Hedge Funds Not Selling In Market Meltdown: Credit Suisse

Hedge Funds Not Selling In Market Meltdown: Credit Suisse

It is fun to blame all the woes of our society on hedge funds, but at least in this one instance they really are innocent.

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According to an August 25th report from Credit Suisse Prime Brokerage, hedge funds are taking on the chin like everybody else in the ongoing stock market crash. The CS Global Hedge Fund Bulletin highlights that the hedge fund sector as a whole has not anticipated the recent sharp sell off in stocks and commodities, and furthermore, has not “derisked” by participating in the sell off.

In the report, Credit Suisse analyst Mark Connors notes: “Managers offset market-related declines in exposure by ADDING selectively to longs and shorts as cited above. Decreases in Gross exposure (blue) for ELS funds approximates degree of market loss as managers defend longs with options in lieu of de-risking with long sales.”

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Credit Suisse client feedback confirms hedge funds did not de-risk

Moreover, feedback from clients also supported the idea that hedge funds were not a major contributing factor in the the big recent sell off. Connors points out: "Managers validated our assertion on positioning, stating their observations across other funds, prime brokers and traders suggest that hedge funds did NOT de-risk last week. Client discussion further leads us to believe that ELS and Event funds opportunistically added short exposure today, but left core longs in place for the most part."

Recent positioning changes by hedge funds

In terms of recent notable position changes (by strategy), the Credit Suisse report notes:

Event funds saw the largest increase in gross, adding index shorts against longs as deal spreads widen and prices of special situation and distressed names drop.


hedge-funds-cs2 hedgefunds-cs-3 hedge-funds-cs-3 hedge-funds-csIn a surprise, it turns out that Equity Long/Short funds added long exposure in the already overweight Internet Retail segment.


It looks like managers covered index shorts by close to 15% on Thursday, then went short again on Friday, boosting the same index option positions by more than 30% as the sell off continued unabated.

Also of note, "funds aggressively covered precious metals from -22% to flat last week as the probability of a Fed hike wanes and market risk increases." Of interest, energy shorts are very close to an all time low at -14%.

Finally, Macro/CTA funds have stuck with their bearish perspective, and decreased their net exposure during the week.

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