge funds: PointState Capital’s bearish call on crude oil
Zach Schreiber, the CEO of PointState Capital, made a bearish call on crude oil and bullish call on energy stocks Valero Energy and Marathon Petroleum on May 5, 2014. While Schreiber was right on the money with his bearish call on crude oil, his energy stocks failed to bear fruit. Valero fell -15% after his bullish call and Marathon Petroleum fell -5%. Schreiber has since cut his Valero holdings by 83% and Marathon by 33%.
Baupost's investment process involves "never-ending" gleaning of facts to help support investment ideas Seth Klarman writes in his end-of-year letter to investors. In the letter, a copy of which ValueWalk has been able to review, the value investor describes the Baupost Group's process to identify ideas and answer the most critical questions about its potential Read More
Jeffrey Altman, founder of Owl Creek Asset Management, made it known in January 2014 that he was loading up on bearish bets against Danish government bonds, believing that a debt crisis was imminent. Danish 10 year government bond yields started off 2014 around 1.70% and have since fallen to 0.76%, making Atlman’s investments gain in value, according to BloombergBriefs.
Hedge funds: John Paulson’s Stakes in Vodafone
John Paulson, the fund manager that made the famous bet against subprime mortgages back in 2007 and became a household name, loaded up on shares of Vodafone at the end of 2013. Paulson believed the company was ripe for a takeover, but as the year went on in 2014, no takeover bid came and shares dove -30%. While Paulson was able to recover some losses with dividend payments, the fund manager shaved some of his holdings in Vodafone from 35 million shares by the end of 2013 to 27 million by the end of the third quarter 2014.
Overall, some fund managers had a great year, such as the “Big 3 Activists”, Carl Icahn, Daniel Loeb, and Bill Ackman, in addition to other managers such as Altman and Schreiber listed above. However, it appears that the hedge fund industry as a whole is struggling to keep up with returns from cheaper and more passive investment options. With the markets looking rather “toppy” right now, it will be interesting to see how performance in 2015 will compare to 2014.